Deferred Land Payment schemes - Milton Keynes Devt. Corp.

Grotdog

I'm trying to establish whether there are many people out there who have been caught with what would now be illegal - a scheme that was marketed in the very early 1990's by Milton Keynes Development Corporation. This is now the HCA (Homes and Communities Agency). Homebuyers were lured into buying properties cheap - they were told they could pay for the house, and pay for the land 'some time in the future'. The sales gab at the time was that this future payment on the land would be the difference between the sale price and the mortgage, (the cost of the house) - so in the example here, my clients paid £51,000 for a house, priced at £78,000, the difference of £26,000 being deferred. They were told they HAD to use the Halifax Building Society, and Linda Mason solicitors - they had no choice. Linda Mason solicitors made no attempt to explain the significance or financial impact of the scheme in the future - I have reviewed all of the paperwork.

Some 24 years later my friends paid the mortgage off. They then enquired as to how they could pay off the land and were told they had to get the house valued - which they did - £210,000. A letter was then received from the HCA demanding payment of £71,400 being 34% of the open market value. They are now at retirement age and had carefully saved just enough to pay off the £26,000 they thought was needed - and now have not even the means or income to take out another mortgage for the same amount that has just taken them 24 years to pay off.

This is scandalous mis-selling - and needs to be brought to the attention of the public, and the media. What I am hoping (and dreading) is that a lot of other people have also been caught with this fraudulent trap - which is set to benefit the Government, through the HCA by what I suspect is many millions. It was apparently a common scam in Milton Keynes at the time, as many homes were in negative equity, and house sales hard to achieve at the time.

Does anyone have experience of this - and should I set up a Group of sorts to investigate?

Many thanks!

Pete Ward

davidmcn

So they paid for a 66% share of the property and still have a 66% share, with the ability to buy the remainder (or, presumably, sell and cash in their share?). On the face of it, this doesn't sound like that bad a deal?

agrinnall

You refer to the example buyers as both friends and clients, I realise they may be both but if they are clients in what capacity are you acting for them? If you are a solicitor then I don't really think you should need to be asking these questions, and if you are then my suggestion to your friends would be to ditch you and find someone who knows what they are doing. If you are not a solicitor then perhaps they should be looking to engage one to provide the expertise that you seem to be missing.

AnotherJoe

Is that what their contract says, that to buy the land its worked out as if its gone up in value at the same percentage rate as the house did?

That seems fair. After all, the alternative would be, the value of £26k was eroded by inflation and ended up being worthless if you waited long enough. Astoundingly naive for them to believe that, it would be as if this company effectively gave them it for free. I'd have thought there were words in the contract that explained this.

If you just did the inflation multiplier it would be around £50k now, but obviously houses have gone up more than inflation, 3x instead of 2x, hence the £78k.


Can you post what the contract wording says, exactly, about repaying the land.

Nobbie1967

So your 'clients' expected an interest free loan of £24k for 24 years! Good luck proving they were missold. Seems a very reasonable shared ownership scheme. As a standalone loan it would have an APR around 5% which is more than reasonable and probably less than the average mortgage rate over the term of their mortgage.

Grotdog

No they're just friends. I spend all day writing survey reports so clients slipped in. Solicitors - yep - money. These guys have none - they saved all their lives - one is now disabled and can't work - the other still has a part time job earning basic wage. These are not people who can just ring a solicitor and spend thousands. They carefully paid mortgage off by the one working very long hours - now she is worn out and can't do much herself. It's not a good place to be. I'm trying to see if any others have the same problem. I'm a building surveyor so see a lot of people with property issues - but this just stinks and I am trying to help - I'd hoped to perhaps get a bit more than 'see a lawyer' which is a fairly obvious option - but research is a good thing - which is why I'm here....

davidmcn

Grotdog wrote: »

No they're just friends. I spend all day writing survey reports so clients slipped in. Solicitors - yep - money. These guys have none - they saved all their lives - one is now disabled and can't work - the other still has a part time job earning basic wage. These are not people who can just ring a solicitor and spend thousands. They carefully paid mortgage off by the one working very long hours - now she is worn out and can't do much herself. It's not a good place to be. I'm trying to see if any others have the same problem. I'm a building surveyor so see a lot of people with property issues - but this just stinks and I am trying to help - I'd hoped to perhaps get a bit more than 'see a lawyer' which is a fairly obvious option - but research is a good thing - which is why I'm here....

I'm not sure what the problem is - they don't have to buy the 34%, they can just leave it as it is, surely? (rather different from the various threads here with people having to find the capital to repay interest-only mortgages).

Does the "paperwork" you've seen include the bad advice?

AdrianC

Grotdog wrote: »

The sales gab at the time was that this future payment on the land would be the difference between the sale price and the mortgage, (the cost of the house)

This made no sense until I read on - what you mean is the difference between the price they paid, and the full market value.

Shared ownership, in other words, which they're now trying to staircase from 2/3 ownership to 100% ownership.

so in the example here, my clients paid £51,000 for a house, priced at £78,000, the difference of £26,000 being deferred.

Some 24 years later my friends paid the mortgage off. They then enquired as to how they could pay off the land and were told they had to get the house valued - which they did - £210,000. A letter was then received from the HCA demanding payment of £71,400 being 34% of the open market value. They are now at retirement age and had carefully saved just enough to pay off the £26,000 they thought was needed - and now have not even the means or income to take out another mortgage for the same amount that has just taken them 24 years to pay off.

So, basically, they thought that the deferred amount would be the £ value, while the other party are saying it's the % value? The latter certainly makes much more sense - otherwise, as has been pointed out, it would be a decades-long interest-free loan. Inflation alone takes £26,000 in 1993 to £48,500k now - so the £71,500 they're being asked for is only an annualised increase of 1.6% above inflation.

What does the paperwork say...?

AnotherJoe

Grotdog wrote: »

No they're just friends. I spend all day writing survey reports so clients slipped in. Solicitors - yep - money. These guys have none - they saved all their lives - one is now disabled and can't work - the other still has a part time job earning basic wage. These are not people who can just ring a solicitor and spend thousands. They carefully paid mortgage off by the one working very long hours - now she is worn out and can't do much herself. It's not a good place to be.
Very sad but irrelevant as to whether the deal itself was good or bad.
I'm trying to see if any others have the same problem.
What problem exactly?
I'm a building surveyor so see a lot of people with property issues - but this just stinks
Why?
and I am trying to help -
I think you are making the problem worse, by raising their sense of feeling they've been conned

I'd hoped to perhaps get a bit more than 'see a lawyer' which is a fairly obvious option - but research is a good thing - which is why I'm here....

What actually "stinks"? Were they expecting an interest free loan for 25 years? Even without taking account of inflation over 25 years? Seriously? If so, do you really think thats a reasonable expectation?

What does the paperwork and most especially the contract you refer to state? I'm guessing its alluded to in there?

Their personal circumstances may be unfortunate and no doubt their sense of disappointment is keen, but that doesn't affect whether this was a bad deal or not.
As a result of it they've lived in a house for 25 years they couldn't otherwise have afforded since it was 2/3 of the price, and from what you've posted, though maybe you haven't stated this, they are under no obligation to pay it off either?

I think your sympathy for their disappointment has blinded you to the fact that this was a OK deal.

Grotdog wrote: »

I'm trying to establish whether there are many people out there who have been caught with what would now be illegal

p.s. when you say it would be illegal now, whats your basis for that?
It doesn't appear any different to the shared ownership schemes that many people buy into these days, except those people have to pay rent on the part they dont own whereas your friends didn't !!
So their deal was actually better than the part ownership schemes of today which operate otherwise in the same way, eg you pay back (if you want) the portion you didn't own at the same ratio as your house went up in price. Your house triples in price, so does the portion you dont own. As a surveyor I reckon you've seen a fair few of these SO houses even if you weren't ware they were.

So, why is it you think it would be illegal now?

Grotdog

The only correspondence I can find is a letter from Tay homes - with contract details, which states:

"we confirm the full purchase price of the property is £78k, reduced to £51,500 with the mkdc deferred land scheme. The land value must be repaid after 25 years or on the resale of the property, whichever is sooner."

After this, contract was signed and mortgage arranged - none of which even mention the deferred bit - they have now discovered that a couple of months after signing, a charge was registered at the land registry - which they never saw a copy of at the time, and had no knowledge of for the entire 25 years they have lived there.

I realise that it actually seems like a half decent scheme - as some have pointed out, the effective interest rate isn't too bad - which is good.

The issue here is that two people entered into a contract without having the implications explained to them, and worked hard to pay the mortgage knowing one of them was disabled, thinking that when it was paid off, they would have a 'balloon payment' of the land value to pay. If I deal with a financial advisor now, even trying to invest £2k involves pages of explanations and caveats - which I have to sign and agree that I've had explained, together with risk analysis. In this case, NOTHING was explained to them - the only thing they saw was a letter from Tay homes - and even this was addressed wrongly and referred to the wrong plot - with the wording above. They genuinely thought they could pay the difference in 25 years. Naive possibly - but these folks are not financial gurus - just simple hard working folks with more than their fair share of problems health wise...

Grotdog

davidmcn wrote: »

I'm not sure what the problem is - they don't have to buy the 34%, they can just leave it as it is, surely? (rather different from the various threads here with people having to find the capital to repay interest-only mortgages).

Does the "paperwork" you've seen include the bad advice?

Unfortunately they paid it off without realising that they were under no obligation to repay until the mortgage was paid out.. And no - no 'bad advice' - just no advice.....