Mortgage for an 'Affordable Housing Scheme'?

[EmmaB]

We are looking into buying a property that is in the scheme 'Affordable housing scheme'... its not shared ownership or anything like that.

It's where the property is sold at 75% of the market price to help first time buyers... theres no additional charges like rent... and nobody owns the other % if that makes sense.

We're off for mortgage advice on Saturday but just wanted to put my mind at rest now really. So my question is...

Will the mortgage for this property just be a normal mortgage? Or are there specific mortgages for the discounted sale home ownership scheme?

I know there is for shared ownership ... but this scheme is not like that?

cheers

[scoobydooby]

It sounds as though the developers would have a 'second charge' on your property. You buy the house for, say �100.000. You mortgage for �75,000 but you don't pay any rent for the remaining �25,000 and the developers do not own it. Instead, they have a second charge on your property for the �25,000. In simple terms, the developers 'lend' you the �25,000 but you don't have to pay it back in instalments. What happens usually, is that they'll ask you to come up with the 25% in 2 years (either �25,000 or 25%, whichever is the greater), or in 5 years (either �25,000 or 25% whichever is the greater - plus interest). This may seem like a good idea but WILL NOT be if house prices fall. Back in 1999, we purchased a 'shared purchase plan' house for �52,950 (god I wish they were that cheap now) and opted for the 2 year deal. Within 8 months, our house had fallen in price and, in fact, when we were due to pay back the 25 % (approx �13,000), the house was worth �39,000 !!! There's no way we could raise that money but thanks to a few insurance policies (which we would have rather kept going) we managed! Think carefully!

[scoobydooby]

Furthermore.........being a bit money obsessed - I thought of the worst possible scenario (before buying the house) and put it to my solicitor acting for the sale of the house. He told me 'don't be so silly, house prices won't fall'.........to this day, I wish I'd had a tape recorder in my pocket!

It's a way of getting on the property ladder but just be very careful and get everything in writing. If you get any advice for professionals, make sure it's in writing!!!

On the plus side (my experience has made me negative and I'm sorry) if house prices continue to rise, you'll be fine.

[annie0000]

It may not necessarily be anything like the scheme above, but you do need to check out what the deal is. I know that they government and councils are trying to get people on the property ladder and builders have to agree to sell some houses at below market value to first time buyers and in return the buider gets incentives on the land purchase or planning etc. So it may be just what it seems, the opportunity to purchase a house at 75% of its market value. In terms of mortgages, I would imagine that this puts you in a good position as you will only be borrowing a maximum of 75% of the houses value. I would imagine that there will be conditions attached to the sale in that you may have to keep the property for a certain time period, or repay the 25% when you sell. Make sure you read the small print, but I don't think that there will be any special types of mortgage that are required.

[EmmaB]

Thanks for your replies guys!

Scooby - what happened to u sounds awful! I know the scheme u are on about ... fortunately this is not a scheme like that!

It is as simple as Annie says ... its 'another' Government initiative for first time buyers... there are no additional charges. You pay 75% of the house value and when u come to sell u put it up at 75% of its value... any profit made u get 75%. It will always remain on the scheme... u can't buy the other 25% back as no one owns it. It's a house that will always remain at 75% of the market value for future first time buyers.

Cheers!

[scoobydooby]

So, if you put it on the market at 75% of its value in a few years time but you only get 75% of its profit, who gets the other 25%? From what you're saying, if the house was currently worth �100,000 and you bought for �75,000 but then sold in a few years at a total market value of �120,000 (�90,000 if selling at 75%) - your profit would be �15,000 but you'd only get 75% of that?? It sounds as though the government have simply 'capped' the price of some properties for the benefit of first time buyers (using 75% of current market for likewise properties for comparison). If this is the case, go for it - you've nothing to lose. Just watch out for those 'second charge' words on the paperwork - it won't do you any harm to be cautious. Good luck :o)

[buildersmate]

I'm with you, Scooby. Who gets the other 25%? It is either the Government, I guess, or the next 1st time buyer. If no issue if the Government took the 25% at that point in time and I've no issue with that - they are resourcing the land for the public sector 'land bank' at less than the price the market would be willing to pay. But I wonder how the scheme works if the next 1st time buyer gets the benefit? Somehow the market has to value the house in X years time when EmmaB decides to sell - then some 1st time buyer comes along and agrees to pay 75% of that. Sounds an administrative nightmare to me.

[scoobydooby]

http://www.communities.gov.uk/index.asp?id=116 2819

I think this might help.

[buildersmate]

OK that makes absolute sense. Any upside in value has to be borner by the homeowner when they increase their stake over 75%. Any downside (if market prices collapse or remain static) is borner by the other equity stakeholders - being Government at 12.5% and mortgage provider at 12.5%. Sounds good way to help 1st time buyers get started.

[EmmaB]

Cheers guys... since been to the mortgage advisor ... and we can borrow considerably more than we thought so we can enter the normal market now! yay!

[scoobydooby]

Good - it's always better not to take advantage of these schemes if you can afford to buy for full market value (you get to keep all the future profit). Glad it's going well for you.

[solesurvivor]

You might want to do a research on the company offering that mortgage scheme to make sure that you are not getting duped. There are certain cases where homebuyers are assured of fixed-rate mortgages but when it's time to close on the property, the figures are different and people concerned will talk you into signing the deal under false hopes. I'm sure you don't want to fall prey to that.
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