Innovative equity finance mortgage

housewanted44

I am back with more questions, looking deeper into purchasing our first home and options available to us.

I have come across some new builds and the company providing an ' Innovative equity finance mortgage'

I was aiming for a 100 000 house with a 10 - 15% deposit.

But with this scheme A 130 000 house would be possible, The developer would be putting down a 20% interest free loan that would count as part of the deposit, and we would be putting down about 5% around £6000 so our mortgage repayment would stand at £600 a month.

This seems brilliant to me and I will be following this up at the same time of looking at my original old school plan. Knowing that the company have developed lots of building plots already, and have plans for more I feel quite confident with this going forward.

Does anyone know of any negatives to this as it seems to me exactly what the government should be doing in getting us all buying properties again!

ACG

I think you might struggle to find a mortgage. Its probably limited to a few different lenders, so you may find your repayments are higher than you are thinking.

I dont really know enough about these schemes though so this is just my limited knowledge on it.

grey_gym_sock

for how long is the loan interest-free? would you have the money to pay it off when it stops being interest-free?

and is it really a loan (of so many GBP), or a 20% share of the value of the house (going up or down if the house price changes)?

if it's really a loan, might the builder be overvaluing the house?

Jimbo1976

As ACG and GGS have explained it is not that simple

Firstly lenders don't really like lending to people with just a 5% deposit. Whilst the developer is providing a 20% deposit via a loan, then that will need to be repaid at some stage.

New build houses are a bit like marmite, some borrowers love them (oohhh its all new!) and others hate them (small boxy, cramped, no parking etc). When you buy a new build house there is a "new build premium" which disappears on your first dy of ownership, so your deposit evaporates.

The interesting thing about new build is that developers are typically very keen on selling them quickly, especially when they have targets at the end of the year, half year, and quarter.

It is not unheard of for someone who is ready to buy quickly to snap up one of the final units for a lot less than everyone else has paid. If you are lucky and do some research on local developments and see what is selling and what isn't, you may be able to snap up a bargain.

Gary123456790

The builders love giving loans as deposits because it keeps the purchase price (artificially) propped up, and can make it easier to buy.

To be honest if you need the builder to give you a loan on top of your mortgage then it sounds like you cant really afford it, and with such a small deposit you'll probably be in negative equity straight away.

Unless you're sure your salary will rise in the future, I would be wary.

Gary.