to take legal action over barrat homes "dream home" scheme that has screwed up my life

[twojobsjane]

Back in 2007 we really needed to get a secure house after several very bad rented experiences. We didn't have a deposit so we opted for a scheme with barrat homes where they lent 25% and we got a normal mortgage for 75%/from the Halifax.

We knew at the time that after 10 years we would need to pay back the 25% but were assured by several people that it would increase in value and so could just remortgage with the equity to pay this off.

Fast forward 8 years and the house is now worth 80k less than we paid and we have no equity in the property.

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.

Aibu to think this is very shady practice and I should take legal advice?

withdraw every penny out of bank accounts.
contact barratt and say you are handing in the keys unless you can come to some agreement/loan over a long period as you simply cannot pay it back

other than that, the games up, hand in the keys, walk away and rent forever.

Terrible, terrible advice.

Doesn't work like that unfort, the feat doesn't die when you hand the keys back like it does in the US! OP could still be presumed for the shortfall on the mortgage/barrat loan and would probably still end up being declared bankrupt.

OP work with the mortgage lender and B - try to get an extention, payment holiday whatever. The earlier you engage the earlier you know what you have to do.

You mean declare herself bankrupt dontbelieve?

Will you be in a position to repay in five years?

How much could you save as a percentage outstanding?

Will the 25 percent be the 25 percent value in five years time? If so, you will probably be in the same position.

It might be worth talking through the various scenarios with an IFA.

dontbelieve this is someone's life you a playing with- that is totally and utterly ridiculous advice.

Pop off onto a thread where you might have a clue what you are talking about as you clearly can't offer anything constructive here.

I haven't read the whole thread yet but I just wanted to say that there is nothing shady about the deal.
If you had paid 100% of the property value at the time of purchase then you would still be in negative equity and Barrett homes would still have received 100% of the price that they were selling for. They are not going to receive any more money from you than if you had purchased the property outright in 2007.
The problem has arisen because you relied on the market price increasing which it hasn't done.

Congratulations dontbelieve

You have won the prize for the worst advice I have ever read on MN.

I think saying new houses always lose value is misleading.

The first house I bought was new build. We were the second house on the estate and got to watch as each new batch sold by the developer went up in price. When we sold after 30 months we made a fair bit.

Key was, we were almost certain the area was going to be extensively redeveloped through keeping an eye on local business pages etc. Our new build estate was a catalyst for the area and it was a gamble that paid off as we were fairly certain of the odds although nothing is absolute.

When we were looking to buy in 2002 we went to a property fair and were warned against these deals (even though the fair was full of people pushing them) and to buy it all ourselves if we could. Instead of a smart new house we ended up with a small 1-bed flat in the cheapest part of London but we didn't have to worry about how to afford the rest some point down line. Even at that time it was common for these deals to say that you pay back the amount you 'borrowed' as a minimum but if property prices go up you'd end up paying back a lot more. Both sides take a risk: if it goes down the developer loses interest and deflation on the money if not the actual amount, if if goes up the buyer pays a lot more than they would have if they'd paid upfront (although they've had it interest free for that time). The danger was assuming that both wages and property prices would keep going up.

I remember seeing a programme about the valuation of new builds. Often there's nothing to compare them to to set a valuation. What the (dodgy) developers do is sell the first one or two to themselves (or a sister company) at a vastly inflated price and then when the independent surveyors look at local sold prices they base it on those inflated prices. However, that's not to say what happens with all new builds and as a buyer you still have to be happy that what you are buying equates to what you are paying (the full amount).

OP, you say the bank probably viewed the mortgage as 100% loan on their part, check the mortgage paperwork as that will tell you the ltv ratio. Mortgage companies look at the value vs mortgage amount but they would also consider the purchase price and anyone else with an option on the house (e.g. when we bought our flat we borrowed about 3k from my parents and the bank wanted to know if they would have a hold on the property, in the end we got round it by saying it was for moving costs not against the property). They would certainly have taken the Barrett's 25% into account.

Not read the FT and regardless of having read the small print in the contract it's an awful situation to be in. Sorry if this has already been suggested but make sure you apply for any PPI on credit cards in case there's cash owing to you to put towards this. Good luck OP

"Hand the keys back" just means people have been watching too many American TV programmes set in states (most of them) which have non-recourse mortgages. UK mortgages don't work like that.

We don't know how this contract is structured. The most likely scenario is that the OP bought a 75% share of a property, over which her mortgage lender have a charge. Barratt retained a 25% share, which they own outright. Upon the "handing back of the keys" (to whom?) the mortgage lender can sell their 75% share of the house, possibly at auction. That won't be worth a hell of a lot. After all, who would buy 75% of a house with the other 25% owned by a stroppy housing company that will only sell at an inflated price? A cash buyer, bidding low, that's who. It's unlikely you could get a mortgage for such a deal.

But the OP's lender don't care, because they usually carry mortgage indemnity insurance for the shortfall, so they're OK. They get the money someone's willing to pay for 75% of a house (rather less than the OP borrowed), and the rest of the money comes from the insurance company.

The insurance company, who aren't necessarily nice people, then come for the OP who now has a sodding great big debt, no equity and little choice but to go bankrupt.

Barratt still have their 25% share on their books, so aren't any worse off immediately.

Why would a cash buyer do this deal? Because they are gambling that Barratt would be keen to sell their 25% for an undervalue. But even if Barratt held out for the full 2007 amount, if you got the 75% for a third what the OP paid, and then paid the full 25% to Barratt, you've just got the house for 50% of the 2007 price. The market's fallen, but not that much. Quite a sweet deal. Except for the OP, who now owes a rather ugly insurance company two thirds of their original mortgage.

Like icantdecide we bought a new build in 2001 and it wasn't overpriced at all. We sold it for twice what we bought it for 5 years ago. All of the houses on that estate rose in value. The issue is that most houses new build or not that were purchased in 2007 suffered from a loss in value. The other problem arose from people borrowing 100% of the property value either through a mortgage or a deferred part ownership scheme (like the OP). If you don't put down a deposit you have zero buffer against falls in the market.

Blaming Barrett is going to make this situation much harder to deal with. You said yourself that you bought the property because of several dreadful renting experiences. They gave you an interest free loan of 25% of the value. That gave you stability for eight years, no real maintainence costs to think of (as it was brand spank), and possibly a more advantageous rate on your mortgage because you were borrowing a lower amount. The arrangement has saved you money compared to the costs involved with a 100% mortgage on a 'second hand' property of the same or similar value.

You can consult ten solicitors but all you'll end up with is ten sets of fees and the same result. You'll also have wasted a tremendous amount of time and energy which would be better utilised in finding ways to economise and negotiate a better repayment timetable.

Have you explored renting out a room? Even if it's one of your reception rooms, you could be getting a minimum of £200 a month- that's £2,400 a year. If you do that for four years out of the five you've renegotiated, that's nearly ten grand. I don't know how much you're looking at having to repay but that's not to be sniffed at.

don'tbelieve you mean the OP should screw their credit rating for life and be dragged through the courts?? That's what you're recommending there. Who do you think is going to rent to them then?

what I am saying is this...the OP says she would struggle to add to monthly outgoings to fund a loan/ remortgage. and that is even in circumstances where she could access a loan

if this is the reality and the op CANNOT get credit to fund the loan then the housebuilder "may" take action anyway to recover the monies as per terms of the contract.

Therefore, if something is unavoidable and will become reality then you need to position yourself in the best possible way for when that happens.

Negotiating with the builder is the only solution I can possibly see, and that involves them being flexible, AND it may mean the OP can't afford the extra monthly outgoings so theres only one way out for me unless some genius knows of a money tree/ rigged roulette wheel to solve the problem then please let the OP know.

as regards to the credit file- not ideal but maybe unavoidable, plus I feel there will be more people in the unfortunate position like the OP who have bitten off more they can chew and bought at post 2007 prices.

if there is a solution then find it, if not then position yourself accordingly

My experience with buying new homes is that they are always priced higher than a similar property in the area, that is older.

The property I am in now was a higher price than the mortgage company valued it at, but we had a large deposit and we are planning in staying permanently, so in reality fluctuations don't make a huge a difference. We have been here 5 years and the house price is back at what the builder sold it for.

Barrett did nothing wrong in this situation. They may have said house prices will rise they usually do. Since the Labour Party claims it didn't see the recession coming, I don't see how you could prove Barrett did.

Regardless of whether you think they are right or wrong. By the time the deferred payment is up, you will have had 15 years to pay it back. House prices were falling for a while, surely you must have come up with a back up plan in the 7 years since the recession started?

I can't work out whether you were naive or just so desperate to get your own home you pushed these things to the back of your mind. 10 years seems like a long time, but its not really.

I can't see that Barrett could be sued. Some people have suggested that usually you will pay 25% of current market value, are you sure that is not the case as that will reduce the payment quite alot.

Surely you must of thought what's in it for them? Whole idea is to shift houses they couldn't sell with standard mortgages as the buyers weren't there. As mentioned no different than labours new buy scheme they brought out, and no different than the conservatives help to buy scheme, those are purely there to get more homes sold, if they weren't house builders would slow down production which the government doesn't want. Myself who works for a house builder wouldn't touch one of those schemes purely because of the gamble. I've seen young couples purchase their first 1 bed flats and I think to myself you will want to move in a few years and you will have to somehow pay that equity loan back off, no idea how. I would imagine there are slot of people locked into their homes and can't afford to move due to the equity loans.

I work in commercial property. It is entirely usual for agreements to be termed 'whichever is the higher of x or y' at the end of a term.

Just wondered if you'd had any progress with this OP?