Chickens Roosting - Barratt "dream Homes" Scheme Screwed Up My Life

[wish I could afford one]

I feel a bit sorry for her, obviously had to put up other ppl ramming down her throat how well they had done by buying property in the late 90s / early 2000s and decided to bite the bullet. Unfortunately 2007 was not a good year to buy a property.

Would be interesting to know where the house is.

I don't. I have it rammed down my throat every day and choose to think independently - sometimes rightly and sometimes wrongly - and live by my decisions. If those same people told her jumping off a bridge was the way forward would she have done that as well? DYOR and all that...

[Exiled Canadian]

This post is interesting:

Seeing as money is created when banks make loans and 70% of all UK lending is residential mortgage lending, the whole point is that houses are money trees. It's just that you don't always get to harvest the crop, just because you took out the loan to buy your house.

Further, you are not using "someone else's money"

Barratt allocate a price to the house and sell it to you at that price.

All you can really afford is £75,000, but at that price they can't book the profit they'd like to book. Hence they make a loan and sell at £100,000. They book the cash they receive for 75% and they book a loan for the other 25%, and at this point they create credit money. To clarify this claim, if they sell at £100,000 and offer a 25% loan, then you owe £25,000. They could have decided that it should sell at £150,000 and offered you a 50% loan. They get to decide how much credit money to create. They are not providing anybody with the benefit of anything by making the loan - they didn't have to take £25,000 out of a drawer and give it to somebody else.

Their ability to gull the borrower into signing up for the loan rested on their economic control of the land which could be developed. They secured that economic control (at least in part) by borrowing money and using the loan to buy the land, so even at the beginning of the story, they weren't using their money. They were using new credit money conjured into existence when the Barratt's banks made the loan to Barratt to buy the land. Housing-banking Ponzi scheme. Same as it ever was.

Effectively Barratts 2007 profit is overstated as they booked a £25k profit on the sale of this house in 2007 for £100k when all they had to show for it was a second charge over a house that no one had actually offered £100k in cash for.

If there are alot of the deals going sour it could prove somewhat "interesting" for the big housebuilders.

[Guest]

It's a terrible deal and it should have been illegal. Did the bank know that she had the 25% debt to Barratt? If she goes bankrupt neither Barratt or the bank will get anything.

I understand the pressure to buy a house at any cost. Renting in Britain is like being a slave.

But we should remember that by buying into this deal this lady was bidding up house prices for everyone else. If Barratt couldn't find customers for their dodgy finance 'deals' then they would have had to sell at more reasonable prices.

And she's had 8 years or so to prepare for this. Even without the negative equity, how was she planning to pay off Barrett when the timer was up? By extending the mortgage? That's an explicit bet on house price increases, and she lost.

This is why I refuse to buy houses for silly money. Everyone tells me that they're more 'affordable' than ever, thanks to low interest rates. But we see here the kind of mess that kind of thinking can get you into. A house purchase is the biggest financial commitment you will ever make - you had better be very sure that you will be able to pay it off.

People need to realise that houses do not provide free money. When house prices rise, someone is paying that money. The version of you that's five or ten years younger needs to save harder or borrow more than you ever did. Banking on house price increases is banking on the impoverishment of the next generation.

[wish I could afford one]

...

If there are alot of the deals going sour it could prove somewhat "interesting" for the big housebuilders.

I certainly don't have any of them in my HYP.

[Bland Unsight]

Ooh, interesting.

Valuations certainly would have been significantly lower in 2011, looks like they realised then what a bind they'd put themselves in and backed off. Good job the tax payer came along and backstopped a bunch of schemes to help lift the value of their portfolio.

Grim, predictable process of the Ponzi grinding to a halt.

In order to book the profit in 2008 Barratt needed to keep a little of the risk associated with the stupid lending on their own balance sheet. In 2011 they try to unload it and can't. Come 2015, the risk is still there and still on Barratt's balance sheet. Another good post on the thread pointed out that as Barratt only have a second charge, then if there is no equity, the Barratt loan is actually worth nothing. If they had to write it off this year when the bank repossessed and the borrower declared themselves bankrupt then the profit booked in 2008 would reverse out of the P&L as a loss feeding off the P&L cost of writing off the loan.

The volume builders are a bloody disgrace; as recognised by other posters, most recently hotairmail the other day, they are not really builders. The are betting on movements in asset prices, and the underlying asset is the land with planning permission. Having to build the occasional shit slave box on the land is just an inconvenient adjunct to the underlying business of betting on land prices with borrowed money.

Edited April 25, 2015 by bland unsight

[Bland Unsight]

Effectively Barratts 2007 profit is overstated as they booked a £25k profit on the sale of this house in 2007 for £100k when all they had to show for it was a second charge over a house that no one had actually offered £100k in cash for.

If there are alot of the deals going sour it could prove somewhat "interesting" for the big housebuilders.

Exactly. It's vendor financing. The tone of many of the posters presupposing the sanctity of the debt to Barratt reflects cultural attitudes about obligation which don't actually match up well with how these credit money debts were created and what they signify. (At some point it'll be worth pulling the Barratt financials to see if they've booked any provisions against these loans.)

Edited April 25, 2015 by bland unsight

[Killer Bunny]

This is exactly the sort of thing we were screaming against in 2007. In so far as there'll be troiuble down the road and it's too far away for anyone to care about now but they will.

The end of 2016 will see lots of these stories.

MISSELLING of course will be blamed. Not MISBUYING.

[Bland Unsight]

Another interesting aspect of this is that even had it worked it would have been a tacit extension the of real mortgage tenor to 35 years.

In 2007 you buy a house notionally at 75% LTV, paying £100,000 using a £75,000 mortgage.

Ten years later after the HPI magic, you are in a position to refinance. With HPI at 5% per annum your house is worth £160k, so you can borrow the whole £100,000 at a good LTV. Assume that the 2007 mortgage was interest-only. You use £75,000 to pay off your mortgage and the other £25,000 to pay off Barratt. You may even be able to shift to a repayment mortgage!

Without the help from Barratt, and without access to interest-only, maybe you could actually have paid Barratt somewhat less than £75,000, let's say £60,000, for argument's sake. You then pay that off over 25 years.

Thanks to Barratt and the banks, you service £75,000 for ten years in the hope of being able to manage a repayment mortgage of £100,000 for a further 25 years.

Thanks for nothing, as they say.

Edited April 25, 2015 by bland unsight

[long time lurking]

This is exactly the sort of thing we were screaming against in 2007. In so far as there'll be troiuble down the road and it's too far away for anyone to care about now but they will.

The end of 2016 will see lots of these stories.

MISSELLING of course will be blamed. Not MISBUYING.

Yup the MN tread is full of them IO no repayments made 10-15 years to go on the mortgage HTB is the first to blow up IMO and it will be labeled as misselling

Edited April 25, 2015 by long time lurking

[Exiled Canadian]

The other interesting angle is that the OP seems to believe that Barratt are entitled to the higher of the loan principal or the value of 25% of the house.

No doubt some wag at Barratt saw this as a huge new profit centre - basically cashing in on HPI for a second bite at the cherry 10 years down the line.

Effectively the MN OP has only been sold 75% of a house (in financial terms) and has also underwitten a stop loss contract for Barratt by guaranteeing a floor value. The only fault to this cunning plan (from Barratts perspective) is that the MN OP has proven to be an unreliable counter-party.

[Bland Unsight]

From the thread:

Imagine if a bank was lending these sums of secured funds without any fork of repayment vehicle in place- we'd all be screaming irresponsible lending!

I'd guess that the post is a little tongue in cheek, especially given the title the FSA chose for the key Mortgage Market Review consultation paper, back in July 2010, Responsible Lending. (I don't really get bit about the fork.)

[Executive Sadman]

Sad thing is barratts should have gone bust in 2009...instead they receive a defacto bail out and continue to cover land in vile little hovels to this day.

[pipllman]

I don't feel sorry for MN OP for the predicament she has landed herself in

I don't feel sorry for Barrat if MN OP and every single other participant in similar schemes defaults

[long time lurking]

Let's flag this early. Sometimes, but not always, it plays like this:

• Someone flags an interesting thread on MN
• Someone who posts here trolls the MN thread
• A MN poster posts a link to the hpc thread about the MN thread
• In the meanwhile on the hpc thread there has been an accumulation of bitter sounding posts, some with misogynistic overtones
• On the MN thread MN posters agree that we hpc posters are a grim lot of bitter, misogynistic losers (even the female hpc posters, one assumes)

Let's bear in mind that not everybody has a hobby tracking the minutiae of UK mortgage financing and house building and that many people believe that they can trust the banks and the big builders.

+ 1

To many judge everyone else by their own standards and knowledge

[Bland Unsight]

Richard Dyson, who is now the Personal Finance Editor at the Telegraph media group, wrote the following in This is Money, in August 2008:

The reason for the offers is that homebuilders are in desperate trouble, with some verging on bankruptcy, and others slashing prices and cutting staff.

Persimmon, the nation's biggest homebuilder, last week said profits had plunged by more than 60% over the past year while the number of homes it had sold had fallen by a third. It described conditions as 'the worst in recent memory'.

To help sell properties to cash-strapped buyers who otherwise cannot get mortgages, developers are offering shared-equity schemes.

Source: Buyers warned on shared equity schemes

The Barratt scheme was called "Dream Start"!

[Venger]

Let's bear in mind that not everybody has a hobby tracking the minutiae of UK mortgage financing and house building and that many people believe that they can trust the banks and the big builders.

+ 1

To many judge everyone else by their own standards and knowledge

Which has seen many of the more intelligent professionals left in a dire losing position - and younger generations who don't have bomad help/wealth, very priced out.

Trusting banks; what's to trust? You're entering an important contract... outbidding others for scare resource (of which many people would like to own... there is nothing wrong with salespersonship to make profits. You don't need to be any sort of expert when you're signing up for houses at £300K, as to whether that's expensive, and whether you should run the numbers on how you're going to repay it, how much income it will take, what happens if job move, income drops (err maybe look at rental)...

Worth £80K less now is it? How much did this victim buy it for... £300K-£400K+... how could they possibly know what is and isnt' value. Oh well, at least they're perfect homeowners, not dumb money renters.

To be a loser, a victim, is now an asset that can be utilized to demand payoffs from larger society.

[FreeTrader]

I'm somewhat cautious about the Mumsnet OP. The thread title uses the phrase 'Dream home scheme', which suggests it's the Barratt 'Dreamstart' scheme that's being referred to (and I can't find details of any other 25% loan scheme operating back in 2007, but I admit I didn't spend a great deal of time searching).

Problems:

1) The claimed 80K drop in value. As far as I can see Barratt was limiting the purchase price of the property on its Dreamstart scheme to 250K back in 2007.

2) The claim that Barratt has a clause in the contract whereby the borrower will repay 25% of the market value of the home or the original loan value, whichever is the higher. All press releases and corporate reports between 2005 and 2008 appear to state that Barratt's interest-free loan under its Dreamstart scheme is to be repaid at 25% of the property's valuation at the time (even if prices fall). Subsequent 'horror story' threads on various boards seem to confirm this. I can't find any other source that states that such a contract clause is operative.

[long time lurking]

I don't feel sorry for MN OP for the predicament she has landed herself in

I don't feel sorry for Barrat if MN OP and every single other participant in similar schemes defaults

I dont feel sorry for them but i`m someone who does not trust a sales person of any kind ,but there are thousands that do trust them, the problem i have is this is not about a sundry item that is being purchased ,the amount of money involved amounts to a lifetime's commitment and they have been talked into the purchase by professional sales people with vested interests

On the whole the deal looks better than a mortgage as theres no interest on the 25% ten year loan

[Bland Unsight]

From Barratt's 2006 Corporate Responsibility Report:

Last year we reported on our Dream Start initiative that allowed key workers to buy a home for 75% of the purchase price using a deferred loan agreement, which is paid back as 25% of the property’s open market value after 10 years or when the property is sold. We opened Dream Start with 500 properties and very quickly had to increase it to 750 due to its popularity. By the time the initiative closed at the end of the year we had increased the number to 800.

Available in October 2013 in Scunthorpe and the West Midlands.

[Venger]

Can the softhearts donate to the 'victims' out of their own money please? It's year after year after year of excuses for buyers at ever higher prices.

I mean I was saving before this couple bought in 2008... utterly aghast at asking prices... and they bought before HTB (2013 intro?)... which no doubt we'll be seeing future HPCers having breakdowns over... despite market still powering on with Rightmove reporting new peaks.. and prices sick high in my area.

'We paid £180,000 for our house and now it is priced at £115,000': The two million who can't sell or move on

By Richard Dyson, Financial Mail on Sunday

Published: 22:14, 15 December 2012


[..]Michael Winter, 32, and his wife Danielle, 30, bought a new three-bedroom semi in early 2008 for £180,000. The house, near Stanley, County Durham, was marketed at £185,000 and the couple believed they were getting a valuable discount.

They borrowed £135,000 from Halifax and, under schemes common at the time, almost all of the rest of the property’s price was borrowed from Gladedale, the developer. The Winters must repay Gladedale in 2018 – or sooner if they sell – at a rate of 25 per cent of the property’s value. But with little equity to start, the Winters’ situation worsened rapidly – thanks largely to the subsequent actions of Gladedale. In 2010, the struggling company, which operates a range of housebuilder brands including Bett, Ben Bailey Homes and Country & Metropolitan, slashed the prices of neighbouring properties down to an average of £85,000 – a 53 per cent reduction.

These knock-down prices dealt a bitter blow to Gladedale’s earlier customers, such as the Winters, whose own homes plunged in value accordingly. In June this year a surveyor priced the Winters’ house at only £115,000. This puts them in negative equity to the tune of 43 per cent. The fall in the value of their property – at 36 per cent – is almost double the fall of average properties in their wider postcode. The Winters are keen to start a family. They have a flawless mortgage payment history, but in recent months both have lost their jobs, although Michael, who was at the Nissan car plant in Sunderland, is working again part time.

If they needed to move for work, they would have little option but to sell at a loss, leaving them to rent and still owing a big debt to the bank. Halifax told Financial Mail that in principle it was prepared to help.Measures could include allowing the Winters to pay the interest part of their mortgage only, for a period. But Gladedale, which reported losses of £57million in 2011, refuses to help. It said it was in ‘significant debt’ in 2010, when ‘the market reached its lowest point’.

Danielle, who worked for a commercial window business, says: ‘It is hard to see how this house could ever again be worth what we paid for it. Nor can I see how we will be able to repay Gladedale in 2018, even if we can continue paying our mortgage until then. We are well and truly stuck.’ In a few months the Winters will go on to Halifax’s standard variable rate of 3.99 per cent. This can rise at any time – it last increased in March from 3.5 per cent. Other lenders’ rates have also been rising, and last week the Bank of England said average equivalent rates, the sort typically paid by ‘prisoner borrowers’, had risen to their highest level since 2009.

Consumer group Which? has warned that ‘too little is being done’ and says its research shows ‘many mortgage prisoners have poor deals and are vulnerable to rises in rates’. The Council of Mortgage Lenders, which represents providers, is careful not to criticise the FSA. But it indicates that lenders’ observance of the new regime could limit the help available. A spokesman says: ‘Some lenders are clearly wary that if they treat borrowers in a certain way, for instance by granting mortgage holidays or allowing them to pay only the interest, there could be future allegations that they did the wrong thing.’ House prices, meanwhile, are expected to remain flat, or continue to fall in some regions. It is estimated that with every one percentage point fall in house prices, a further 40,000 borrowers drop into the ‘prisoner’ category of having too little equity to move.

http://www.housepricecrash.co.uk/forum/index.php?showtopic=185904

http://www.dailymail.co.uk/money/mortgageshome/article-2248613/We-paid-180-000-house-priced-115-000-The-million-sell-on.html

Houses for sale in their postcode

http://www.rightmove.co.uk/property-for-sale/find.html?locationIdentifier=POSTCODE^3811341

[Fully Detached]

I'm somewhat cautious about the Mumsnet OP. The thread title uses the phrase 'Dream home scheme', which suggests it's the Barratt 'Dreamstart' scheme that's being referred to (and I can't find details of any other 25% loan scheme operating back in 2007, but I admit I didn't spend a great deal of time searching).

Problems:

1) The claimed 80K drop in value. As far as I can see Barratt was limiting the purchase price of the property on its Dreamstart scheme to 250K back in 2007.

2) The claim that Barratt has a clause in the contract whereby the borrower will repay 25% of the market value of the home or the original loan value, whichever is the higher. All press releases and corporate reports between 2005 and 2008 appear to state that Barratt's interest-free loan under its Dreamstart scheme is to be repaid at 25% of the property's valuation at the time (even if prices fall). Subsequent 'horror story' threads on various boards seem to confirm this. I can't find any other source that states that such a contract clause is operative.

The OP reckons the house was overvalued by 25% when they bought it, so on that basis (and not knowing its location), I suppose the figures are just about within the bounds of possibility, though more likely over valued by 15-16% and fallen another 15-16% since. My first thought was "who in the hell would knowingly overpay by any amount?", but if you're the sort of person who:

i) can only hope to buy using such a scheme

ii) fell for the "prices always go up" line

iii) believes in unicorns...

...then perhaps it might have seemed to make sense.

As for your second point, I have no idea - it'll be interesting to see if their OP provides any more details, like whether the other 75% mortgage was IO or not.

Edit - just realised she said she now believes the place was overvalued, suggesting that they didn't do very much research before committing to the biggest purchase of their lives. Can I believe that? Sadly, too right I can.

Edited April 25, 2015 by Fully Detached

[long time lurking]

From Barratt's 2006 Corporate Responsibility Report:

Available in October 2013 in Scunthorpe and the West Midlands.

By the sound of it (referring to the MN op) they covered the risk of a fall in price in the T&C`s with the terms the MN poster quoted

Now where this gets dodgy is barret homes legal stuff say we either have to pay back the original sum borrowed or 25% of the current value, whatever is higher! So they win either way if it goes up or down.

[reddog]

I only said I felt a bit sorry for here, but I guess she is part of the problem. If people had not bought houses just because they thought they had to now, before they went up even more, rather than logically deciding if they could afford the place, then houses would not have gone up in the way they did.

Anyone know in which area this 80k drop was?

[reddog]

I only said I felt a bit sorry for here, but I guess she is part of the problem. If people had not bought houses just because they thought they had to now, before they went up even more, rather than logically deciding if they could afford the place, then houses would not have gone up in the way they did.

Anyone know in which area this 80k drop was?

[Bland Unsight]

I'm somewhat cautious about the Mumsnet OP. The thread title uses the phrase 'Dream home scheme', which suggests it's the Barratt 'Dreamstart' scheme that's being referred to (and I can't find details of any other 25% loan scheme operating back in 2007, but I admit I didn't spend a great deal of time searching).

Problems:

1) The claimed 80K drop in value. As far as I can see Barratt was limiting the purchase price of the property on its Dreamstart scheme to 250K back in 2007.

2) The claim that Barratt has a clause in the contract whereby the borrower will repay 25% of the market value of the home or the original loan value, whichever is the higher. All press releases and corporate reports between 2005 and 2008 appear to state that Barratt's interest-free loan under its Dreamstart scheme is to be repaid at 25% of the property's valuation at the time (even if prices fall). Subsequent 'horror story' threads on various boards seem to confirm this. I can't find any other source that states that such a contract clause is operative.

You look to be onto something on the £80k, but it looks like there was Dreamstart on stuff that was selling in 2006.

The Centrium development in Woking looks to be Dreamstart-tastic.

July 2005 piece from the local rag: Barratt offers a dream start

Rightmove sold prices for same at the link. If there was Dreamstart available on the pricier stuff, you could be looking at £40k down. Even some of the cheaper stuff has shown £20k down.