Shared Ownership - Negative Equity

angel1977 · 18 July 2008 at 10:05PM

Can anyone give me some advise on shared ownership? This might be a bit long winded.

My boyfriend bought 65% of a shared ownership property two and a half years ago, it was £175,000 so his share was £113,50, he put down a £5,000 deposit so got a mortgage for £108,750.

We were planning on selling his share and buying a house together so got a valuation done by a surveyor (the housing company insists it has to be a surveyor), he has valued it at £130,000. We thought it was impossible that it could of dropped by £45,000 in that time so we got valuations from 3 estate agents who all valued it at £160,000 We haven't mentioned this to the housing company yet but even if the surveyor ups his valuation to £160,000 we would still be in negative equity. We are now thinking that this low valuation could possibly work in our favour.

We can't sell his share as 65% of £130,000 is only £84,500, he's paid off about £2000 of his mortgage so would have a shortfall of £22,250 so this isn't an option anymore.

So we have two options left. Option 1: buy the extra 35% at a very cheap price and sell it on the open market or Option 2: stay as we are and wait and see what happens with house prices. With option 1 we would have to get a mortgate for £45,500 which would make the total mortgage about £152,00. We would therefore hope to sell at £160,000 giving us an £8,000 profit but if house prices continue to drop, which they might do by the time we've bought it from the housing company and then found a buyer, then we will be in the same position as we are now. If this is the case we could rent it out and hope house prices go back up, but don't think the rent would quite cover the mortgage and not sure if we'd be able to get a buy to let mortgage as well as a normal one to buy a house. Also, we were relying on profit from the sale to cover the fees etc although have got a bit of money to cover this if necessary. With option 2 we run the risk again of house prices dropping even further and would have to hope that they go back up again, trouble is we don't want to stay in a one bedroom flat for much longer.

Looking back now he should never have bought it but now we need to find a way to get out of it. Has anyone got any advise on what is the best thing to do in today's market? Hopefully I haven't missed anything out and all the calculations are correct.

bookduck · 18 July 2008 at 10:22PM

You can't always buy back the other share of the shared ownership.

There might be a ratchet clause in there where the minimum you can buy back was the original price, but any increase in price is subject to the percentage of the split.

There may be covenants that only allow certain people to buy the property, like key workers (teachers, nurses etc.)

I'd say buy it right out if you can. I looked into shared ownership once and it was not pretty, because every improvement you do you loose 35% of its market value to the other sharer for no outgoings on their part..

angel1977 · 18 July 2008 at 10:28PM

We've had a look in their handbook that they give you but it doesn't really say much, all it says is that you can buy extra share at anytime but has to be a minimum of 15%. Guess we need to check this with them first. Thanks for your help

lynzpower · 18 July 2008 at 10:33PM

Angel,

Where abouts in the UK is this flat?

angel1977 · 18 July 2008 at 10:36PM

Camberley in Surrey

lynzpower · 18 July 2008 at 10:41PM

What is the reason that you want to sell the flat? I dont really understand it.

All the naffing about with buying the extra shares, treying to get extra mortgage for a depreciating asset in this climate with a view to selling it on at an 8k profit in say 6ms I would say is prett optimistic in this market.

You explain a lot about this option 1, but very little about option 2, stay put and wait and see what happens.

Why do you feel the need to move out, is the location not working for you now, or has something else changed in your life? Or are you panickign about the market, and wanting to jump ship?

angel1977 · 18 July 2008 at 10:48PM

We want to buy a bigger house, that's the main reason. We could stay here but if things don't pick up again for say a few years it could hold us up on future plans like getting married, starting a family etc, we just don't want to end up stuck here, especially if prices drop even further, it could just get worse. Just thinking maybe it would be better to get out now just in case. I agree though, it's a lot of hassle and costs to buy the extra share and then sell but we could end up losing more money if we don't.

bookduck · 18 July 2008 at 11:14PM

if there are not restrictions, the share could be a good thing too , as it makes an expensive property more affordable.

Just for interest, how much are you paying rent?

SouthCoast · 18 July 2008 at 11:19PM

I know of lots of 1/2 bed new build shared ownership flats that are not selling as nobody can afford to buy them, even after dropping the keyworker restrictions.

angel1977 · 18 July 2008 at 11:44PM

He's paying £196 rent and £565 mortgage

lynzpower · 19 July 2008 at 12:13AM

but if you hold onto it for now, surely your long term home cost will be cheaper too ?

I wouldnt mess around with all this jiggery pokery tbh, even an arrangement & sols fees for the extra share will cost you a grand & a half.

Shared Ownership - Negative Equity

Comments

Confirm your email address to Create Threads and Reply

🚀 Getting Started

Categories

Is this how you want to be seen?

Get our FREE Weekly email full of deals & guides - and it’s spam-free