Bracknell Forest Council is dishing out taxpayer subsidised loans:
Exhibit One:
Would you like to improve the warmth, comfort, safety and security of your home? Are you a homeowner aged 60 or over? If the answer is YES, please read on for some good news...
WE have created a loan that will help you remain in a well maintained home during your retirement and you can repay as much or as little of the loan as you like each month. All this is backed up with the peace of mind that the loan is provided by your local authority on a not-for-profit basis.
Emailed in by Robin Smith.
Exhibit Two
Who is eligible?
Empty Homes Loans are available to owners of empty properties and anybody wishing to purchase an empty property. Applications are processed on a non-status basis, although a credit check is carried out and a very poor credit history may result in the application being declined. Bankruptcy will automatically prevent us from making a loan...
Interest will be charged at 2% above Bank of England rate, subject to minimum and maximum rates (please contact us for a quotation). Your account will also be debited with an annual charge of £15 to cover the cost of loan administration and statements. The loan may be repaid, in whole or part, at any time without penalty. When the loan is completely repaid there is a flat fee of £50.00 for cancellation of our registered charge.
Via SBC at HPC.
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7 comments:
So if you want to sell your house, best make sure it is 'empty' for a while first then?
"Interest will be charged at 2% above Bank of England rate"
Is this much less than you would get elsewhere?
SL, at the margin, yes.
B, I posted about this before, FormerTory and Lola both reckoned it is very difficult and expensive to borrow money on a derelict building. So yes, 2.5% is given away.
Mark, that's slightly beside the point. I realise that it's damn near impossible to get a mortgage on a derelict building, but AFAICS, that's for the same reason as why it's difficult to get a mortgage if you are self-employed, it's just too f**king difficult for the mortgage company/bank to deal with. A derelict building is worth a lot less than one in good condition, but that doesn't mean you are less likely to get that money back if you sell it, therefore, assuming a sensible LTV, a derelict building is a no more riskier security on a loan than one in good condition. Making it easier to buy a property that is derelict isn't exactly a subsidy, whereas making it cheaper to buy a derelict property than it is to buy one that isn't derelict (as SL implies) is a subsidy. So which is it?
B, I hope I haven't missed your point, but a derelict building IS more risky as security. I grant you your point about how when improved it'll be at a higher LTV than the same house bought in prime condition, given the same deposit, but the risk is that the borrower runs into trouble with the physical condition of the building and / or runs out of money. There are lots of risk which can leave the lender high and dry.
Then you have the issue that a derelict isn't habitable and therefore the mortgage will be unregulated (by the FSA) but if it's then lived in as a residential property the mortgage will need to be regulated but it can't be because it was unregulated when taken out. Residential mortgage lenders are geared up to take on only residential (regulated) mortgages and won't touch unregulated ones, because the risk of getting it wrong is too high - the FSA has big teeth and loves using them.
The only solution is specialist lenders who specialise in unregulated loans and fund works to improve uninhabitable property on a bridging-type basis. Expensive loans, big fees, nice intro fee for the broker, and the borrower generally has to be a bona fide builder or have a track record.
I wonder whether the Council is registered with the FSA as a regulated lender? (Or an unregulated one, for that matter). ANY loan secured by a first charge on residential property is regulated.
B, if the council is offering loans at a tiny interest rate, much lower than free market rate, then that's a subsidy.
FT thanks for extra info.
FT, thanks for that. Stupid of me to ascribe to laziness what should have been ascribed to bureacracy. Reprehensible in either case, though. The point I was making is that whether the borrower runs out of money or runs into trouble, the building is unlikely to be worth less than what he paid for it in its original derelict condition - to take an extreme case, if the building was so bad it needed to be demolished, effectively what the borrower is buying is a building plot, something he will have difficulty in diminishing the value of, so unless the lender accepts a silly LTV in the first place, he is pretty safe. I still think, however, that the expense of loans for derelict properties is has more to do with lack of competition (not many derelict properties, not many people prepared to take them on) than any inherent riskiness of the security.
Mark, ah, so this is a bargain interest rate, that wasn't clear.
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