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Barratt Homes "dreamstart" Scheme 7.5 Years Later

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Hi,

Just wanted to share the story (to date) of my sister-in-law's experience with the housing market. Wondering if there are possibly hundreds of others out there who made similarly disastrous decisions, and what the fallout will be for everyone.

A timeline of events:

Nov 2007: SIL and her boyfriend view a new build 3-bed terrace house on a Barratts estate in the southwest. House is ok size, but backs onto a railway line. Also, is in an area that's considered poor.

They agree to buy at full asking price (nearly £190k) using barratts "dreamstart" mortgage scheme: 25% equity loan from barratts acting as deposit, 75% "traditional" loan from either nationwide or Halifax, can't remember which.

25% equity loan is interest free for 10 years. Due to be paid back in a lump sum when house is sold or in 10 years, whichever is sooner. Amount paid back will be 25% of value of house, at time of sale or whenever paid back, whether value is up or down from original purchase price.

Summer 2008: SIL and boyfriend get married, spend maybe 3k on wedding. Quite modest. Both still employed in average-wage paying jobs. Everyone in the family assumes they have a plan to repay equity loan.

Fast forward...

Autumn 2012: SIL has twins. It becomes apparent that despite having the same reasonably paid, steady jobs with a combined income of around £45/50k pa, SIL and BIL are struggling with money. They borrow around £16k from their parents for things like a new car and who knows what else.

Autumn 2014: SIL decides to move house, goes about getting house valued etc. Value has dropped (big surprise) to around £155k. All equity paid in is now wiped out, a couple of thousand down on that as well. 25% equity loan still owed in full, no savings in place to pay that back, although the reality of that doesn't seem to register yet. Moving is out of the question.

March 2015: SIL goes through accounts, works out that she and husband will have to work overtime for next 2 years and budget extremely tightly, putting all extra earnings into overpaying mortgage. The hope is that the equity will build up to at least 10% so that a re-mortgage will be possible, in order to pay off the barratts equity loan of 25%.

So there you have it. I wonder how many people made similar decisions and seemingly forgot about the equity loan? I'm not sure when schemes like these first came about - could have been 2007, so will there be a surge of repossessions in 2017? One flaw in my SILs current plan, AFAICS, is that once there is some equity in the house, say 10%, and this is assuming the value of the house doesn't drop even more, is that if they are refused a re-mortgage in 2 years time, what is to stop barratts just repossessing the house since they have a 2nd charge on it?

Bit of a long winded story, hope it made sense.

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Sounds like the help-to-buy loan, it must be paid back after 5 years. Builders & governments aren't giving anything away for free they are just trying to make a profit appealing to the zero down have it now and think about the consequences later crowd.

We borrowed 100% in 2006 on a £127k, then spend £10k doing up the house finally selling it for £115k in 2011. £25k loss is small change to us, but for most it would bankrupt them.

I knew the risk when I was buying after witnessing my parents lose everything in the 89 crash.

The only person to blame is the person who signed the paper work

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Really sad for anyone caught up in it though. I could easily have been in that situation but my own mild paranoia in my 20`s kept me safe. It really can ruin peoples lives for decades adding stress and pressure on people.

It only proves how "on our own" we are from the outset. Imho this is a nice country to live in with wonderful countryside, but you really have to keep a look out for the sharks on the way through. The op`s sil and husband if they stick together, may only really understand all the financial pressure they are going through much later in life, and its all a bit late then.

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Very sad to hear stories like this. I know there's a lot of truth behind then "they're adults and did this to themselves" attitude, and ultimately no one forced them to sign up, but i can't help but feel big corporations and governments seem to be taking advantage of young adults natural desire to move on with their lives with deals where most of the risk is carried by the individual, so far from helping them it's exploiting them. These types of deal just shouldn't have been allowed..

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To be honest I have very little sympathy for my SIL with this issue, since it seems to me the whole thing has come about because of a very bad decision compounded over the years by complete head-in-sand mentality. I am trying to dredge up some sympathetic feeling, for the sake of family harmony, but it's getting increasingly difficult to not just blurt out my opinion.

Funnily enough, over these same years whilst my husband and I have been renting, we would get a lot of comments from my mother-in-law about "throwing away money" on rent instead of buying, the implication being that my SIL had made the better decision. We finally bought a house about a year ago, with a 40% deposit that we'd saved at the same time as "throwing away money" on rent. So I guess I do have some sympathy for SIL - she must have been getting (and taking on board) this bad advice RE the housing market for her whole life. Ironically, had she and her husband continued renting, they'd have been paying less per month than they have been on their mortgage, they could have moved house no problem, they wouldn't have had to shell out for the house maintenance etc etc. I'm going to have to do some serious tongue biting on the next family visit.

What you call paranoia GinAndPlatonic, I would call financial intelligence! I really hope that most people, even in their 20's, would understand that a big business like barratts isn't just going to hand over money and never want it back. But maybe I'm wrong about that. We'll probably find out in a couple of years time when people who took out these equity loans have to start paying them back en mass - there'll probably be a lot of sob stories in the daily mail about it.

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SMFTM, you're obviously a very nice person, and I agree that these schemes shouldn't have been allowed, but the scheme has now actually grown and morphed into the government backed help-to-buy. Strange isn't it, that a loan isn't allowed as a deposit on a house by mortgage lenders, presumably because of the risk, but it is allowed within these schemes...

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There is little 'choice' - The government are there to force the decision between throwing money away on high rents or high house prices. It most likely comes down to not spending more than you're earning every month and believing that the house will pay for the bills.

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Ironically, had she and her husband continued renting, they'd have been paying less per month than they have been on their mortgage, they could have moved house no problem, they wouldn't have had to shell out for the house maintenance etc etc. I'm going to have to do some serious tongue biting on the next family visit.

Given they are now in NE they would have been better renting. A very good story.

Parents don't half go on about stuff. I got comments from my parents about the "pathetic little cube" I live in. And how "money flows like water" at my cousins who all have "big jobs in the city" and "what a dissapointment" I am. etc etc. Of course my cousins are mortgaged up to the eyeballs and maxed out on credit cards - it may work out for them long term with a house near London they can sell. Or it may not.

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Given they are now in NE they would have been better renting. A very good story.

Parents don't half go on about stuff. I got comments from my parents about the "pathetic little cube" I live in. And how "money flows like water" at my cousins who all have "big jobs in the city" and "what a dissapointment" I am. etc etc. Of course my cousins are mortgaged up to the eyeballs and maxed out on credit cards - it may work out for them long term with a house near London they can sell. Or it may not.

Don't worry about it (I'm sure you don't :)). I'm the black sheep of my family as well, as far as mortgages and credit is considered. They don't talk to me about it now. I state my case and then they call me an idiot behind my back. :P

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I sold up in late 2007 moved in Feb 2008 and rented,then had to buy in 2012 when the place we were renting got sold together with the large farmhouse on a 28 acre small holding,moved in may 2012 had years of no maintenace headaches etcetc and put £100k (interest on my money) in the bank after all rent was paid,best decision I ever made,

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Given they are now in NE they would have been better renting. A very good story.

Parents don't half go on about stuff. I got comments from my parents about the "pathetic little cube" I live in. And how "money flows like water" at my cousins who all have "big jobs in the city" and "what a dissapointment" I am. etc etc. Of course my cousins are mortgaged up to the eyeballs and maxed out on credit cards - it may work out for them long term with a house near London they can sell. Or it may not.

Makes me realise how lucky I am with my parents. They might (or perhaps because) have nothing - but they've never given me any hassle about my lifestyle or financial choices - nor set any expectations. Actually, that's perhaps not quite true - my Dad's probably a little disappointed I'm not a full-on Che Guevara type revolutionary.

I have some empathy with the OP relatives, but equally it's that kind of collective financial stupidity which kept me out of being able to buy for nearly a decade. Sure there are sharks a plenty, but you don't have to throw yourself into their jaws.

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It sounds like parental influence is a big decider in a lot of adults house buying decisions, but also lifestyle decisions. I come from a family of savers, and I've seen the benefits of that. My SIL on the other hand, sees her parents with their 4 bed detached (that they bought when not much older than her), new car, and fridge full of Waitrose finest food etc, and apparently thinks that this is the lifestyle she and her family should have. I can see how she got the idea, since her parents were always middle-wage type earners the same as her and her husband.

But MIL and FIL probably bought their first house for about £15k as opposed to £190k.

I should add, SIL was in her mid-20's when this house was bought/ dreamstart deal was entered into, and BIL was mid-30s, so not lacking in experience of life. Does age of applicant affect ability to re-mortgage? Just wondering if being in mid-40s at time of re-mortgage might scupper chances, even if 10% equity is reached.

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They're down on the deal despite massive government bailout , socialised losses.

I'm afraid I'm all out of pity.

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Sounds like the help-to-buy loan, it must be paid back after 5 years. Builders & governments aren't giving anything away for free they are just trying to make a profit appealing to the zero down have it now and think about the consequences later crowd.

We borrowed 100% in 2006 on a £127k, then spend £10k doing up the house finally selling it for £115k in 2011. £25k loss is small change to us, but for most it would bankrupt them.

I knew the risk when I was buying after witnessing my parents lose everything in the 89 crash.

The only person to blame is the person who signed the paper work

Doesn't have to be paid back after 5 years, Just interest is charged after that

Otherwise all true

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My colleague at work appears to have succumbed to the same thing. I can't remember the exact figures so I'll guess best I can:

3 bed House bought roughly for say £230,000 in 2013.

5% deposit- £12,000 (guesswork as he came into some money)

20% HTB- £46,000

= £172,000

He was paying off about £9000 a year (£750 pcm?) but now he's paying off even less after remortgaging. He's also now paying less than renting previously. Possibly now £500ish pcm

On the old mortgage he paid off about £3000 every year after the interest.

If 2008 repeats, would he be in a similar position?

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Given they are now in NE they would have been better renting. A very good story.

Parents don't half go on about stuff. I got comments from my parents about the "pathetic little cube" I live in. And how "money flows like water" at my cousins who all have "big jobs in the city" and "what a dissapointment" I am. etc etc. Of course my cousins are mortgaged up to the eyeballs and maxed out on credit cards - it may work out for them long term with a house near London they can sell. Or it may not.

Just talk about emmigrating that usually shuts them up.

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