Advice again on affordability and OwnHome scheme

londongirl

Hi all,

I posted a couple of months ago my estimated SOA if i bought a flat with assistance from the OwnHome scheme. I think general consensus was that i was mad as didn't earn enough to give me comfortable leeway.

However, i've since gone further through the application and now have a mortgage approved in principle and next step is finding a property - i found one i really like yesterday. Got a second viewing hopefully tomorrow or Thursday. Have also seen 1 others in the same block and seeing another tomorrow (all studio flats) and the one i like is a lot nicer than the others - same size but nice kitchen and wouldn't need anything doing to it.

I'm not sure how you can link back to another thread but if anyone is interested in where i was at 2 months ago then i guess you can search. But here was my estimated SOA 2 months ago: Then in red i've put the things that have changed or things i know for definate if i go for this property

Income: £1352
2nd job income – variable between £0 and £100 per month (am shattered if make £100 per month though but could do it if necessary)

Monthly Outgoings:
Mortgage: £600 (based on owning 60% of property (mortgage of £89500) – government loan for other 40% - interest free for 5 years with ownhome scheme, then 1.75% interest for next 5 years) Mortage would be £520 (fixed rate for 5 years) or £477 on a tracker (obviously with leeway for it to rise) Would own 60% of property - mortgage of £78500.

Buildings/contents insurance: £7
Council tax: £71 (assuming band B property which looks likely) Yes it is band b
Water: £20
Gas: - £25 - No gas all electric flat - just one tiny heater for whole flat but thats all any of them had so must be enough?
Electrictity £25 - therefore electicity maybe £50?
Home Phone: £12
Internet: £12
TV licence: £12
Mobile phone contract: £15
Estimate of ground rent: £5
Estimate of service charge: £30 -Service charge actually £52
Travel insurance £2
Food shopping £100
Eating out £25
Snacks at work £12
Pub £30 (I don’t actually spend this much but thought it wise to overestimate!)
Train travel to work £72
Car maintanence £41
Car insurance £20
Car tax £10
Petrol £35 - can easily cut this down due to living down the road from my friend and sharing more journeys.
Savings £25
Hobbies £16
Other entertainments/ socializing £34
Denitst £2 (
Haircuts £6 (£75 per year – only get it cut twice a year usually)
Contact lenses £10
Toiletries £2
Clothes £30 (again I don’t usually spend that each month but may spend £150 twice a year – again overestimated to be on safe side)
Christmas presents savings £12
Summer holiday £33 (£400 per year)
Winter weekend away £20 (£230 per year)
Birthdays £12
Big expenses (eg furniture) £12 (£150 per year)

As well as mortgage being a bit cheaper - another huge difference is my parents saying they will give me advance on my inheritence from my nan - £10k plus since living at my parents i now have £8k in the bank - obviously need some for fees and solicitors etc.
This would therefore be my emergeny fund for when the cooker blew up etc. Plus i would earn interest on it which i could use as an extra £20 or £30 income a month.

My idea is that it doesn't make sense for me to use that for a deposit as with the OwnHome scheme i still have to take out the max mortgage i can which is £78500 so all it will mean is i own a bigger percentage of the property. I also look at it that if prices drop i can then use it to buy more of the property at a lower price. If prices rise then i would probably sell before the 5 years interest rate kicks in and i would have made some money on my share.

So any advice in general?

Main other advice i wanted was - the property is a studio flat but with a kind of seperate bedroom area (but still essentially one room) , immaculately don up - seperate kitchen (rare in studio's i've found) fairly modern but not amazingly done but i like it, 1st floor so i would feel very safe on my own. Great location - near the more expensive part where i used to live when renting and loved it. Only 3 miles from my folks. A half mile walk from one of my best friends and 1 mile walk from another close friend. 3 miles from the station i drive to to get to work. All in all pretty good - only downside is i was hoping to get a proper 1 bed flat but i guess at least with studio my bills would hopefully be cheaper?
So it is on for £134k (this is a london borough by the way so nothing else around this price range). It has been reduced from £144k. The owner paid £115k for it 3 years ago. Others went for £134k two years ago. Other ones i looked at but not as nice are on for £134.5 and £129.5. Question is what should i offer? I don't really want to go above £125k becuase of stamp duty but don't know how much less i should offer so it could be negotiated up?

Last thing is mortgage i've accepted in principle (but can change my mind if offer gets accepted and process starts) is 6.89% 5 year fixed rate with coop. Has to be coop mortage - condition of OwnHome equity loan.
I wanted it fixed so i could feel secure - but if my circumstances change i am then tied in to lving in a studio for 5 years or payhing a fee to get out of mortgage. Not sure i want to definately be living in studio age 35 in five years but obviously if my circumstances don't change then thats where i will be.
Do i go with fixed rate - or im' more tempted by tracker. No tie in, no fee to take it out. £140 exit fee only. and 1.04% above bank of England base rate. So currently mortage would be £477 with this rate - which means i could take a couple of 0.25 % rises in the base rate before it was even as much as the fixed rate repayments. And of course i guess i would have the option of fixing if i wanted to if a better deal came along in a few months?

Advice please on any / all of this!!

I feel like i'm researching and researching and desperately trying to be sensible but would really value advice or opiinions especially on which mortage and how much to offer.

Thank you so much!!

Londongirl

Maseillo

I'm not sure I'll have anything valuable to say as I've never bought a home so am pretty clueless about the whole thing - we are looking into the ownhome scheme ourselves though so I know a bit about that and I'll be interested to see the replies you get.

I'm guessing the Co-op did an affordability check on you for the mortgage - if you feel you can afford it and they do too, and you are sure it's what you want to do then I would go for it myself. Also it's a great thing that you will have an emergancy fund too. I know what you mean about not using it as a deposit - it won't make any difference to your mortgage payments at all, all it means is that you will have a bit less to pay in 5 years time when you start to pay the interest each month.

Personally though i'm not sure about having a fixed rate for 5 years on a studio, unless you are prepared to pay the fee for getting out of it. Your life can change so much in 5 years and you will probably find that you will want to move before then. Take me for example - I went on an 18-30 holiday with some friends and met someone, 3 weeks later he proposed. Ok, so that's not "normal" but you never know - my point is your life can change quickly. We got married 2 years later and now have 2 children! I'd only go for a fixed deal if I knew I'd be comfortable there for that time.

Do you mind if I ask how the process went for the ownhome scheme? I have an appointment for an telephone interview - the first one they had available is 17th September! After that I don't know what happens or the timescale or anything. They said it something about whether there are funds available in my area - not sure what they mean by "area" . Frustrating having to wait as I'm wondering if we'll get accepted, if we do then how much would they give us as a budget etc etc...

Good luck with whatever you decide!

SJ x

londongirl

Thanks for the reply Maseillo. I think you are right about the 5 year tie in. My gut feeling says not a good idea just because its a long time to be in a studio flat - and i suppose i would hope to meet a partner in the next 5 years but who knows if that will happen.

Yep coop did affordability check. They actually said they could lend me up to £100k (my earnings are only £22,300 and with travel into london i knew that it was not affordable for me so they agreed to put it down to the minimum amount OwnHome said i had to get a mortage for).

The process is fairly easy - but yes there is a long waiting time. I waited about 6 weeks for my appointment too and that was back in May i called up - got the appointment at beginning of June and spent the day worrying I would miss the call! They ask you some basic eligability questions, then tell you how much they want you to get a mortage for with coop and then give you a freephone number to call the Coop. The Coop then ask you more detailed questions when you call them - and they go through all the products with you and discuss affordabilty etc. The guy i spoke to was quite helpful. Once you have mortgage offer in principle thats it you are free to look for properties. ONce you have found one you call the Coop back to tell them and they process your full application. (I havn'et done that bit yet obviously!)

In terms of area i don't know how they categorise it. I'm in a london borough at the mo and will be buying in a London borugh - the lady said no worries at all about getting funding if you are in London. The budget you will then have is basically your mortgage amount plus any deposit you have plus up to 40% of property price from OwnHome (they will lend 20 to 40%) So for me with my £78k mortgage they will lend me 52k which means i can buy up to £130k (me buying 60% , them buying 40%)

Hope that helps!

londongirl

Sorry - just bumping this thread. Advice anyone? Sorry i know it was quite a long post - particularly would like advice on what to offer and what type of mortgage!

Thank you

lynzpower

one thing I do know is that some shared ownership property is turning up - at auction. I also know some flats are not getting even bids on in london at under 100k. I would not be buying a shared ownership studio flat in this market. A mate of a mate has been trying to flog her studio flat for nearly 6 months in london with no viewers- one lowish offer she refused 5 motnhs ago and now she wishes shed taken it

Where abouts in london are you looking, and MUST you buy now? What is stopping you waiting? The government are talking about all sorts of schemes, reduction of stamp duty being one of them - which could benefit you later.

londongirl

Thanks Lynzpower – I wouldn’t be considering normal shared ownership i.e new builds and paying rent on the part you dno’t own. This one is interest free for 5 years and will enable me to have somewhere to live for 5 years if necessary! It is also that you can pick any property on the open market and these flats were built in about 1980 but in nice condition.

Reason I have to buy now is I am living with my parents – having moved back in in March after splitting with my fianc!. I can’t afford to rent anywhere. These studio flats rent for about £630 to £680 per month – my mortgage would be £520 plus I love the idea of knowing its mine and not having to worry about landlords and not being able to put pictures up or paint the walls etc. At age 30 I feel like I just need a place of my own. I can’t see that I would be in a much much better position in 6 months and by then I would have been back at my parents for a year. They are quite keen to have their space back – my furniture is all crammed in the spare room and no-one can use it, plus I am now in my old bedroom which means they have no spare room for guests while I’m here.

I would rather buy than go back to sharing and hating coming home to never knowing who’s going to be in your house – flatmates boyfriends etc and when you can go in the bathroom or use the washing machine. I just feel having nearly been married and settled that I can’t go back to living in a shared place and can’t afford to rent on my own. My parents are being good and would let me stay if necessary but things like not even being able to have boyfriends to stay (if I had one which I don’t at the mo!) but they have never liked that – says it makes them uncomfortable nothing to do with my age!!

Sorry yes you asked what part of London – its London borough of Hillingdon (edge of Northwood to be precise – very nice area) My dream location (well half a mile up the road is my dream location but can’t have everything!)

As far as I’m aware I would not need to sell this property on marketed as shared ownership – is that the reason why you said you wouldn’t touch shared ownership at the moment? I guess I need to double check but as far as I know you can just sell it (prob have to get it valued by the loan people too) and then pay back the equity loan which is 40% of the value at the time you sell. So I wouldn’t necessarily need to find another buyer in 3 to 5 years who wanted to buy shared ownership.

I could get a studio flat for £85k in a horrible area outright but would not want to live there so this seems a preferable option to me. Unless there is something else I haven’t thought of?

Oh yes and last thing is it is better than a lot of studio flats as it has separate kitchen, hallway and bedroom is in separate area. Another one in same block I went to see had built a stud wall to make the bedroom totally separate – albeit off the lounge rather than the hall but almost had the feeling of a very small 1 bed flat. I wouldn’t buy a studio where kitchen was in same room as lounge. But maybe that’s not the only reason people don’t want studio’s?

Thanks

lynzpower

Thanks Lynzpower – I wouldn’t be considering normal shared ownership i.e new builds and paying rent on the part you dno’t own. This one is interest free for 5 years

my alarm bells say what happens after 5 years, who do you owe the money to and at whart interest rate. Is it applied backwards?

Is it a government scheme or one from a private builder. Im gettnig the sense this is a private builders scheme, so vbery interested to know.

londongirl

Its not a private builder - its buying anything on open market not necessarily a new build (and this flat isn't a new build) Its a government scheme - in association with the Coop and People to Places (a housing assoc/ equity loan provider). www.ownhome.co.uk

You pay interest on the 40% you don't own at 1.75% after 5 years.Then after 10 years its 3.75% - i guess i would hope to have sold it before 10 years.

geoffky

BEFORE YOU DO ANYTHING WATCH THIS

http://www.bbc.co.uk/mediaselector/check/bristol/realmedia/092007/bs_panorama?size=4x3&bgc=C0C0C0&nbram=1&bbram=1

lynzpower

no after 5 years, as I read it you have to be mortgageable for the full amount, is that not right.

You then have a choice of a range of mortgages from The Co-operative Bank to cover the remaining cost.

Ie if you are right at the top of what the banks are lending NOW, then in 5 years youre salary should ahve increased so the co-op will lend you the rest?

Id imagine this would be good for people with a clear career path or a clear rising of salaries ( eg doctors? Lawyers?)

Also Im not 100% what is meant by this

It is likely that you will have to repay Places for People more than your borrowed, if that is the case the effect will be similar to a loan under which you pay credit charges at a rate dependent on the growth in house prices. In addition you will have to pay some fees and, after the first five years, some interest. For example if you pay legal and valuation fess of £300 interest of £7,000 and the value of the house increases by 4% a year, the sum that you will repay, if you sell your house after ten years, will be equivalent to borrowing under a loan with an APR of 4.71%. Credit will be granted subject to status

and

The loan will have to be repaid in full after 25 years (or the term of your mortgage if sooner). The amount you have to pay will be calculated on the value of your home at the time of repayment. Depending on the housing market over the coming 25 years, this amount could be less, but could be more than you originally borrowed from Places for People. You will have to pay for an independent valuation, and any legal fees associated with the transaction.
THE GREATER THE INCREASE IN THE VALUE OF YOUR HOME, THE MORE YOU WILL HAVE TO PAY BACK.

Do you understand how this works OP?

Maseillo

I think I understand how it works - unless I've misunderstood it completely!! As far as I understand the Co-operative bank lend you the mortgage, and Places for People lend you the rest to top it up (between 20% and 40% of purchase price). You have to pay the equity loan part back after 25 years, or at the end of the mortgage if this is sooner. There are no repayments on the loan before this time. You pay back the percentage of the home value that you borrowed, so if the house price has risen you will pay back more, and if the house price has dropped you will pay back less. I'm guessing to do this you will either sell, or remortgage (you will have earned your share percentage of the profit and pay the rest back to them).

There is no interest for the first 5 years. After 5 years you start making monthly interest payments of 1.75% of the amount borrowed. It's interest is always on the actualy amount borrowed, not on amount based on the value of the property at the time. After 10 years this payment rises to just over 3% I think (I'm hoping to sell / remortgage before this if we go down this route!).

It sounds like a pretty good deal to me to help people on to the ladder - We are in the process of looking into it too. Of course it's not ideal - it would be much better to buy outright but if that's not possible it seems like a sensible option.

SJ x