Thursday, Mar 13, 2008
"equity loan" I'm confused
Guardian: Revamped scheme will allow key workers and first-time buyers to get on property ladder by taking out 50% mortgages
"the government has launched an initiative allowing teachers, nurses and others to take out a mortgage for as little as 50% of the cost of the property they are buying.
The remainder of the purchase would be funded via an "equity loan" of up to 50% of the price, with half of the money for this coming from the government and the other half coming from a consortium of eight housing associations. The individual will have to pay interest on the equity loan from day one, though this "rent" will initially be set at only 1.75% per annum, rising to RPI inflation plus 1%. "
Does anyone understand this crazy scheme? Who owns the house in the end?
Posted by happyrenterz @ 08:46 AM (1178 views) Add Comment
21 Comments
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1. hpwatcher said...
It isn't even particularly clear how you would access it.
2. alan said...
Does it matter how it all works out? The objective is to get public servants (and there are a lot of them) to buy houses.
This will keep the house prices up and bail out all those BtLers who might think of jumping ship. ....and the "consumer economy" sails on....at least till till the next election.
An added "benefit" - If inflation really goes up fast, there will be a lot more public employees tied into the state system on low pay - its new socialism!
3. Swissnic said...
Typical Labour government - they use CPI to calculate Public sector wage increased, but use RPI to calculate interest on home loans. Obviously, when it comes to their money - they know which is the REAL inflation figure!!!
I am really fed up with the constant steam of lies and trickery being spewed out by this Government. Roll on 2010 !!!
4. it_is_going_with_a_bang said...
This should be a country run on equal terms.
Hardly equal terms when the government decides it will give home half price housing to 'it's own'.
This is NOTHING short of trying to buy votes and is an utter disgrace.
So WHY should someone who is a 'keyworker' have any more right to government funding of this scale?
As for first time buyers, they could just sit on the fence and wait for property to slump by 50% then they won't have to share it with anyone! :-)
5. p. doff said...
This is just a 'shared equity' scheme, which is what housing associations already do. HAs have done very well over the last decade as they have shared in the proceeds of HPI. I've come across many a cheesed off homeowner who was gobsmacked at the amount of money they had to 'give' to the association when they sold the house. I've also come across many an attempted 'fiddle' where the owner tries to hang on to as much of the proceeds of sale as they can - the part exchange/house swap deal is a good one, but most attempts are picked up on valuation. I guess some people want it both ways.
The only thing that strikes me is that if house prices fall then the association (or government apparently) takes the hit, and I would prefer that my tax money is not gambled in this way by subsidising purchases. I suppose the theory is that subsidised purchases will help maintain HPI as it is another way of pushing money into the system.
6. Meerkat said...
After reading the article, my suspicious mind translates this to mean the goverment reckons house prices are 50% to 40% overpriced compared to average salary.
7. Letthemfall said...
This perverse "solution" reminds me of the Monty Python sketch in which the height difference between two actors, one standing on a box, the other in a trench, is resolved by digging a trench for the actor on the box and standing the actor in the trench on a box.
It goes to show that problems are never really addressed by govts. It's usually a case of sticking plaster and string.
8. An Bearin Bui said...
Not this "key worker" nonsense again - ultimately everyone is a key worker in some way because otherwise they wouldn't have a job. The implication of this government phrase is that there are some workers a city needs to survive (teachers, nurses, police force) and then some that it can do without (taxi drivers, hairdressers, plumbers, cleaners etc). Funnily enough the non-key workers are all in the private sector - why would that be? Probably because the second offensive implication of this idiotic "key worker" phrase is that the public sector is automatically lower paid than the private sector, something which has never been true for cleaners and taxi drivers and which is most definitely not true across the board now.
9. Bobsto said...
Its ironic that "key workers" do not include the poor saps in the private sector who have to pay for all this.
10. Acidrob said...
So what is the difference between the amount you pay with this - and a mortgage for 100% of the property - pretty much bugger all, except you will only end up with 1/2 a house at the end.
11. fahrenheit451 said...
It's another con-trick smoke and mirrors, anyone who gets involved with this deserves what they get, unfortunately easy to say, but the reality will be in picking up the pieces. For instance what happens if you move from one government department to another, or even leave public service because you now have children, or industrial accident (i.e. shot in the back while on patrol in a red light district).
I give up, its one hair brained scheme after another, lost opportunity again, but what else would you expect ... ?
Seems like these ideas started as "good intentions" but got lost in the implementation.
And what about getting the inflation figures right. Just have 3 scales linked to lifestyles (i) broke and indebt, (ii) just managing and treat myself to a holiday in Brighton, (iii) I know I live here but I'm out here for tax reasons.
12. stillthinking said...
Key worker is truly just government worker. Do the same job in the private sector and you don't qualify for anything. Teach at a private school, teach in industry, anything away from the government and you don't qualify.
Not a bad way to stay in power but eventually, the short term self interest will be the long term disaster. There are too many people's snouts in the trough.
13. 1 For The Inumerate said...
So you pay a mortgage on 50% of the property - and you pay RPI + 1% on the other 50% of the property - so the difference between this and a mortgage on the whole property is in effect bugger all! How many extra people will be able to now afford a house with this initiative? - exactly - bugger all!!
14. renting2 said...
If they employed and paid people properly as well as running a good economy then these schemes and all the associated expense etc. wouldn't be needed.
15. mark wadsworth said...
It's the government piling in at the peak of the market. And creating a generation of tied workers, that's the real evil part.
16. it_is_going_with_a_bang said...
This link makes it a bit clearer:
http://www.gnn.gov.uk/Content/Detail.asp?ReleaseID=360059&NewsAreaID=2
Especially this bit:
"6) Regional Assemblies will decide the criteria for the 'priority' first-time buyers eligible in their areas."
One final question, if the property is sold leaving negative equity, who gets to take the 'hit' on the loss?
17. Horno7 said...
I'm not 100% sure but i believe the equity partner takes a 50% share of the loss of value if/when you sell it.
What I wonder are you forced to sell the house at the end of the 25 year mortgage or can you keep paying the loan at RPI+1 and would this compare to the cost of renting?
18. Still-waiting said...
If the property is sold leaving negative equity, then the 'hit' is divided according to how much equity loan has been provided. i.e. if they borrowed 50% of the price of the house, they will have to pay back 50% of the price at the time of sale to the government. For example, buy a house for £200k with a 50% loan of £100k. Sell it for £180k and you will have to pay back £90k to the government, so the homeowner and the govt will both have lost £10k.
It is not just for keyworkers according to this, it is for first time buyers as well, which basically means anyone who doesn't already own a property.
19. 51ck-6-51x said...
It's shared equity.
If the key-worker took the option of 50% mortage 50% equity loan & 0% deposit, then on day 1 the government owns 50% of the house and the resident owns 0%, if the mortgage is a repayment type then the key-workergradually works towards owning 50% of the equity in the house. On a sale the equity released would be shared according to the percentages.
So if a load of key workers take out as above they will stand to gain (lose) at the same rate as house price but for half the amount - the same goes for the government, unless they manage to offload risk onto a third party (unlikely!)
The key-worker is taking the same risk, but is also letting the govenment take risk too (for a relatively tiny premium).
This is a bad move really, unless house prices rise over the loan terms.
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