Home buy - buying out!

Kendal120512

I'm new to posting but I'm always reading the threads on here. I havnt come across this issue ( correct me if I'm wrong) so I thought I would post to see if anyone else is in the same boat.

4 years ago we bought our first home under the home but sceme. We put down a 5% deposit , leant 30% from homebuy and the rest we took out on a mortgage.

Within 4 years our £169000 house has dropped to being worth £140000. This seemed a good time to buy out of homebuy sceme as 30% would be a lot cheaper now before house prices go up. After looking into this we have found that it's not a possibility so we looked into stair casing and remortgaging to lent 10% and pay that back to homebuy but nope! No lender will remortgage us to pay back the homebuy loan.

We were originally told that we should over pay on our mortgage and then remortgage to pay back the homebuy loan. We havnt over paid our mortgage because we got married and had our first baby and I moved to a lower paid job. Even if we did this we can't remortgage to pay back the homebuy loan so it's completly misleading. We are trapped! We need to pay them back in 16 years we have little disposable income at the moment and paying back around £51000 in 16 years by saving is going to be impossible.

Anybody in a similar position?

It's just a nightmare.

Seriously wish we hadn't bought.

Our next door neighbours are in a similar position and are selling up and moving bk in with their parents. Their house had been up for sale for ages but no ones bought.

Sorry if this is written badly . I'm trying to feed my 2 year old and get ready for work at the same time

Jo

jamesd

By having a baby you have increased your expenses. By moving to a lower paid job you have lowered your income. The reduced home value has increased the LTV of the mortgage and any replacement mortgage. Mortgage affordability tests mean that with a combination of lower income and higher expenses you may well not be able to remortgage at the moment and if you did the higher LTV might mean worse terms. But this doesn't have to be a permanent situation.

There are two general trends that are particularly relevant. Incomes tend to increase over time at about inflation plus one percent even without promotions or job changes, while the mortgage debt amount doesn't increase. This means that the cost of of overpaying as a percentage of income tends to fall over time. The second trend is that property prices tend to rise. This means that the value of the part of the property that you have in the mortgage tends to go up so it becomes easier to downsize even though all prices are going up. It also means that the amount of money it takes to buy out the Homebuy loan tends to go up faster than inflation because property prices tend to go up faster than inflation. That means that it is possible to get trapped with shared equity that you might never be able to afford to repay because it's value has increased faster than your income and ability to repay has grown. But that trap ends when the main mortgage ends because that frees up a lot of income. It can also be combated by increasing the mortgage term to free up income. The same mortgage term approach can help with affordability on getting a mortgage. Over time the capital repayments built into the mortgage also reduce the LTV.

The property value is down so if you were to sell now you'd take a substantial capital loss. You shouldn't do that. Instead at a minimum you should wait until values have recovered so you don't suffer that capital loss. Waiting can be frustrating but it beats taking a loss that you can avoid just by being patient for a while.

Say inflation runs at only 3% for 18 years and your pay doesn't change at all in real terms. Sixteen years from now you'd be getting 1.6 times the number value of your pay. Some of that is used for living expenses but a big chunk of it is mortgage payment money. If you were paying 30% of your income now, that same 30% would increase to 51% in today's money, helping to reduce the mortgage capital. It shows up as a gradually increasing ability to overpay if all you do is keep the mortgage payments as a percentage of your income the same. But really pay tends to go up by inflation plus 1% without promotions, so by 16 years from now it's more likely to be 87% more than it is now in money terms. That's how you see people today with nearly paid off mortgages that look cheap - they weren't originally, the debt just didn't increase with inflation. Nor will yours.

If you have spare money and a decent emergency fund you can help the numbers by investing via a stocks and shares ISA. The UK stock market tends to grow by more than property prices so it's a way to get ahead.

Sit tight, try not to get frustrated and wait for time and compound growth to do their things. They will. Meanwhile you have a live to live and a baby to sometimes enjoy. Both are worth doing without worrying about the things that time will fix - that baby isn't going to stop getting older, so enjoy the times now and later while they are happening.

kingstreet

The value of a newbuild drops immediately someone moves in. It will take time for the value to recover and buying a newbuild thinking you might have to sell in the short-term is not a good idea.

If the value and your present circumstances prevent remortgaging or overpaying, there's little you can do but wait until one, the other, or both changes.

Kendal120512

Thanks for all of the information . It gave us a lot to think about and also made me stop for a minute and realise that things arnt that bad! I really need to stop worrying about these things so much.

We ended up renewing our mortgage and we are going to start saving for another deposit for our next more suitable home.

Thanks guys

Ps sorry for the late response. I forgot my login details haha