CONNECT MORTGAGES - 'Borrow an extra 20% of your property's value with no repayments'

Dragon_of_Consumer_Power

I just had an email from Connect Mortgages, a mortgage company that I not heard of previously. Within the email was the following:

Connect has access to an excellent new product which enables you to borrow up to 20% of your property's value, with nothing to pay until the end of the loan or when the property is sold.

How it works

The provider lends you 20% of your property's value which can run
alongside your current mortgage if you already have one. You pay no monthly repayments whatsoever. No capital. No interest. Nothing throughout the whole term, even if it's 30 years. Instead, you pay the provider back only at the end of the term or when you sell your home, along with the share of any increase in its value since you took out the equity loan. If the property doesn't rise in value then you only pay back what you have borrowed.

Key benefits include:

- More money in your pocket.
- Less exposure to a rise in interest rates.
- Potential to secure a cheaper mortgage due to reduced borrowing with your lender.
- Options are available for both residential and buy to let properties.

For more information please call a member of our team on 01708 676 133.

What do people think of this? To me, it sounds too good to be true. I do have a BTL property that I would be interested in using in such an arrangement, if credible. I imagine the % of the hypothetical increase that they would take when I sell my property would be greater than the 20% loan outlay in the beginning.

Does anyone here have experience of Connect Mortgages or of a similar product?

Thanks in advance for your help.

mathsmaster

Dragon_of_Consumer_Power wrote: »

I just had an email from Connect Mortgages, a mortgage company that I not heard of previously. Within the email was the following:

Connect has access to an excellent new product which enables you to borrow up to 20% of your property's value, with nothing to pay until the end of the loan or when the property is sold.

How it works

The provider lends you 20% of your property's value which can run
alongside your current mortgage if you already have one. You pay no monthly repayments whatsoever. No capital. No interest. Nothing throughout the whole term, even if it's 30 years. Instead, you pay the provider back only at the end of the term or when you sell your home, along with the share of any increase in its value since you took out the equity loan. If the property doesn't rise in value then you only pay back what you have borrowed.

Key benefits include:

- More money in your pocket.
- Less exposure to a rise in interest rates.
- Potential to secure a cheaper mortgage due to reduced borrowing with your lender.
- Options are available for both residential and buy to let properties.

For more information please call a member of our team on 01708 676 133.

What do people think of this? To me, it sounds too good to be true. I do have a BTL property that I would be interested in using in such an arrangement, if credible. I imagine the % of the hypothetical increase that they would take when I sell my property would be greater than the 20% loan outlay in the beginning.

Does anyone here have experience of Connect Mortgages or of a similar product?

Thanks in advance for your help.

My reading of this bit is they want all of the increase, or a very large percentage of it. I doubt it will be the same percentage as the loan. Seem to remember Barclays appearing on Watchdog a few years ago as they had sold similar products to older people who now discovered that their £30,000 loan was going to cost them £120,000 because of the huge rise in house prices.

Dragon_of_Consumer_Power

It seems that the cut is 40%. It still sounds too good to be true, though: what would you advise? I would like some liquidity to pay off my debts (circa £13.5k), so this would certainly fit the bill if I sought, say, 10% of the £172,500 house value.

Dragon_of_Consumer_Power

(I have no plans to sell the house in the medium to long term as it's a BLT property, generating good monthly income.)

ACG

These types of mortgages are generally for older people, wanting to release their equity in order to live a better life. I would generally say its for people with no kids.

Think carefully before doing it. £13k may mean you lose 40% of the value of your home.

If your struggling i would personally be looking at alternatives, a loan maybe or selling up and possibly. I dont know the answer but i think its unlikely to be this.

Dragon_of_Consumer_Power

Thanks for your post. From my understanding (I will investigate further), they take 40% of the proportion of the original loan: so at a maximum, 40% of 20%.

If the property is worth £175,000 today and, for argument's sake, it rises to £350,000 in 20 years' time, then they would seek to recoup 40% of 20% of the initial £175,000, plus the original loan amount. That would be £28,000 profit plus £35,000 of loan repayment: a total of £63,000.

In other words, I would be paying an interest amount of £28,000 in 20 years' time to receive £35,000 in equity today. However, another consideration - a plus point - is that while I may have to fork out £63,000 when the house is sold, if the value has gone up to £350,000, I will have made £112,000 in profit myself.

TrickyDicky101

Dragon_of_Consumer_Power wrote: »

Thanks for your post. From my understanding (I will investigate further), they take 40% of the proportion of the original loan: so at a maximum, 40% of 20%.

If the property is worth £175,000 today and, for argument's sake, it rises to £350,000 in 20 years' time, then they would seek to recoup 40% of 20% of the initial £175,000, plus the original loan amount. That would be £28,000 profit plus £35,000 of loan repayment: a total of £63,000.

In other words, I would be paying an interest amount of £28,000 in 20 years' time to receive £35,000 in equity today. However, another consideration - a plus point - is that while I may have to fork out £63,000 when the house is sold, if the value has gone up to £350,000, I will have made £112,000 in profit myself.

I would check the terms very carefully (especially when and exactly how much needs to be repaid). The financing of these types of mortgage only work for the lender if the risk/reward profile is highly skewed towards reward (as there is no performance on the loan - ie interim interest payments - and potentially a lengthy wait before repayment). This makes it likely to be more costly in the end for you as the borrower than alternative forms of finance.

Dragon_of_Consumer_Power

I will, thank you. I would certainly do a lot of research and scrutiny of the small print before committing to anything. Another option is a top-up mortgage from my current lender, taking my LTV ratio from 65.2% to 75%.

Dragon_of_Consumer_Power

Has anyone else had experience of a similar product?

hillcats

Not that I'm interested in any way...but I read that post differently...
(Tell me if I'm missing something here)

They lend you 20% of the current value now, then want it returned along with the share of any increase in its value (of which the % is not stipulated here) but is this 20% of the total sale value in return when sold and if less then just the original amount is returned ?!

Let_Us_See

Dragon_of_Consumer_Power wrote: »

You pay no monthly repayments whatsoever. No capital. No interest. Nothing throughout the whole term, even if it's 30 years. Instead, you pay the provider back only at the end of the term or when you sell your home, along with the share of any increase in its value since you took out the equity loan. If the property doesn't rise in value then you only pay back what you have borrowed.

Instead, you pay the provider back only at the end of the term or when you sell your home, along with the share of any increase in its value since you took out the equity loan.

I think you have overlooked the original loan value plus the monthly interest payments which would have been compounded over the whole term of the loan. Basically, you have described a lifetime mortgage, with the disadvantage that you also have to pay a share of any increased valuation. The lender is certainly in a "win win" situation.