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Hidden Costs Of State Aid For F.t.b.s


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Guest wrongmove

Sorry if this has been posted already, but this article from Calcaria, PMT, puts a bit more flesh on the plans:

Hidden costs of state aid for first-time buyers

Quotes (my emphasis):

But critics have pointed out that owners would be subsidising the share owned by the lender/government because the homebuyer would have to pay all costs of repairs, maintenance and improvements.

A spokesman for the National Association of Estate Agents told Sky News that it was not necessarily a particularly good deal for first-time buyers if no allowance is made for these ongoing costs.

Precise figures are not yet available but the Treasury indicated that a couple buying a 50% stake in a £120,000 house would pay around £372 a month in mortgage repayment, plus rent of £150 a month. Their total payments of £522 would be significantly less than the £746 cost of repaying a full mortgage on the house.

However, mortgage brokers point out that if a first-time buyer took out a 100% interest-only loan on the same £120,000 property at a fixed rate of 5%, monthly interest payments would be £500 a month – less than under the government’s proposed scheme.

The scheme will not be confined to 'key workers' such as teachers and police officers, but will be targeted at those who need financial support. There will be no means test and it will be up to the lenders to decide which applicants are deserving cases. The homebuyer would be able to buy out the portion they do not own at any time, and they would also be able to sell and move on without restriction.
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Not only all the maintenance costs.

Do any DIY or improve the property in any way and you will also be part working for the bank/government and if by chance you do add value to the house when you sell you will have the added bonus of paying them more money for the priviledge. :o

Also what about the setup charge?. Recently we have seen the lenders bumping up their fees in order to make their rates look attractive. How much is it going to cost in setup/doc fees for these mortgages?

Edited by OnlyMe
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Do you know what , i just dont trust them

What happens if you default?

Quotes from the lenders seem to suggest that they have their arses covered.

What happens when you owe money to the government?

So easy to add a little clause about tax deductions direct from salary.

Agree, could be potenital minefield.

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Guest Riser
The crucial point, yet to be revealed, is who suffers the loss on the proportion owned by the lenders/government if house prices fall.

I agree this is a crucial point as it undermines the whole concept.

1. If the loss is taken by the buyer then the government is leveraging the exposure of those least able to afford it to falls from the very peak of a housing bubble. Cost to government for 50/50 200k house, 10k over 100,000 houses results in total cost £1 Billion. Cost to buyer 10% fall in house price results in 20% loss in borrowed eqiuty 20k on 200k house.

2. If the loss is shared by the buyer and the government then the government are using public money to shore up the property market and speculating with public money. If prices fall 10% cost to government will double from £1Billion to £2 Billion. Buyer still exposed to market 10% fall in housse price loss 10k on 200k house.

3. If government underwrite total risk then buyers and mortgage lenders are in a no loose situation if prices fall. Government exposure leveraged cost of scheme increases from £1Billion to £3Billion if prices fall 10%.

A 40% fall would cost the government £9 Billion thats a shed load of cash for something that only "helps" 5% of first time buyers, in addition there would be the cost of infalation increases due to the economic crash following the collapse.

If they go for option 1 most likely IMO they are simply ripping off desperate FTB, option 2 is the fairest option but still irresponsibly invites FTB to buy at the peak. Option 3 is least likely even Brown can't be that desperate.

Edited by Riser
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Can someone help me understand this.....

You take out a mortage for 50% of the property, pay it off over 25 years and pay rent on the other half.

Once you've paid off 1/2 do you then have to take another mortgage out to buy the other half?

It's a good job I may be forced to work till I'm 70 in this case.

I hope Gordon Brown wears a clown outfit at his next budget.

Edited by MrB
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Guest Riser
Once you've paid off 1/2 do you then have to take another mortgage out to buy the other half?

It's a good job I may be foreced to work till I'm 70 in this case.

That raises another point in scenario 2 0r 3 where the government picks up some of the loss as a result of selling below purchase price. If house prices fall as expected and the buyer decides enough is enough:

1- Will the government automatically accept their proportion of whatever loss is incured

2- Will the government need to agree a price below which they won't sell possibly based on an independant (yea right ;) ) valuation

3 -could the buyer be effectively forced to buy the governments share in the event of a loss

4 - Could the government just refuse to sell and force the property to be let

5 - Could the mortgage company rather foreclose on the buyer

What a mine field, FTB would be much better waiting for market to fall.

Edited by Riser
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Guest wrongmove

Another informative article:

Q&A: Equity loan scheme (Guardian)

e.g.

Are there any restrictions on what property I can buy?

So far, we have only been told that homebuyers can use the scheme to buy new or existing properties, but there may be some restrictions.

The Key Working Living scheme insists that buyers purchase a property suitable for their household's needs and within a reasonable travelling distance of their workplace. Mobile homes, caravans and houseboats are not allowed.

and houseboats are not allowed. Edited by wrongmove
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Guest muttley

Can anyone help me on the following:

If I were to buy a property for 140k at 50% shared equity what would be the stamp duty?

Is it a- Full whack ie 1% of 140k or 1,400 pounds

b- 50% ie 1% of 70k 0r 700 pounds

or c-The property is exempt from stamp duty,as the buyer is paying less

than the 120k threshold.

I'm guessing a, but unless c Gordon has effectively reversed his stamp duty concession to FTBs from the last budget.

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More details from the Telegraph

....

So far talks have been on the "broad principle" of shared equity with no workable model on the table. Lenders are concerned that the new schemes do not undermine demand for existing products. They are also considering whether to charge a higher rate on the mortgage or impose a separate "rental" on their equity stake.

"There has to be some return for the lender for the risk and for tying up the capital," Mr Williams said. "The lender will be asked to accept a lower return than elsewhere, but then the Government does give them some security."

Any fall in the value of the house will come out of the buyer's deposit first, then the Government's stake and finally the lender's. As the Government and the lender are talking about splitting a 25pc stake, the lender would be unaffected until the price of the house fell by more than 12½pc. If the price rises, the owner can buy out either stake at market value.

The Government is proposing that its equity investment be free of rent for the first five years and then charged at 3pc.

Consultation on the scheme, which was originally launched in April, is due to conclude on June 24 with the Government's proposals published on September 14. Once the terms have been agreed, the scheme will then have to be approved by the Financial Services Authority. The plan is to start offering mortgages next April.

full article in the Telegraph

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The plan is to start offering mortgages next April.

Surely if this scheme is beneficial to FTB's they will wait until next April to buy a house. This means there will be little demand for the next 10 months, so helping the hoped for hpc. Will it work like that?

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I agree this is a crucial point as it undermines the whole concept.

3. If government underwrite total risk then buyers and mortgage lenders are in a no loose situation if prices fall. Government exposure leveraged cost of scheme increases from £1Billion to £3Billion if prices fall 10%.

If they go for option 1 most likely IMO they are simply ripping off desperate FTB, option 2 is the fairest option but still irresponsibly invites FTB to buy at the peak. Option 3 is least likely even Brown can't be that desperate.

Option 3 is possible. Simply because anyone stupid enough not to see the fundamental stupidity and flaws in the scheme is probably stupid enough to believe that prices won't ever fall.

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Can anyone help me on the following:

If I were to buy a property for 140k at 50% shared equity what would be the stamp duty?

If it is anything like the key worker living scheme you have to stump up full buying costs, stamp duty, solicitor's fees the lot!

Has anyone considered what happens when you want to sell? With the key worker scheme they would help you find someone to buy your share of the property, but who is going to want to buy 50% share? and what do you do then, buy another government shared house (if prices stay high)?

This is a crock of sh1t.

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Guest Riser

From the Guardian Article:

Say, for example, a couple borrow £50,000 through the scheme and purchase a property worth £200,000 the lender - either the government or a bank or building society - will effectively own 25% of their new home. Should house prices rise and the couple eventually sell the property for £300,000, the lender will receive £75,000 - the original loan, plus the profits on its share.

Should property prices fall, it seems fair to assume that the lender will still get back only the value of its stake. If the £200,000 property only fetches £160,000 when it is sold, the seller will only  :blink: have to give it £40,000.

As well as giving up a share of any profits from the property, the homeowner may also be required to pay rent on the share owned by the other party. The government has mentioned a "nominal" figure of 3% of the value of the share it owns, but Sue Anderson, spokeswoman for the Council of Mortgage Lenders (CML) says: "Whether lenders echo that or do something different remains to be seen".

Don't know about anyone else but that doesn't sound fair to me. This is Option1 with an evil twist that I didn't even consider they would put in.

Option 4 - The FTB exposure to increases in house prices is reduced as the lender will take a part of the profit. If house prices fall, the buyer will have to pay the full amount of the loss, on a 50/50 share of a 200k property if prices drop 10% they will lose 20% of their investment.

Disgusting is the only word for it :angry:

Edited by Riser
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From the Guardian Article:

Don't know about anyone else but that doesn't sound fair to me. This is Option1 with an evil twist that I didn't even consider they would put in.

Option 4 - The FTB exposure to increases in house prices is reduced as the lender will take a part of the profit. If house prices fall, the buyer will have to pay the full amount of the loss, on a 50/50 share of a 200k property if prices drop 10% they will lose 20% of their investment.

Disgusting is the only word for it :angry:

Option 4a. Following a mis-selling scandel rivalling the endowment missing selling scandel of the early 1990s a bank has written off £1bn to cover potential loses.

Its so stupid its probably the likeliest option and outcome.

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Guest wrongmove
More details from the Telegraph

....

The Government is proposing that its equity investment be free of rent for the first five years and then charged at 3pc.

If this is true, then I think that it may distort the market. If the loan is interest free, then you may as well use it - and who plans more than 5 years ahead ?

For five years at least you can live in a home twice as expensive (that is the difference between a roughish terrace and a relatively well located detached where I live) and, of course, I will be a millionaire within 5 years......

This really could increase the crash potential in the short term as ftbs put off buying. Maybe Thatcher's famous quote will have to be modified to "You cannot buck the market, but you sure can f@*k the market !"

We shall see.

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Surely if this scheme is beneficial to FTB's they will wait until next April to buy a house.  This means there will be little demand for the next 10 months, so helping the hoped for hpc. Will it work like that?

IMO, yes. This is a double whammy for bulls because:

1. The general public will think it's a great deal, and wait until it comes in, thus exacerbating the crash (in a similar way to Lawson's fiasco of posponing a change to double interest tax relief)

2. Nearer the implementation date, people/media will realise that it isn't a great deal (for all the reasons that are coming out of the woodwork e.g. BS charging higher IR, limited availability, having to pay rent etc.) and it will fail to support the market.

A double-headed Bear-spear! :)

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So looking at this from all the angles, isnt it obvious that this is a pile of crap. Typical nulabour, off the back of an envelope stuff. They have got form - the 5 tests for entry to the Euro ( supposedly worked out on an envelope in the back of a taxi ), Blairs on the spot fines for antisocial behaviour and the usual recycling of immigration crackdowns,etc, etc. All soundbites, but 5 minutes analysis of the policy shows its rubbish and that no-one who actually knows anything about the issues was involved in the formulation.

I predict that in a couple of months once, yoy figures show decline - and theres no spinning out of it - this policy will be filed under 'crap policies to keep the media from looking at the real issues', with the other headline grabbing sh1te this govt seems obsessived with. Why cant they just get on with running the country properly, its what my taxes are paying for? Useles turds.

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Guest Riser

Good post from the manufacturing industry over on ADVFN

ADVFN House Discussion

Aleman - 24 May'05 - 18:54 - 5881 of 5887

As an employee in the carpet manufacturing industry which has been decimated by business and environmental taxes and regulations, I find it obscene that the money extracted should be used to try to prop up the price of non-productive assets instead of being recycled into productive investment. What happened to the Labour war cry of investment in jobs? How many jobs will keeping up existing house prices create? The target used to be to get more people to rent to create a more flexible workforce. I find it amazing that this government has been able to get away with the charade of running a sound economy for so long. There are a load of chickens coming home to roost, headed by a giant ****-up in downing street.

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  • 442 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
      • up 2.5%
      • up 5%



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