70% Ownership Scheme

Dominic_

Morning all,

I've got a question about buying a house. I'm a first-time buyer, and I've recently come across a house that's within my price range. The thing is, it's available on one of those 70% ownership schemes, with the property developers owning the remaining 30%.

From the (little) information given on the website, the remaining 30% is rent-free, so I'd only be responsible for paying the mortgage payments each month. But other than that I know very little about these schemes.

When you come across a scheme like this, are they all pretty much the same, or are all of these schemes unique to the property developers that are offering them? I'm not sure if there are rules/laws that govern what developers can or can't offer, so I thought I'd ask.

Also, I'd like to know what happens when you sell a house that's bought under one of these schemes. Is there a minimum amount of time you have to own the house before selling? And when you do sell, do you sell the house at full price (with the developer getting 30% of the selling price) or does the person buying the house from you only pay for 70% of the house (like I would have done) but the developers still own the other 30%? If it's the latter, it seems like that might put off a lot of buyers. (I'm just thinking of the future here, though).

Presumably these schemes are there to help first-time buyers like myself, but what do the developers get out of it? Apart from the inevitable rise in house prices (and hence their share of the house going up in value) what else do they have to gain by offering schemes like this?

Anyway, sorry for the long-winded post. I hope the questions aren't too n00b-like, but I'm sure I'll have plenty more to ask!

Thanks,

- Dom

Richard_Webster

Get a friend to ring up and ask property developers what they would sell the house for if they paid 100%! They might say something like £175k (whihc could perhaps be negotiated down to £165K.) These schemes can take advantage of overvaluing houses and if they would sell for less to someone who could find the whole value then the place isn't worth the figure notionally being paid for it.

The schemes will vary a little but typically I would expect the builder to have a second charge for 30% of the vlaue form time to time. Say builder prices it £200K and you get a 70% of £140K and the rest is left outstanding on the second charge.

In two years time if you want to sell perhaps it is only worth £180,000. (This is even more likely if they would sell 100% for say £165K to someone else now!) You owe £138K on your mortgage and 30% of £180K is £54K. £138K + £54K is £192K = negative equity.

vicshippers

I've been looking into this scheme myself so should be able to help here.

After 5 years the 30% that the developer will start charging you interest on the 30% that you don't own to try to encourage you to 'staircase' i.e buy them out.

A sceptical person might say that the developer gains by over-valuing the property so that they get paid what they would do anyway and yet keep a 30% on top. Without this scheme they might not sell these properties as quickly (if at all given the current climate) so it's also a way to clear them off the books quickly.

You can sell whenever you want to - but you might get slammed by your mortgage provider if you do this in the first few years.

Although there is no rent with the homebuy direct scheme you might still have to pay a monthly charge to the developer for the maintenance of communal areas (if it's a flat you're looking at). In my case this was about £70 a month...and then there's ground rent on top of that which was about £200 a year.

Generally I found that it would only be suitable if we looked to move again within 5 years and we sold at a point where the original over-valuation was compensated for my house prices increasing. As I couldn't guarantee this, we have decided not to do it. (Generally these schemes lower the location's pulling power too - lowering the house prices in the area).

Dominic_

Thanks for the replies, there's some good advice there.

I'm not looking at a flat, so there won't be any ground rent or maintenance costs (I wouldn't have thought) so that's OK.

I'll definitely keep an eye out for the developers over-pricing the houses. What would you say the average price for a 2-bedroom semi-detached new build is? The full price (if the 70% price is to be believed) is nearly £153,000. I know that a lot of 2-bed places in my area go for less than that, but then again, they're all old houses, some built in the 40's or before, and others being ex-council, which both help to drop the prices.

lilfoxy

I myself am a shared owner with a housing association 50%
I am in the process of finding out the procedure as well, however I pay mortgage as well as maintenance, service charges & ground rent. I must have the HA buildings insurance, but this is also a very grey area, as when my bolier was not working we had to buy a new one!
Any ideas out there, please advise.

Thanks

vicshippers

Price will vary wildly by location (in Bristol the same spec house can vary by £20k over a 5 mile radius) so look at other properties in the area and try and compare like for like, which is very difficult I know.

I tried to forget about the 70% thing and thought 'If I had £150k to buy a house, what would there be on offer' and then if the house you're looking at doesn't look as interesting as the others that you pick out....then you know it's over-valued.

Dominic_

Say, for example, I thought it was over-valued. In the same way that you can put any offer in for a house, would I be able to offer less than they're asking for if I took the 70% deal? I get the impression that when buying a house normally, a lot of bargaining about price is done before completion, yet where these schemes are involved, it seems as though you can't come to a compromise. Is that true, or have I just got the wrong impression? I'd love to be able to barter with the developers to find a price we're both happy with, if it turns out that they have over-valued the house...

vicshippers

Generally you can't barter with the developer - they will just wait for someone else to come along and pay the full price (demand is normally higher for these schemes non-scheme property).

Dominic_

That's a shame. It seems rather dastardly for them to be able to do that, espcially as they claim to be "ideal for first-time buyers". What they mean is "we rip off first time buyers who don't know any better". Thank heavens for MSE!

Well I think I'll look into it some more. I actually really like the house, but it would be silly to pay over the odds of it's likely that the house isn't going to increase in value by the time I'd like to move out, and I certainly don't want to hen myself in. There's not a lot to do in the town I live in currently!

Muhasib

Not sure how you can say they are 'ripping off FTB's': if you have no interest to pay on 30% of your property for 5 years its a big help, if you haven't got a big deposit that must save 5-6% a year on mortgage interest I would think on that proportion of the purchase cost.

Dominic_

Sure, but it's not really "my" house though. Not fully. And the percentage of it that is mine, I'm paying over the odds for. I'd say that was being ripped off. Especially if, when you come to sell it, it's still not worth what the developers over-valued it at, and the price you get for it doesn't even cover the mortgage repayment. You'll either end up in debt, with no house; or, you have to stay living where you are until the house prices rise enough for you to sell at equal or greater a price than the developers originally valued it at. Neither of those two options seems particularly appealing to be honest!