decided to visit a nearby housing development today, wife to be and myself are looking to get on the property ladder at some point, but deposit is an issue,

ideally we want something older to add value too, but looking at the figures and the governments new build scheme is making it attractive, the idea of the scheme is the government help you out to make up a 25% deposit and after 5 yrs your earning more and can afford to repay it,

anyway this is a hypothetical situation:

we currently rent 2 bed house for £x a month,
house at the development is 4 bed and huge (it’s twice the price of the rented house),
we would need 5% deposit to buy,
government give out 20% interest free loan for 5 yrs with no repayments for 5 yrs,
bit of googling I find an interest only mortgage fixed for 5 yrs for £x (same as current rent)

so buy house, live in it for 5yrs, fixed price per month, if after 5 yrs wages haven’t gone up enough, walk away, all we lose is deposit which over 5 yrs isn’t much and would be the similar to any rent increase on current property,

boom and bust baby,

Buy and Sell costs plus you can’t just walk-away without impacting your credit history.

Not a good plan to think you can just walk away. Buy it and get a lodger.

What are you saying…the loan is only repayable from year 6 if you are earning over a certain amount, if not you can move out and its waived?

What happens with negative equity? New builds are more likely to drop in value and be worth considerably less than when you bought it brand new.

And as br says, stamp duty, solicitors fees and searches are a cost.

Sounds like a daft idea. Buy something you can properly afford. Gotta be sensible when it comes to the roof over your head

Read the small print… I’ve a friend looking at this – it’s interest rate was linked to RPI+1.75% for the ‘free’ deposit

Worked out as a lot more money, which they’d been told was 0%

What are you saying…the loan is only repayable from year 6 if you are earning over a certain amount, if not you can move out and its waived?

no, the government “expect” your earning more and can afford it, as it was put to me,

What happens with negative equity? New builds are more likely to drop in value and be worth considerably less than when you bought it brand new.

yep, same house is for sale by occupier elsewhere on the development, asking price is the same but factor in negotiations and can get it for less,

And as br says, stamp duty, solicitors fees and searches are a cost.

fair point, I would hope with a new development by a big developer some of these might be “absorbed” somewhere 😉

it’s interest rate was linked to RPI+1.75% for the ‘free’ deposit

from day one or when you start paying it back? like student loan then?

Sounds like a daft idea. Buy something you can properly afford. Gotta be sensible when it comes to the roof over your head

in my mind, I would just be renting from the bank/government instead of a private landlord, just getting twice the property for the money,

someone would be happy to rent me a property again if I walked away at the end, no?

Go and buy a 2 bed house instead.
That’s what everyone used to do and it worked very well. After a number of years they would go out and buy something bigger.

You’re assuming you’ll get a mortgage. You seem to have no plans to make any provision for capital repayment, even if you think you will walk away in 5 years.

If you ‘walk away’, the building society will likely shift it as an auction and you will owe the difference between what you owe and what they got for it.

You will also need to factor in insurance costs (building cover at least), general home owning costs and an undoubted big hike in council tax.

If you sell after 5 years to ‘downsize’ you will need to factor in moving costs, which are large.

Highly unlikely you’ll come out after 5 years with a huge wad of cash, more likely you’ll owe.

Do what Samuri said

So how would you “walk away” from the mortgage? Sell the house? And what if you’re in negative equity?

This is precisely why the economy and the housing market is a busted flush – either people simply cannot do the sums and get fooled into something that doesn’t add up, or they know that it doesn’t add up but think that they can make a killing anyway.

House prices are far too high – we need to get back to buying a house as a place to live and forget the (questionable) money making aspect of things.

Go and buy a 2 bed house instead.

thing is all the 2 bed houses on the development are affordable homes, bought by housing associations and given out to people receiving full housing benefit,

This is precisely why the economy and the housing market is a busted flush

facilitated by a desperate government

http://www.rightmove.co.uk/property-for-sale/property-41790182.html

THREE bedrooms, fifty grand and Worsley is alright. Granted, it needs a bit of work on it and you’ll need to get rid of the bloodstained carpet in the living room.

do you need a 4 bed?
Taken me 13 years of shrewd investment on the property ladder and damn hard work to be able to just about afford a 4 bed
….of course I have every intention of paying my mortgage without living beyond my means

do you need a 4 bed?
Taken me 13 years of shrewd investment on the property ladder and damn hard work to be able to just about afford a 4 bed
Id love it to be a new build not 12 years old and needing rather a lot of cosmetic work
….of course I have every intention of paying my mortgage without living beyond my means

Are you sure you can even get an interest only mtg? I work in the industry & all the lenders I know have stopped offering new IO loans. Also don’t buy a new house = small windows letting in less light, paper thin walls & a postage stamp sized garden.

House prices are likely to rise because of these government loans making it easier to buy – more buyers – prices go up.

Are you sure you can even get an interest only mtg? I work in the industry & all the lenders I know have stopped offering new IO loans

This. We’ve just got a mortgage as first time buyers and one of the things said was that no one’s doing IO now, as that causes a raft of problems!

Seems you’re not thinking this through at all. You can’t ‘walk away’ from a house you own, you’ll have to pay off the mortgage, so you’ll have to sell the house, and you’re screwed if you don’t have enough! Plus as said all the costs of buying etc. assuming a 4 bed place is over £250k you’ll have at least 7.5k stamp duty to find for example. Reckon on it costing £10k on top of your deposit to actually move in.

Doesn’t sound like you want to be on the housing ladder at all, you want to have a punt at buying this house you can’t afford, then cross your fingers and hope it works out.

Seems mental to me.

#1 You need to fund 5% deposit.
#2 Gov’t scheme would fund 20% deposit interest/repayment free for 5 years. This still needs to be repaid. If not repaid at 5 years it will start accruing interest. You need to know this figure.
#3 Interest only mortgage for 5 years. After 5 years you will start paying interest (at what rate?) or will need to remortgage. You cannot just walk away, you will ‘own’ the property and will need to pay off the mortgage and the deposit loan.

In addition to above you will have legal fees, insurance costs, maintenance costs, furnishing costs. It’s a shitter really 🙁

#4 Get advice from an independent mortgage advisor! You will get there eventually but don’t tie a millstone around your necks.

Have I woken up in LaLa Land?

It’s just this sort of approach that morphs into buying stupidly large TVs on interest free credit, the latest must have stripy corner sofa on buy now, no repayments for a year and white goods on store credit.

Bung into that getting a car on HP and buying a house that is beyond your means and that’s how you get in the financial mess that has been so prevalent recently.

Welcome to LaLaLand

thing is all the 2 bed houses on the development are affordable homes, bought by housing associations and given out to people receiving full housing benefit,

Grow a pair pair legs, use them and look somewhere else then

It’s just this sort of approach that morphs into buying stupidly large TVs on interest free credit, the latest must have stripy corner sofa on buy now, no repayments for a year and white goods on store credit.

Backwards surely? Buying houses people can’t afford leads them to getting TVs?! Think he easy access to credit on electronics and white goods is what makes folk think ‘buying’ a house they can ill afford is a good idea!

So what about the next 30-40 years when you cant get finance on anything ? Back to renting – oh wait youll be excluded from the nice houses due to your record……

All mortgage people I’ve spoken to recently won’t do Interest Only. Might be different where you are though.

Buying something you can’t afford (without incentives that may not work) isn’t a good idea, but I’m, and I guess a lot of others here, sitting in a nice house, with a small (or no) mortgage. Is it unreasonable that those less lucky (because they were born a few years later) can’t get on the housing merry-go-round and will therefore make what we think are risky decisions?
Just go into it with your eyes open, work out what the worst case situation is, then choose.

We’ve just got a mortgage on a 5% deposit as first time buyers. Yes the interest is a little higher, but still lower than it was during the boom years. I’d be reading the fine print on any of these government schemes extremely carefully, and I wouldn’t go into it with the attitude you can just walk away!

Buying something you can’t afford (without incentives that may not work) isn’t a good idea, but I’m, and I guess a lot of others here, sitting in a nice house, with a small (or no) mortgage. Is it unreasonable that those less lucky (because they were born a few years later) can’t get on the housing merry-go-round and will therefore make what we think are risky decisions?
Just go into it with your eyes open, work out what the worst case situation is, then choose.

How many moved into a big 4 bedroom house as their first house purchase though? Work up the ladder, make sure you can afford it as you go

Well, if you add in the cost of moving a few times, it could be cheaper to buy a big house to start with. Again, do the sums. Plus you often get good deals on larger houses.

Agrees with piedo – I bought a two bed terrace, moved to a three bed end terrace and only now (at 45) am I about to get that 4 bed with a garage and nice garden.

We have been looking into the government scheme too, it is a good deal IF you repay before the 5 years is up. The interest rate in a years 7+ could quite easily start outstripping your mortgage rate and become quite an expensive debt to manage.

We will probably use it to help us get a sensible mortgage rate with a better LTV than we can currently get.

All in I think for the country this is a bad idea as it will just keep propping up the inflated property market, but I cannot see a price correction any time soon. No body wins from that, other than buyers.

Just don’t view it as free money or it will bite you in the arse.

In the situation you described I would stick to renting. Think of it as pretty much defined outgoings with minimal risk.

I’m not sure people are in a worse buying position now than when I first bought.

Our first house was bought in the mid 80’s, the housing market was massively overheated and prices in my area were rising in excess of £1k per week! Our first house was 7 times my salary at the time and it was touch and go how/if we could afford it, if a property was available and if it hadn’t gone up that week beyond our means.

What’s different now?

BTW, buying a house to live in is the biggest commitment you’re likely to make. Do it properly and for the right reasons or you’ll get lots of time to regret a poor decision….

iain1775 – Member

Taken me 13 years of shrewd investment on the property ladder and damn hard work

By ‘shrewd investment’ do you mean ‘being the right age to buy 13 years ago when prices were much, much lower, and riding the ensuing bubble’ all the way up?

we were ftb last year

We ended up with an ex council 3 bed semi in the country bout 15 miles out of the city

Ive had to put alot of hours and sweat into it ( rewired , replumbed , new boiler, replastered and redone all te woodwork )but to get anything new of a comparable size and much smaller garden on an estate would have been an extra 75-100k – well out my budget.

Climbing the ladders all well and good but with the developers round here knockin up flats like tey are goin out of fashion i decided to work abroad for 2 years to put together a large deposit and avoid flats – toomany of my friends have become landlords due to massive negative equity on teir flats.

I

advantage of interest only over renting, you can’t be kicked out with 2 months notice, and with it have to find the fees, deposit, moving costs etc.

The government scheme is a joke, should never have been suggested etc. All it is going to do is ramp prices up.

I would also say buying of interest only isn’t really the best idea. But until rental laws in this country work better there are advantages.

only now (at 45) am I about to get that 4 bed with a garage and nice garden.

Me too! I’m seriously excited about:

A. Having a garden I can do stuff with
B. having a room of my own for a study
C. Having a building I can keep all my bikes and kit in
D. Having a bedroom where I don’t have to turn sideways to get past the bed
E. Having actual storage space

And many more

We are all doomed anyway:

End of Britain

has 3 or so sections of ‘persuasion’ to buy money week but if you persevere past those it is quite decent and interesting, especially historically (Fort Knox).

Goes on a while and no ff or rw, only pause.

By ‘shrewd investment’ do you mean ‘being the right age to buy 13 years ago when prices were much, much lower, and riding the ensuing bubble’ all the way up?

I mean buying a house at a good price that needed work and spending next 12 years slowly saving up to do said work, completely replacing pretty much everything and remortgaging to fund a big extension
Everything being done to make it our home but with one eye always on keeping it meant rally attractive to future buyers
Hardly rode a bubble, if we had of sold a few years ago it would have been worth £10k more