Barratt Homes 'Dream Start' Scheme

becksy_99

Hi all, I find myself in a financial pickle - all of my own doing, and yes it was all very stupid - but I wonder what everyone thinks about my options moving forward?

In 2008 I bought a new build flat with Barratt homes for £132,000. Their contribution was a deposit loan of 25% of the purchase price (£33,000) and I took out an interest only mortgage for £99,000 with Santander. I was a teacher on the starting salary of £25,000 at the time.

Fast forward 8 years and the flat is now worth around £90,000-£95,000 (I haven't had it valued yet but other similar properties are currently on the market in this range of values). I have continued only paying the interest on the mortgage. I saved throughout the time I lived in the property, but I used these savings as a deposit on a property I have bought with my fiance. We jointly pay the mortgage on this second property. I have a long term tenant living in the flat and the income from this currently covers 98% of the outgoings on the property (including ground rent and service charges etc).

The ten year repayment term with Barratts will be up at the start of 2018 so I am now considering my options and how best to move through this situation. I have previously made offers to Barratts but they were insistent that I still owed £33,000 and as I had not had any formal valuation done on the property I had no grounds to differ. However, if the current market values are anything to go by, I owe them around £24,000. I have made them offers in the past of £10,000 and £15,000 up front (financed by a family member) which they have declined.

I now earn £51,000 per annum so am in a much better financial situation. However, I am thinking the priority is the Barratts loan and not the mortgage? I am in a position to overpay the mortgage to start to pay off the capital (as in an ideal world I would like to sell the flat as soon as I am financially able to). However, would it be more ideal to save like crazy now to pay the loan off and ignore the capital on the mortgage for a bit longer?

Anyones thoughts appreciated - and yes, I know many decisions made in this process haven't been the best!

thanks, B.

Jenniefour

I would take a look at the original paperwork with Barratts as I'm certain you'll find that although they were offering to lend the 25% deposit you're tied in to repaying what that 25% was then - £33k. No reason why they should reduce it - would you have been willing to pay them more if the value of the property had increased? Best focus on getting that money together rather than overpay your mortgage at this point.

Thrugelmir

becksy_99 wrote: »

However, would it be more ideal to save like crazy now to pay the loan off and ignore the capital on the mortgage for a bit longer?

Are you a maths teacher? As it's number crunching time. If you pay down the capital balance. Then you'll incur less interest. Which should increase your taxable profit. Next tax year the rules start to change and you'll find that less interest is offsetable against your income, as a higher rate tax payer.

A further factor is the rate of interest that you are paying on your mortgage. Can you obtain a better (after tax ) rate saving the money instead.

The alternative is to release equity from the joint property. Enabling you settle the debt owed to Barretts along with selling the property in the process. If this option is considered. Then overpaying the mortgage on this property is an alternative option.

Time to set your pupils some homework.

becksy_99

Hi Jenniefour, thanks for the advice, that is what I am going to do I think. Save as much as I can as quickly as I can to focus on repaying the loan. I have checked the T&C's of the Dream Start scheme and it is quite clear that I will owe them 25% of the current market value of the property (that's the exact wording lifted from the paperwork) - not the original purchase price. Two independent valuations are required and they take the average of theirs and yours. The valuation is only based on the market value of the original property, so it does not take into account the impact of any improvements you may have made (not that that is possible with a flat really but I suppose with a house you may have had an extension or a conservatory etc). I am absolutely certain the property will be worth less than £100k by the time the agreement matures so to speak. If only I could go back to 2007 and yell at my former self!!!

becksy_99

Thurgelmir - I AM a maths teacher! Haha. I didn't know about the tax thing, that's interesting, thanks for the info. Releasing equity from the jointly owned property is an option later down the line. We definitely have equity in this property, but that is my personal last resort as the financial pickle I am in is something I got myself into before I met my fiance. We will be married soon and so of course the debt is a shared concern and its good to know I will have that as an option. I don't like to put my partner in that situation, but the only reason I left the original property and plumped my savings into the deposit of the joint one was because he didn't want to live in that flat and also wanted to get on the property ladder himself, so it's all connected really! Mission save save save is on! Thanks for your advice.

BlueIsTheColour

Hi, the title of your thread brought back horrible memories for me. I too bought a flat on this scheme but in 2005, cost £162k, 25% 'loan' from Barratts, (should read price over-inflation not loan) but yes I was stupid then...

Value dropped to £100k at one point, partner that I'd bought it with did a bunk and I was stuck, wrote to Barratts explaining situation and pleading with them for help, think this was 2010, to my absolute amazement, they agreed to write off their 25% and remove the second charge.

Got a solicitor to do the paperwork, took Barratts months to respond and sort but eventually they did and charge was removed.

Fast forward to 2015, sold flat for £119k which just cleared the mortgage so God knows what I'd have done had they not written their bit off as I'd have owed them about £27k...

Hope you get it resolved.

lobley1986

sorry to drag up and old thread, has anyone reached the end of the 10 year period and not been able to pay the equity loan back, mine is up in 18 months and my best bet is to over pay mortgage to then incorporate the loan, ours has been sold onto a company called hamptons.
thanks in advance

Rybo

I was originally offered a discounted figure to repay the second charge by Barratt and this was what I was working towards. Mine is due to be finalised this month and when I came to settle the amount I found out the loan book had been sold onto a company called Hamptons. They will have purchased the load for a small amount and will be hell bent on trying to recover every penny possible. I did question the agreement which was originally made with BDW. I have consulted a solicitor who says it is legally binding. The first repayment figure from Hamptons was 25% of the original purchase price. Which was way higher than what the house is worth. I was under the impresssion it was 25% of the current open market value upon sale. When I checked the agreement it appeared Hamptons were correct. However, this was definitely NOT how it was sold by Barrat homes and definitely not pointed out to me by my solicitor. I challenged this and got Barratt involved who contacted Hamptons and funnily enough they excepted 25% of the current market value which was significantly less. When speaking with Barratt my complaint was aimed at being mis-sold the scheme I picked up through conversations that around that time (2008) some contracts were saying the final figure for the outstanding 25% would be at the ‘open market value’ and some would be at the open market value, OR the original purchase price, whichever is the higher! Barratts were very shady about this and strange that Hamptons shaved several grand off immediately. I will never buy a house on a scheme like this again or advise any friends or family to. Or buy a new build house for that matter. lesson learnt!!! I’m hoping this will be the next PPI. Good luck ��

Rybo

Having read this thread again it appears Becky_99 has a differently worded dreamstart contract than mine and both are from 2007! Can this right.? Did BDW staff know what they were selling ?

Sparta77

Hi there. Do you know what reason they allowed the loan to be written off for?