Shared equity does not lead to full ownership

Austin_Allegro

dest wrote: »

I understand all these points, but at the end of the day people need houses and if the only way to buy something remotely nice is to get shared ownership then that is what we have to do?

I despise the very principle of only owning 50% but i need a house for my gf and baby, with my mortgage offer of 74k i can either buy an old house in a poor area, or go for shared ownership and own 50% of a nice house in nice area?

While I appreachiate we are in the middle of a crash/recession the only thing i can hope is for serious negative equity allowing me to purchase the 2nd half of the house....

Obviously I don't know your circumstances but why can't you rent a property, wait for prices to come down while saving as much as you can? I know some LLs can be funny about kids but I would think in the current market they would be less fussy.

I just think shared ownership schemes are designed to sucker in people and tie them into decades of renting while somehow thinking they 'own' something.

Bargain_Rzl

dest wrote: »

I despise the very principle of only owning 50% but i need a house for my gf and baby, with my mortgage offer of 74k i can either buy an old house in a poor area, or go for shared ownership and own 50% of a nice house in nice area?

While I appreachiate we are in the middle of a crash/recession the only thing i can hope is for serious negative equity allowing me to purchase the 2nd half of the house....

This is a very serious point and I thought I'd better pick up on it in detail, although Debt Free Chick has already touched upon it.

I don't think you have fully understood how the numbers would work in this situation.

A huge drop in the value of your Shared Ownership property would only be to your advantage if you were in a position where the mortgage you'd taken out on your original share was almost or completely paid off.

Look at it like this: you put down a £20k deposit and buy 50% of a 200k property. So you now have a mortgage for £80k, have £20k equity and are paying rent on the remainder of the £200k property.

Soon after you have bought at this price, there is a crash, 25% falls off the value of your house. It's now worth £150k.

Your share is now worth £75k and you've only paid off a couple of £k from the capital on your mortgage So now you owe, say, £78k, and your property is only worth £75k. You're in negative equity.

Yes, the price of the remaining 50% of the property is now only £75k instead of £100k. But you now have no equity and effectively no deposit, so what good will it do? You can't afford it anyway. Even if (daft example I know) the property lost 90% of its value, you still wouldn't be able to afford it at £10k because you'd still be paying off the original £80k debt. And you can't move, because if you did you'd find yourself having to pay back all that money on the spot, on top of your living costs for the next place.

This is one reason why when I chose to buy a SO property, it was always part of my plan to reduce the mortgage as quickly as possible.

devon_guy

See for me I think it is very suitable. My combined mortgage and rent is less than £400 a month. For the equivalent in rent I could just about get a studio flat in a pretty depressed earlier in my town. Instead I will now have a big 1 bedroom flat in a small development in a lovely leafy quiet area. A no brainer really......

eamon

One question, in SO does the owner of the other % also suffer the pain of falling values or is this a rhetorical question?

robin_banks

yep you got it

icebergx

Bargain_Rzl wrote: »

Look at it like this: you put down a £20k deposit and buy 50% of a 200k property. So you now have a mortgage for £80k, have £20k equity and are paying rent on the remainder of the £200k property.

Soon after you have bought at this price, there is a crash, 25% falls off the value of your house. It's now worth £150k.

Your share is now worth £75k and you've only paid off a couple of £k from the capital on your mortgage So now you owe, say, £78k, and your property is only worth £75k. You're in negative equity.

Yes, the price of the remaining 50% of the property is now only £75k instead of £100k. But you now have no equity and effectively no deposit, so what good will it do? You can't afford it anyway. Even if (daft example I know) the property lost 90% of its value, you still wouldn't be able to afford it at £10k because you'd still be paying off the original £80k debt. And you can't move, because if you did you'd find yourself having to pay back all that money on the spot, on top of your living costs for the next place.

At the end of the day, your financial situation also needs to be taken into account. You can't just make all these assumptions in isolation.

All those people who only bought a smaller % of their properties, would be able to increase their share at a relatively lower cost in a falling market. They may have paid £50k for 25% last year, but may be able to buy a further 25% at 25k now. And your point about negative equity, altough important, only comes into play if the owner decides to sell or re-mortgage.

Ultimately, they have to decide if they want to realise a loss or sit tight and hope price go back up (at which point the increased share they bought will have increased in value even more).

PasturesNew

18/19 years ago I bought 50% of a SO. It wasn't in a big development like nowadays, it was more of an experiment on the corner of a council area when they demolished some old war temporary homes - those pre-fabs. Just 6 properties. 3 council, 3 SO. One each of: old person bungalow, one studio, one 2-bed for couples.

Full cost then was £52k. So I bought £26k. After 18/19 years it's likely I will have paid off my half. And possibly had some savings. Let's say life hadn't been great and I'd saved £20k.

Now, it'd be priced at about £120k. So I'd be £60k short. With my £20k deposit I could raise the extra £40k with a small salary. So it would be possible if I stayed in that first property to own it within about 30-40 years of moving in.

Prices didn't all move up 3x value in the last 10 years (first 8 years of owning mine were negative equity years as I bought at the peak).

So, even if you didn't do well and just plodded on. So long as you liked the original house and kept your health, it would be possible to eventually own one house. These days it seems most people want/expect to move about every 2-3 years as part of their original plan.

I bought expecting to be there for life. For people with a long-term view, who choose a good property that they like it can work out to be an OK deal because you're buying that all important tenure.

It's nice to put down roots.

But it's all about liking the property and not expecting to use it as one foot on the ladder.

These days though, I will admit, all these new-fangled profiteering SOs just don't seem a good deal at all.

geoffky

With the latest news it still stands that people should avoid these scams...this thread is from 2008 and they are still trying to push the scam on unsuspecting first time buyers......do not fall for it..

Graham_Devon

Bf109 wrote: »

You shouldnt believe everything you read in the papers.

Obviously you shouldn't believe everything you read on here, either.

So many misinformed comments.