I am 90% of my way though this scheme (Firstbuy) which is identical apart from I can only have a 20% equity loan which is supplied by the government though an agency (in my case SouthWest Homes) and the builder (Persimmon) They each provide a 10% equity loan.

I before commencing with this scheme did my research about how it works, what I have to pay and when.

My equity loan is in total for the 20% = 47,000.

On this loan I have to make no payments for 5 years and there is no interest gained against it.

At the beginning of year 6 after the completed sale of my house I will then be liable for a 1.75% fee against the loan assuming that I have not paid it off. This is equal to £68.54 a month. I think that is a wholly reasonable amount of money to pay as a fee for such a large amount of money. Which I may add I would no be able to afford to buy this house without.

In year 7 this payment then increases by RPI (Retail Price Index) plus 1% if we take the last RPI announced figure which is 3.9% (Jan 2012) so in effect 4.9% will be added based on my 1.75% and increase it to 1.84% fee on my equity loan. My monthly payment will then be £72.06 which is still wholly reasonable. After all the fairest way to link an increase in something is to link it directly to inflation. You could argue that the Government back scheme could have been nice and linked it to the CPI (Consumer Price Index) which tends to be a slightly lower rate but that would just be being very picky.

Also in 5 years time I hope to have had an increase in both mine and my partners earnings to a similar level to that of inflation and the increase in cost will be negated.

I will have also have paid back 5 years of my Mortgage on the repayment terms so I will own not only my initial 5% deposit but a further approximately 16% of my home. Taking my outright ownership to 21% of the original property value.

At any point after the first 12 months I have the choice to pay down chunks of my equity loan if I am able to. Who knows I may come into some money through a bonus, inheritance or some luck. If not I am happy to pay the fee to maintain that equity loan.

Hopefully house prices will go up during the time that I own this house. Worst case scenario is that I never pay back the equity loan in the 25 years and pay the fees and I sell the house in 25 years time. Lets say for argument sake that the value of my house increases by 10% in those 25 years from £235,000 to £258,000 I will own 80% of that which is £206,800. Yes I have to repay £51,200 back to the scheme but I am more than happy with that. Though I would like to add that I hope my property increases in value by more than 10% its just an easy round number.

I don't think the scheme is bad or should be avoided, but certainly people should enter it with their eyes open and not expect 'something for nothing' As the previous poster stated you can't really expect some to give you that loan and not expect it to be repaid in full plus interest. How would you feel as a tax payer if the government gave away large amounts of money with no return on it. I for one would be horrified!

With due respect and without trying to cause offence but if you took on a 70% share and the Homebuy company took on the other 30% , at what point did you think the 30% would become yours without further investment?

While i do not know your full circumstances I would be pretty sure that this is not the fault of the Homebuy Scheme but of the adviser who dealt with you. The adviser should have given basic advice to explain how the process works. I am sure tht the Homebuy Scheme did nothing, have hidden nothing and continue to hide nothing about how their scheme works but if an adviser does not fully explain the process then you will not know yourself. If this adviser was a direct employee of Homebuy then I would challenge the advice or process he used. If the job was done correctly then it would be evidenced as such.

Don't forget that you can but the equity back at any time from the company (at current market value) and seeing as though the market has fallen in recent years it is likely that you will not pay any more than you originally paid for it. If you take this on a repayment mortgage then then the mortgage will be cleared within the 25 years. This option is ALWAYS going to be open to you, the only thing that could stop this would be affordability and credit....and if these things do get in the way then you would be unlikely to have taken on any more share than this in the first place.

Do also ask yourself the question of whether you could have bought this house if you hadn't had the assitance of Homebuy and also remember that if your 30% is worth approx £50k then if this means that your own share will be worth £100k and if in 25 years the Homebuy share is worth £100k then your own share on a repayment basis will leave you with £200k....still not ideal if you don't own the other 30% but a good start or deposit for a smaller house.

Get in contact with Homebuy and discuss the problem and ask them to evidence how this was sold and tio prove that you were given true advice and explanation and not just sold the product.

While you may have suffered at the hands of an inexperienced or an unscrupulous adviser thinking of his back pocket alone it does not mean that the Homebuy Scheme is in any way bad. It has helped many thousands of people get onto the housing ladder where they most likely would not have been able to. It has given many first time buyers the opportunity to then staircase onto larger proeprties where they may have struggled to gain their first. I am sure that you yourself felt very proud when you were able to buy your home, it is unfortunate that your case may be one of a very small number that may need recourse from either the broker who sold it to you or direct from Homebuy themselves.....If it was sold via a broker it is the broker you need to speak to regarding the advice and not Homebuy.

Good Luck

Hi
You all need to be aware how this homebuy direct scheme works as I have found out.
I purchased a property 70% -30% so £48,000 was put in by the scheme.

For the first 5 years this is interest free then after 5 years you pay a annual fee for the £48,000 at what ever inflation is at + 1%
So the fee per year will be around £900 and this is only interest. After 25 years you still owe 30% in a lump sum.

It was designed for low income families. Yeah right! I had it down if you sell we take 30% NO. after 25 years you owe 30% of the current market value. And we all know it only goes up not down. My scheme "homebuy direct" says non profit making company! Whatever!

In 25 years time the £48,000 will be more £100,000 in a lump sum.
I have no way of paying £48,000 within 5 years hence why I took the offer and I'll be in no way able to pay a lump
Sum after 25 years seeing as though I'll be paying £1000 per year in fees which will infact go up with inflation.

If anyone reads this and is thinking of doing a homebuy direct scheme DO NOT DO IT!

It's a pleasure!

Thank you Louise, I have found your advice very helpfull.

Kind regards

Copple

Hi Copple

Sorry I have not been clearer - you would not be able to borrow on a secured loan for the purpose of repaying part of an equity share at all for a variety of reasons. That route is not open to you. I concentrated on the 100% aspect as I was not aware that you potentially had some savings.

Equity share mortgages are very much designed to help first time buyers and applicants on lower initial incomes access to the housing market. There is always the option to purchase more of the equity as earnings increase. You could use your 10% savings and increase your mortgage with the Nationwide in 12 months (subject to eligibility with Nationwide) if your earnings allow and that way you would own the total property. However the Nationwide would then have to consent to you to let out the property.

Louise,

What if I saved and coughed up 10% of my own savings and borrowed the remaning 15% through a second charge loan/mortgage, would that still qualify? Would it be viewed then as 90% borrowing and not 100%?

Thanks

Copple

Hi Copple

You are absolutely right. The second charge lender looks at the total outstanding mortgage when assessing the application - so will see the 25% application as 100% exposure - sorry if that sounds confusing!

Thanks for responding Louise.

So just to confirm, that is absolutely no alternative or way or "buying" my way out of the equity loan from the developer/government? Even if 75% is is already with one lender and the other smaller 25% with another lender? So I take it your saying the other second charge lender would view my borrowing as 100% and not just the 25% im actually borrowing from them?

Thanks

Copple

Hi Copple

I am afraid the quick answer is 'no' You cannot take a 'second charge' or secured loan deal to repay the equity part of your loan for various reasons - but the most straightforward one is that the secured loan would take you up to 100% borrowing - and no Lenders are agreeing that currently. If you tried to take out a personal loan (unsecured loan) for this purpose, it would not be allowed.

Hi

I am considering applying for a HomeBuy Direct scheme and buy an apartment. I was wondering whether I would be able to take out a second charge loan after the first 12 months to pay the equity loan back to the Government and the developer?

Eg. I buy an apartment with an open market value of £130 000. I get a 75% mortgage from Nationwide and the rest is made up by the 25% equity loan from the HomeBuy scheme. The rules state you cant mortgage advance or pay back the equity loan until after 12 months. So after 12 months can I then take on a second charge loan/mortgage to pay this off?

The reason I ask this is that I want the option of letting my property out in the future if I needed too, but the Scheme does not allow you to sublet while still owing the equity loan!

Please advise!

Thanks!

Copple