NewBuy scheme - future adverse LTV?

jamesml

Hi all

My OH and I are FTB's looking to buy a new build on the NewBuy scheme.

My hesitation is around the fact that we would be putting a low deposit down on a property which everyone tells us will fall in value for the first few years. I was initially thinking about getting a 2 year fixed mortgage, and then consider whether we go onto a tracker/variable or fix again.

If the property falls in value in the first 2 years, what would happen to our options for a new product in 2 years time? Despite paying £42k in mortgage payments over the next 2 years, we would only chip off £5.5k in actual capital - a 10% fall in the value of the property would mean we have a LTV of around 104% in 2 years time, which is not exactly ideal. Would the mortgage provider even consider this when the fixed deal ends? I assume not, if we stay with the same provider. What if we were to change provider - would they look to value the property again? If so, presumably we would struggle to get a new deal at a negative equity position?

I'm assuming its fairly likely we will see a fall in the value - whilst the market may increase in 2 years we have still bought a new build, and there are obviously a fair amount of other new builds in the same place, which will pull the price down if people start deciding to sell in 2/3/4 years time.

If anyone can offer any advice I would really appreciate it! I am questioning whether its wise to go for a new build if it will hinder us financially!

Thanks

James

bigadaj

It's good that you are considering this, particularly before proceeding.

All new builds contain a new buy premium so as soon as it is secondhand it will be worth less if there are similar new houses in the area.

It is normally better to buy an older house, particularly if you get a good price and can do a bit of work on it, as this should increase the value.

Personally a five year mortgage would make more sense, as interest rates are unlikely to move dramatically up for several years. Also unless you hit the brief periods of a booming Market then the costs of moving should mean that you should be happy in your house for a minimum of five years.

Check out what is available in the area of existing housing compared to new build, unfortunately the only solution really is to keep saving for a larger deposit.

jamesml

Thanks for your reply.

I don't think we could quite afford to save a 10% deposit, SDLT, and fees within our timeframe (June absolute latest) for the new build (£320k) - plus chances are the house we are looking at will have gone long before.

We could however afford to go for an older property (£250k) on this basis - we jus haven't found one we like enough to go for.

In terms of other properties in the area, they are more expensive, although not really comparable in terms of floor space, layout, finish etc.

Just to confirm, what is the process when renewing a mortgage deal? If you renew with your existing provider, do they revalue the property? What if you change providers?

csq

So what have you decided James?

PM me if you wish. I'm in a similar situation.