Key workers scheme using Tower Homes

[GEORGE]

I have recently discovered that I qualify under this new government key
worker housing scheme where they offer you up to £50,000 as an interest
free loan to assist 1st time buyers with the Purchase of a property in
SW London. I have a bit of a deposit (£30K) and can raise a £100000
mortgage.

It almost seems too good to be true and I believe (old cynic that I am)
that if something seems too good to be true ...It always is!!

What on the surface appears to be an interest free loan is translated
into the following:

If I buy something for180K the £50K loan translates into a 28% share of
the property. So if in the long term my property increases to £200K the
lenders (Tower Properties) get 28% 0f £200K ie £56000.

I feel uncomfortable with this but don't know why.

Is there a catch here I'm not seeing???


Thanks for any input

George

[Derek]

Post by GEORGE
I have recently discovered that I qualify under this new government key
worker housing scheme where they offer you up to £50,000 as an interest
free loan to assist 1st time buyers with the Purchase of a property in
SW London. I have a bit of a deposit (£30K) and can raise a £100000
mortgage.
It almost seems too good to be true and I believe (old cynic that I am)
that if something seems too good to be true ...It always is!!
What on the surface appears to be an interest free loan is translated
If I buy something for180K the £50K loan translates into a 28% share of
the property. So if in the long term my property increases to £200K the
lenders (Tower Properties) get 28% 0f £200K ie £56000.
I feel uncomfortable with this but don't know why.
Is there a catch here I'm not seeing???

Don't know if it's really a catch. but isn't it a bit "Heads I win tails
you lose" from Tower Properties point of view. If the bottom drops out
of the property market and the property sells next for 120k they'll
still want their £50k back and you'll take the whole £60k loss. A
building society would still want their capital back but they'd not get
any of the profit if and when there was any.

I can't imagine them paying any of the maintenance or insurance costs of
the property either.

Another thing to consider is it's not really getting you up the property
ladder. In 15 years time if you sold up, and settled up with Tower
Properties would a similar deal still be available, would it be
available somewhere else you might want to move?

Fair enough I suppose since it's about getting you housed not about
helping you to make money out of property.

DG

[GEORGE]

Post by Derek

Post by GEORGE
Is there a catch here I'm not seeing???

Don't know if it's really a catch. but isn't it a bit "Heads I win tails
you lose" from Tower Properties point of view. If the bottom drops out
of the property market and the property sells next for 120k they'll
still want their £50k back and you'll take the whole £60k loss. A
building society would still want their capital back but they'd not get
any of the profit if and when there was any.

Apparently they take a loss if the marjet drops because the loan
translates toi a percentage of the propertry ie 28%. So if it is worth
less then their loan is worth less.

Post by Derek
I can't imagine them paying any of the maintenance or insurance costs of
the property either.
Another thing to consider is it's not really getting you up the property
ladder. In 15 years time if you sold up, and settled up with Tower
Properties would a similar deal still be available, would it be
available somewhere else you might want to move?

Thats a fair point. Am I realy getting onto the property ladder? One
issue is that if I decide to change career and become a........ estate
agent (no!) a.......... copywriter(no!) ......Or whatever I have to pay
back the loan within 2 years

Post by Derek
Fair enough I suppose since it's about getting you housed not about
helping you to make money out of property.

Yes I suppose I would have a house/flat for as long as I chose to be in
the key workers professions, and at a higher level of property.

...........................And I still feel uncomfortable.

Post by Derek
DG

George

[Neaco]

Post by GEORGE
I have recently discovered that I qualify under this new government key
worker housing scheme where they offer you up to £50,000 as an interest
free loan to assist 1st time buyers with the Purchase of a property in SW
London. I have a bit of a deposit (£30K) and can raise a £100000 mortgage.
It almost seems too good to be true and I believe (old cynic that I am)
that if something seems too good to be true ...It always is!!
What on the surface appears to be an interest free loan is translated into
If I buy something for180K the £50K loan translates into a 28% share of
the property. So if in the long term my property increases to £200K the
lenders (Tower Properties) get 28% 0f £200K ie £56000.
I feel uncomfortable with this but don't know why.
Is there a catch here I'm not seeing???

No - they only get 28% of the increase - so if you bought for £180K and the
property went up to £200K, they would only get 28% of £20K - so they would
get £5,600. And they would only realise that on sale of the property and if
your next home wasn't under the Key Worker scheme. In such a case, they
would get £55,600 which would be repayment of the original "loan" of £50K
plus £5.6K "interest".

Of course, in these days of big house price inflation, you might bedrudge
having to pass over any of the increase in value (it's easy money for them),
especially if you have forked out a lot of money to improve the property, as
you would only get 72% of any return.

The biggest drawback I see under the scheme is that if you ever left the
public service job you work in, you would have to repay the loan - it's
unlikely anyone would get a new job in the private secter that would pay
more than enough to enable somebody to do that. The system may force people
in to public sectar jobs which long term, they don't want to stay in.

You do have the opportunity under the scheme to repay back the loan in
chunks of 5% at a time, which you could do by increasing your mortgage over
time - you could probably afford to do this if you're an NHS worker as your
salary for next year will increase by at least 3.225% and will probably
increase substantially more under "Agenda For Change" - of course, I don't
know where you work so that's just speculative.

[Jim Ley]

Post by Neaco
No - they only get 28% of the increase - so if you bought for £180K and the
property went up to £200K, they would only get 28% of £20K - so they would
get £5,600. And they would only realise that on sale of the property and if
your next home wasn't under the Key Worker scheme. In such a case, they
would get £55,600 which would be repayment of the original "loan" of £50K
plus £5.6K "interest".

Is this in all circumstances? Say the occupier doubled the size of
the house through extensions - I assume they still get the full share
of the increase - is there the ability to pay back this loan without
having to pay the increase, I see your 5% bit below, but aren't clear
on it.

The main situation I'm imagining is the where you have a couple one
eligible, the other not, using the 50,000 purely as a way to minimise
cost.

Jim.

[John Redman]

The system may force people in to public sectar jobs which long term, they
don't want to stay in.

Bingo! Making you a member for life of the New Liebour public sector
salariat.

[GEORGE]

Post by Neaco
No - they only get 28% of the increase - so if you bought for £180K and the
property went up to £200K, they would only get 28% of £20K - so they would
get £5,600. And they would only realise that on sale of the property and if
your next home wasn't under the Key Worker scheme. In such a case, they
would get £55,600 which would be repayment of the original "loan" of £50K
plus £5.6K "interest".
Of course, in these days of big house price inflation, you might bedrudge
having to pass over any of the increase in value (it's easy money for them),
especially if you have forked out a lot of money to improve the property, as
you would only get 72% of any return.

Yes I thought that. If I had enough money to invest £50K into somebody
who worked in the public sector ( I work in Social Services) and was
able to get a secured loan at a guaranteed 5% or whatever in the current
housing market, then I think its a good scheme

Post by Neaco
The biggest drawback I see under the scheme is that if you ever left the
public service job you work in, you would have to repay the loan - it's
unlikely anyone would get a new job in the private secter that would pay
more than enough to enable somebody to do that. The system may force people
in to public sectar jobs which long term, they don't want to stay in.

I know. Who stays in the public sector. But the arrangement is such that
you have to be out of it for two years you repay the loan. I suppose
after two years in the current private sector market I might be glad to
get back in to the public sector. :)

Post by Neaco
You do have the opportunity under the scheme to repay back the loan in
chunks of 5% at a time, which you could do by increasing your mortgage over
time - you could probably afford to do this if you're an NHS worker as your
salary for next year will increase by at least 3.225% and will probably
increase substantially more under "Agenda For Change" - of course, I don't
know where you work so that's just speculative.

I didn't know that. I suppose we are being taken over by the NHS and I
thought it was all bad...... perhaps not ;)

Thanks for the feedback


George