A right conundrum, input please

moneymattersav

Hello all the experts,

Sorry a bit long, but quite convoluted.....expert opinion sought please.

I bought a new build under an offer where the builder allowed me to defer 25%of the payment for 15 years. This was in 2006, so I have until 2021 to pay the amount off. This is not a secured loan, so I don't have to pay any monthly payments on this 25% deferred amount.(This shows up as a second charge on the house)
The property market was on the up then and the builder just wanted 25% of the market value after 15 years or of the selling price if I sold earlier.

The cost price of the house was 150K
So mortgage for 75% = 112.5K
Deferred payment amount = 37.5K

I have 100K outstanding on the mortgage part as of today.
Due to the property downturn builder is offering a 25% discount on the deferred amount. So I can get away with 28K instead of 37.5K if I pay now.

I will pay around £560 monthly on a 3.79% rate for the remaining 23 years of the mortgage term. Or thereabouts.

I can't shop around much for mortgage because most banks do not take on a mortgage with 2nd charge, even though it is deferred and I can show savings.....

I have 2 options

a) I can somehow manage the 28K to finish off the second charge.
b) I can pay the 28K to the bank(if they allow that is) and reduce my capital and hence the interest and monthly payment.


Advantage of a) is that I get rid of the 2nd charge and can shop around for competitive rates. Also it is easier to handle going forward with builder out of the picture.

Disadvantage I guess is that I am paying someone who I dont really have to pay for another 8 years. Time value of money might come into play here.

Advantage of b) is that my monthly payments will go down significantly. But disadvantage is that I won't get to shop around due to the 2nd charge.

My questions are

1. Which of the options might be better in the long term and why ?
2. If b) then are there any banks that I shop around with who will take on a 2nd charge deal ?


Any insights much appreciated.
Thanks.

kingstreet

This is shared equity, for your information in looking for potential lenders/products.

To remortgage with the second charge in place, you first need to check if the builder is prepared to provide a deed of postponement. When you repay the first charge, the second charge is promoted to first and your new mortgage would then be a second charge, which mortgage lenders won't accept - not on their prime residential products anyway.

The deed of postponement is the builder's acceptance that its second charge will remain a second charge. You need to ask them if they would grant you one.

Once you have that, you can consider remortgaging to a new lender which offers remortgage products on shared equity.

If you remortgage for enough to repay the second charge, the postponement is no longer required. This means you can look at "normal" products with any lender. You don't say what you think the value of the property is now, so there's no way to establish the loan to value and the costs involved. Before you can do anything else, you need to establish that.

ValHaller

Paying 75% now or 100% in 8 years time equates to an interest rate of 3.7%, so you are better off by paying down the mortgage. That is if you have £28000 to hand. If you have to borrow it, you will need a borrowing rate less than 3.79% to make it worth paying down the mortgage and less than 3.7% to make it worth paying off the builder.

Now, as to shopping around, you don't need to pay off the builder in order to start. If you can get a new mortgage for £128,000 you can pay off the builder and the current mortgage. Or if you have some savings, you don't need to borrow the full £128.000

getmore4less

you seem to have made up non exisitent options or I don't understand what you are saying.

You need to find £28k and pay off the builder and remove the second charge.

You can do this by extending with the current lender(and/or cash if you have it)

Look for another mortgage for £28k more(less if you have cash) and pay of both current charges.

You should have no restriction on lender.

The key : is the £28k a good investment now

whats the place worth

can you afford another £28k on the mortgage/use savings.

can you negotiate a bigger discount or maybe a payment plan.

How long is this offer on the table(the builder wants £28k now).

you have a hard deadline and an unknown amount to pay in the future(2021).



Ask around others that got the same deal and see if any of them have tried to negotiate a bigger discount.

getmore4less

ValHaller wrote: »

Paying 75% now or 100% in 8 years time equates to an interest rate of 3.7%,

That's not the deal on the table, in 8 yeras time it is 25% of the value of the property which could be different to the 100% now.

Also the 25% discount is on the original share not the actual 25% of current value.

ValHaller

getmore4less wrote: »

That's not the deal on the table, in 8 yeras time it is 25% of the value of the property which could be different to the 100% now.

Also the 25% discount is on the original share not the actual 25% of current value.

It is the deal on the table. Pay 75% of £37500 now or 100% of £37500 later. Sorry if how I expressed it is not quite obvious, but this is the correct way to express it to work out an equivalent interest rate.

moneymattersav

Wow, thank you all. There are some stuff there I never thought about, good this I came here then

I don't have to borrow the £28K. I have it. I can pay from savings
So I don't need another mortgage or borrow more to pay off the second charge.

Given this, would the deed of postponement matter now ?
Hopefully the builder will just say they have no charge on the property(not sure if there is a formal terminology for this).

The value of the property should be around135K. :-((

So the first option that came to my mind was to just pay the builder off, and shop around for a mortgage with a LTV of < 75%.

But I was wondering if that is really the best option for the longer term.
e.g. Would I save more if I use the 28K to make a lumpsum repayment on my mortgage with the bank.?
Or would it make sense to invest the 28K somewhere ?

Just wanted to know if I am missing something clever which obviously you guys won't

And yes, it is 75% of £37500 now, or 25% of market value in year 2021.

Thanks again all.

TrickyDicky101

I think it would be a good idea to investigate whether you can get a further discount from the builder's opening offer of £28k - they probably made this offer because they need the cash now. Go back to them and say you don't think in the current market this makes sense, but you could offer them £XX. You have nothing to lose.

kingstreet

If you can pay off the second charge, it will be lifted, leaving you able to remortgage elsewhere with no need for a deed of postponement.

getmore4less

ValHaller wrote: »

It is the deal on the table. Pay 75% of £37500 now or 100% of £37500 later. Sorry if how I expressed it is not quite obvious, but this is the correct way to express it to work out an equivalent interest rate.

moneymattersav wrote: »

And yes, it is 75% of £37500 now, or 25% of market value in year 2021.

Thanks again all.

But is the deal not 25% of value at any time?
or is it ONLY on sale(ie. you can't buy out at any time) or after 15years.

I see the real discount is on 25% of current value not the £37.5k it was at start up.
It will only ever be £37500 again if the value is the same as purchase

ValHaller

moneymattersav wrote: »

And yes, it is 75% of £37500 now, or 25% of market value in year 2021.

Ah! First off you said 25% of the payment was deferred - which means £37500 in 2021. If you actually mean that the purchase of 25% is deferred to 2021 at 2021 values, it's a different kettle of fish.