An article appropriately titled “Three-quarters of the answer” in yesterday’s Guardian Money section appears to have been written and edited by people with three-quarters of a brain. Between them.
Any readers who may have spent the last year on an expedition to the deepest, darkest, most off-grid areas of the Amazon rainforest may be shocked to hear that mortgages for more than 90% of a property’s value are now expensive and difficult to obtain in the UK.* Clearly the Guardian Money team have been wrestling with anacondas, because they suggest that lenders are happy to write 100% mortgages on 75% of a property!
The Guardian have decided this week to give free advertising to schemes whereby developers provide buyers with a soft loan for 25% of a property’s value so that the buyer only needs a mortgage for the remaining 75%. The rationale? A gimmick to avoid simply marking down the headline price, perhaps? No, the Guardian identify another “advantage” of these schemes:
“One plus point is that mortgage rates for people borrowing 75% of their property’s value tend to be more attractive and easier to get hold of, says Philip Hogg at Miller Homes.”
Well, that would be the case if you paid the other 25% of the property’s value as a deposit. But in this case you don’t own that 25%. The article is clear that:
“…you can sell the property at any time and retain your share of the selling price, while the developer will be entitled to 25% (or whatever its share is at that point) of the open market value at that time.”
“[B]orrowing 75% of [a] property’s value” in these circumstances is a 100% mortgage for three-quarters of a property. Not likely to be on “attractive [terms] and eas[y] to get hold of”, methinks.
I suppose there may be ways round this problem. Perhaps the developers are prepared to take on the risk of the buyer defaulting on the mortgage. They may be prepared to indemnify the mortgage lender for the first 25% of a loan in the event of a default. This would allow a buyer to obtain preferential terms for a 75% LTV (loan to value) mortgage.
If, though, a buyer were to take out a 75% loan claiming it is secured on the whole property when the developer still owns 25%, then, of course, they and/or their professional advisers would be committing what many would term mortgage fraud.
And surely that can’t be what the Guardian is suggesting its readers should take part in?
Anyone not missing 25% of their brain would be best advised not to buy at all until sellers have faced reality and simply marked their prices down a great deal more than they have so far. The sooner and faster they drop their prices, the better it is for everybody, except those misled by “reporting” such as in this week’s Guardian Money section. Daft schemes such as the ones to which the Guardian freely donates the oxygen of publicity seem to have been dreamed up simply to avoid developers having to take a loss.
* This week’s Guardian Money Best Buy tables list only one mortgage above 90% LTV (loan to value) and that’s misleading because there is a HLC (Higher Lending Charge) for borrowers of over 90% (so for LTVs above 90% it’s really a different mortgage). If you don’t know what a HLC is have a look at this article titled Mortgage Lenders Are Still Ripping You Off.