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?

How much money are you talking about? £15k? £25k? £50k? £100k? This will make a big difference to the feasability of finding some of the money in time...

Please tell us your mortgage is repayment and not interest only, OP.

Talk now to Barret and mortgage company.
Seek to restructure the terms of both loans to possibly pay less for longer.
Do it now while you've still got options - even if some of those look bleak.
Many people will be in this situation - half your estate probably and the millions of others around the country who have entered into similar agreements on this type of property. The banks will have a protocol for dealing with this and the sooner you are on it the better.
Then think very positively about your home and remember the anxieties that drove you into taking up this deal. You thought this was a better option then and when you get this sorted you will find that it probably still is the best deal for you and your family in your circumstances.

Here's why Barratt were not unreasonable to put in the contract that you could repay less if the value of the property went down:

They lent you cash. You used that cash to buy the house. The fact that you bought it from them is neither her nor there.

When lending you that cash they decided not to charge you any interest ( because they wanted to encourage you to buy the house from them.) However they decided that they were not prepared to share the risk of the property value going down, so they specified that the minimum they wanted back from you in 10 years was the amount they lent you.

Bear in mind that that cash sum is worth a lot less in real terms than it was 8 years ago. Since Barratt had more bargaining power than you, they decided that a good way to offset the fact that they were (a) getting no interest and (b) effectively being paid back less than they lent you
was to build into the contract a clause allowing them to get back some of the upside if the house went up in value. In other words, they invested in 25% of your house. That is perfectly logical and, as others have said, as long as it was made clear to you at the time of signing how the arrangement would work then you do not have a leg to stand on, legally.

On the other hand, if you were advised by a financial adviser that the value would go up and you'd just be able to remortgage to pay back Barratt in 10 years then you may want to look at pursuing the adviser. However you haven't answered the question about who advised you this so I suspect it was a well-meaning but ill-informed friend or relative.

Sorry you find yourselves in this position but it is not Barratt who are to blame. It is never a good idea to buy a property with 100% borrowed money I am afraid.

Hope you can find a solution, MSE forum users may indeed be able to help. However the posters on there can be very blunt, much like here, so I would suggest you don't phrase your post as one which casts blame on Barratt. Be up front about how you made a mistake and you're likely to get better responses.

OP did you organise this directly with Barratt or go through an intermediary e.g. My 4 Walls who manage the 'loan' ?
If so can you go them and discuss the problem to see if they can help in any way?

We have a shared equity deal on our house with Barratt / David Wilson but on much better terms than yours and only purchased a year later - are you 100% sure you have to pay the full loan amount back after 10 years and that you don't just have to start paying interest on it if you don't repay in full or 'staircase' the loan ?

It is like borrowing money for a car and then it being stolen uninsured. You wouldn't expect the bank to let you off and not have to pay back the money!

You borrowed 25% of your house value interest free! Of course there would be clause that allow Barretts to get their money back, they are a profitable business not a charity.

You need to contact them asap and explain the situation. See if you can start a repayment plan now that is stretched over a few years. You may have to pay interest of it for doing this but that's to be expected if they are not getting their money back when it is due- you have already had it for ten years!

OP I've just had a quick Google.

A couple of years ago Barratt unsuccessfully tried to sell their shared equity book which indicates they knew something was brewing.

On the other hand there were also posts on various forums where people had been querying is shared equity was a good option and the advice was "possibly, depending on the market but you must have a fall back option to pay back the housebuilder if the market doesn't rise".

It's in no-one's interests for this scheme to widely collapse - this may help you if you can find a substantial number of people in the same conditions. Otherwise it may be a case if taking financial/legal advice & getting to the best place you can.

This is a perfectly fair arrangement OP. Don't bother going to your MP or getting legal advice. That's a waste of time and money. Just get saving, hard as it may be, this is the risk you take as homeowners, and the price you pay for burying your head in the sand.

but were assured by several people that it would increase in value and so could just remortgage with the equity to pay this off
So you borrowed 25% while banking on it being free money. YABVU. Houses are not bloody money trees. You own your own home, and have had 10 year's use and benefit of someone else's money, and now you need to pay it back. Of course you can't take legal action against paying back a loan you agreed.

" not unreasonable NOT to put it in the contract...

You're bonkers if you think you can ge out of this! You agreed to it, why would Barratt lend you money only to accept less later down the line because you made a bad financial decision?!

They key things are the amount remaining on the mortgage, the value of the house now and what you owe Barrett. It may work out that the bank will extend your mortgage if you've always been a good customer. It's hard to have an educated guess without knowing this info.

If you've got this info you could start asking your local CAB office for where to start looking for cheap or free advice.

I'm curious as to your original plans for paying the 25%? If your house had increased in value you would have needed to remortgage or downsize to realise the money you needed. With 25% to pay back and no savings it would also have to be a reasonably substantial house price increase.

You took a gamble and it didn't pay off. You didn't make any contingency plans. No one else is to blame.

You took out a loan there is nothing shady going on im sorry thishappened to you but you were fully aware of the T&C you bought into the dream im afraid

On the bright side, you've pulled your head out of the sand with 18 months to sort a plan out.

In 10 years, even if it's a capital repayment mortgage, you'll have touched only a small amount of capital repayment. That's how it works - you pay mostly interest, as the mortgage years pass, the proportion of capital repayment increases.

Barrett will be better off seeing some money than none. You won't be the only one in this situation.

You'd be better off going to MSE and on here and starting threads asking who has had this and how have they dealt with it. And talking to a financial rather than legal adviser.

Did you consider what I said about a lodger?

Sorry I misread your post and thought it was a shared ownership scheme. I agree with Pinkpanther and go to the people involved whether Barratt or a middle person. And see if they can suggest anything. Can't see that you're the first person to have this happen.

Barratt is a business they're there to make money - they weren't doing you a favour - of course they win either way, that's the point!

Sadly this is what happens when people see their home as an "investment" rather than a secure place to live.

I am also astounded at the naivety of assuming house price rises when a year after buying the global property market went into recession.

But the winning either way thing is not necessarily true.

If they lent you, say, £50K and you fail to pay it back, then the house sells for bobbins and they don't get it that way, then you go bankrupt and you have much of the debt wiped... Well, Barrett lose big time.

And a lot of Barratt employees and related trades who lose if they go under when this isn't repaid.

Barrett have definitely shared the risk with you!

And I bloody well hope that the people (not you!) who have had to pay back more, is a big enough balance to see that they don't go under from the non payers.

Basically I pray as a company they have made better decisions than some individuals. As a pp mentioned, trying to sell on the loans. They're looking at it.

It is in no-one's interest if they go bust.

Big business is not always fatcats who can't lose.

Is your mortgage a repayment or interest only?

Not sure if the OP is coming back but it would be good to know who the 'several people who assured her the property would increase in value'' were.

OP are you going to come back and engage with posters on your thread? There are a lot of people trying to help you here.

Op i really feel for you. We did a similar scheme through a different builder and were really misled by the sales people. They absolutely tell you that you will be able to repay the loan from the equity especially as house prices will go up!

Our financial advice was from a company affiliated with the builder and funnily enough they never even mentioned repayment of the shared equity.

We were lucky. I tracked house prices and was able to pay off the equity (thank you redundancy!!) And the company that owned the equity loan were open to some negotiation. But i couldn't believe the crap the sales people at the building company had told us!

I think its really scary. Loads of people on my estate are now trying to sell at above market value (as the builders valuation teams believe the houses are worth more than they are) and no one can sell.

The government scheme horrifies me- i dread to think what will happen ten years fr now when no one can afford to pay back the loans on these over priced houses!

I feel the O.P. has been given a really rough shaking on this thread. She's in a horrifying position and all the 'well it's your fault/how could you be so naïve/why didn't you/should have dones' are hardly consolatory.

A hell of a lot of people borrowed beyond their means for mortgages they could never repay and it is only since the crash happened that the banks and bankers have been found culpable of irresponsible lending.

I personally think that schemes like this, are, if not exactly dodgy, certainly irresponsible financially speaking, because they effectively trade on giving people the right to buy property who perhaps should just have been refused a mortgage in the first place.

Virtually everybody has traded in this idea of property being a fail-safe investment and all we hear in the media is how property prices are rocketing especially in London. Virtually everyone I know thinks buying a property is now some sort of golden ticket to future wealth and that their house price will just keep rising.

I think getting a solicitor to check T&C would be at least prudent.

what was the original price? What is your mortgage remaining now?