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Home appreciation loans from the council seem to be a bad idea.

Home appreciation loans from the council seem to be a bad idea.
If you are thinking of borrowing money in this way for your home improvements please think very carefully before you sign up.

My grandson took out a  Home appreciation loan via his local Council 9 years ago. He borrowed £10.000
He was given to understand that if he sold his house he would have to pay the money back plus an average of 2% interest.
He recently sold his house and completed the sale today.

He was gob smacked to see that he had been charged £19,041.75 to repay the £10,000 he originally borrowed
It obviously works the same as an equity release loan. This was not explained properly when he borrowed the money.

Comments

  • [Deleted User]
    [Deleted User] Posts: 35,242 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 29 September 2021 at 3:42PM
    It seems he didn't read the terms correctly, as Home Appreciation Loans work exactly as the name suggests, with the repayment being based on the value of the home at sale.

    No one will offer an open-ended 2% loan with no repayments.

    It may not have been a wise decision to take out the loan, but perhaps he had no other option.
  • He couldn't afford the essential repairs at the time but didn't realise what he was signing up to. 
    Very sad as it has cost him more that 50% of the profit on his sale.
  • Jolly212 said:
    He couldn't afford the essential repairs at the time but didn't realise what he was signing up to. 
    Very sad as it has cost him more that 50% of the profit on his sale.
    Looking at a few different council websites for these it does seem very clear what you're signing up for.

    If the work was essential and couldn't afford the repairs it seems like he had little choice anyway.
  • Keep_pedalling
    Keep_pedalling Posts: 19,247 Forumite
    Ninth Anniversary 10,000 Posts Name Dropper Photogenic
    edited 30 September 2021 at 8:34AM
    These loans are for people on who cannot raise money from commercial lenders to make essential repairs / improvements. Had he not taken out the loan he would not have been able to carry out the work and he would have spent the last 9 years living in sub standard accommodation. 

    Had the work not been carried out the amount he sold the house for would have probable been lower than he got with the work, so the loan will have contributed to his profit, so it is not fare to say it has cost him half the profit.

    Does not seem such a bad idea to me.
  • Sounds like an excellent scheme to me.
    What would he have paid back if the house sold for no profit ?
  • kaMelo
    kaMelo Posts: 2,735 Forumite
    Fifth Anniversary 1,000 Posts Name Dropper
    Jolly212 said:
    He couldn't afford the essential repairs at the time but didn't realise what he was signing up to. 
    Very sad as it has cost him more that 50% of the profit on his sale.
    He got a 50% share of profits from using someone else's money. That sounds like a pretty good scheme to me.
  • theoretica
    theoretica Posts: 12,685 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    edited 2 October 2021 at 11:09AM
    So he has paid back about 7% annual interest and no monthly payments.  Going a commercial loan route could easily have cost that, or more.
    But a banker, engaged at enormous expense,
    Had the whole of their cash in his care.
    Lewis Carroll
  • mjm3346
    mjm3346 Posts: 47,126 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    edited 2 October 2021 at 12:22PM
    Sounds like an excellent scheme to me.
    What would he have paid back if the house sold for no profit ?
    From one council - seems a good deal as they have no set up fees either


    When you repay the loan, we’ll carry out a new valuation of your home.
    This valuation will be used to work out the amount of loan you will pay
    back. Normally, the amount you pay back will be the lower of
    • the percentage we worked out when you first took the loan, but of
    the new value of your home.
    • The original loan amount plus a fixed limit by which the repayment
    value of your loan grows. This limit is to protect you against
    exceptional increases in property prices.
    If your property falls in value you will not be asked to pay back more
    than you borrowed from us


    If the full repayment will cause you extreme financial problems we may
    reduce this amount.
    We have a no negative equity guarantee. This means that you or your
    beneficiaries will not have to repay more than your home is worth.

  • molerat
    molerat Posts: 33,492 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    All the valuations used seem to work in favour of the person taking out the loan, excellent scheme making essential repairs affordable.
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