My Shared Ownership story (success story...)

sturgeon

I still find these forums very interesting to browse despite my first home buy going through almost a year ago! I read topics about shared ownership from time to time, and quite a few people...often the same posters, like to religiously explain to all and sundry about shared ownership 'being a scam' or 'propping up the property market, 'keeping prices artificially high' etc.

So I'll explain why my property clearly was a great choice for me, to help others considering the same thing.

I'm in my early twenties and have a decent job. I've been renting by myself for a few years, paying quite a lot monthly. I wanted to move closer to London as that's where I work and usually go out socially, I used to live pretty far out (Watford) and it took ages to get to work and there was no way of getting home after the trains had stopped, spare a v expensive taxi.

When I moved into an area east of London (zone 4, about 20 minutes into central on the tube and a bit less on a train) I rented for 6 months and noticed a nice new block being built opposite my flat.

After enquiring in their sales office, though it was meant to be a very vague enquiry, they showed me a property and explained I could buy it under the First Time Buyers Initiative.

This scheme lets you buy minimum 50% of a property at allocated developments, and you will staircase to buy the remainder as and when you can. There is no rent from day one, however after 3 years you pay 1% yearly of the value of the share you don't own, rising to 3% after 5 years.

A lot of posts here have discussed how such properties have prices that are non negotiable, are the worst flats in the development, are tiny etc. Couldn't be further from the truth. This is a very roomy one bedroom flat, very well built and well sound insulated and I'm on the top of five floors in my block. The location couldn't be more convenient as it's a 60 second walk to the tube stop for a 20 minute ride to central London.

After looking at net house prices since I bought it, it shows that out of every property on the development, mine was one of the three bought at the lowest price. This is because a few buyers fell through (qualifying and going through the FTBI process IS a nightmare and you can easily fall at a hurdle) and they needed to shift it. Also, when the valuation came in £10k short of the final price, there was a lot of negotation and waiting until they finally dropped the price further. So I'd be interested to know why the fact this is a FTBI home has 'artificially increased prices', seeing as I negotiated as hard as I would if I were a cash buyer? The fact it was on this scheme made no difference and I got it ridiculously cheap.

Rather than me paying £700/800+ to rent a one bed flat in a similar area, I'm paying around half that for my mortgage which is unbelievable. This puts me in the position to save up my excess disposable income to buy back the shares I don't own.

The reason they charge rent after 3 years at a small amount, rising to a larger amount after years 4 and 5 is because they hope by this time you'd be able to buy back shares. Otherwise they hope your salary will have increased sufficiently after five years to be able to afford a home outright, and have built up a good deposit from your tiny mortgage.

So for all you naysayers, this scheme has allowed me to buy a very nice appartment, in a very good location and by a lot of luck allowed me to get it at an incredibly reasonable price. Far better than any other one bed appartment I've seen in greater London, including underground parking and even ignoring the location right next to a tube station. The fact it was on a first time buyer scheme hindered me in no way to negotiate the price like any other buyer would be able to.

So considering I could not afford a home outright, this is clearly a fantastic way to enable me to buy a property and have my money go somewhere, rather than splash out double the mortgage I now pay to pay off my Landlords mortgage.

One thing I am aware of is that some other first time buyer schemes are NOT the same, and require rent to be paid from day one. These schemes I don't think are so good, they like advertising them in London newspapers and usually only allow you to buy 25/30% leaving you with a decent mortgage amount of about £400 a month, however £300+ rent a month from the day you move in. Plus they do seem overpriced at £200k+ and I'm not sure if as with my situation, you can actually get the price down to meet the valuation.

Finally, although I may be naive and wrong, I feel the value of the property can only go up. As the best priced property of this type I've actually seen, after the final price I nabbed it for, I feel even if I sold today I'd make money on it. Especially considering the developer finally won their battle after the valuation was £10k short of the agreed price...as literally the day after I moved in, my mortgage lender advised me the valuation had been revised at £10k more (after about 2 months of the developer arguing). It's on the doorstep literally of a £5m regeneration of the town centre here happening right now, and is about 12 minutes tube ride to Stratford, which is obviously the Olympics location. Plus the biggest urban shopping centre in Europe will be finished there by next March, a new Westfield.

dopester

sturgeon wrote: »

After looking at net house prices since I bought it, it shows that out of every property on the development, mine was one of the three bought at the lowest price. This is because a few buyers fell through (qualifying and going through the FTBI process IS a nightmare and you can easily fall at a hurdle) and they needed to shift it. Also, when the valuation came in £10k short of the final price, there was a lot of negotation and waiting until they finally dropped the price further. So I'd be interested to know why the fact this is a FTBI home has 'artificially increased prices', seeing as I negotiated as hard as I would if I were a cash buyer? The fact it was on this scheme made no difference and I got it ridiculously cheap.

Because of what you've set out. Mortgage finance is much harder to qualify for. The money isn't there to lend as it was during the boom.

I think you've paid an artificially increased price for your flat. A price which doesn't yet properly reflect the horrors ahead. A price which is more like pretend like mortgage finance easy availability is still as it was during the boom.

During the boom, the banks and other lenders offering people ever bigger mortgages with which to pay more for houses. This forced up the price/values of those houses. When buyers pay more for property than in previous years, it also increases the values of other houses in the area.. including for those who've just lived in their homes for decades without even moving. Their homes rose in value because those buying other houses, were willing to pay ever higher amounts.

You may save some on renting compared to mortgage for the moment, but don't come crying on the forums when you place has fallen substantially in value. We'll see if you'll still be considering it ridiculously cheap and patting yourself on the back in the near future (12-48 months) or be moaning it's worth a great deal less. Much tighter credit and the fact that some people will be increasingly forced to accept lower prices so as they can move, will force down values in my opinion. As well as other horrors ahead (public sector cutbacks ect). Enjoy the calm before the storm. It's coming.

Today's Sunday Times

Also missing, according to the industry, are answers to the biggest questions facing housing over the next few years. The Council of Mortgage Lenders (CML) has been through the three main party manifestos and found policies it likes, but its big worry is in an area none of the parties appears to have ideas about: how fill a £300 billion mortgage funding gap during the next parliament.

While the Tories talk about “less reliance on unstable wholesale funding” as a long-term ambition, the shorter-term problem will arise when lenders are weaned off emergency official support and have to roll over their borrowings in the markets. The danger, says the CML, is of a prolonged mortgage famine.

sturgeon

No, I clearly haven't paid an artifically increased price as I explained that out of about 80 flats on the development, I got one of the very best deals on mine. And they've been valued by my mortgage provider, the developer and a third party so clearly aren't overpriced. So if you're trying to say I paid too much for this property, that's entirely untrue. Not one other similar property in greater London have I found for a similar price. Unless you're saying that ALL properties have artificially high prices, then I can't agree.

I won't come back crying on the forum if it drops in value, partly as the fact I only have half the share means I pay back less if the value falls. Anyway, as discussed due to various factors I don't see that it will reduce in value, or at least due to those factors it should devalue less than another identikit appartment in a random location.

CloudCuckooLand

sturgeon wrote: »

I feel the value of the property can only go up.

If that is the case, wouldn't the smart choice be to buy 100% now, rather than have to pay a higher price for the second 50% at some future date..?

Regarding "artificial prices", I cannot speak for others' opinions/generalisations, but my own opinion is not linked to any individual purchase, where there may be good timing/luck/good haggling/helpful valuations, or whatever.

Someone will always get the good deal, just as someone else will get the worst deal.

But those deals are made in the market as it currently stands.

If developers were not being propped up by taxpayers money, they would need to price according to strict supply and demand.

This would evolve into a new market level.

The worst deal in that market would be better than the best deal in today's market, imo.

brit1234

sturgeon the ones in West London have had their prices collapse. I had friends like you bragging about theire shared ownership increasing in value and now they are in negative equity.

Like them I reckon you will have a nightmare selling especially when prices start falling again.

As for you getting a good deal out of 80 flats whats to say they were all not overvalued. It is common practice for developers to rig land registry prices with sales of a couple of highly overpaid properties then surveyors use them for the basis on your flat. Hence banks requiring bigger deposits on new builds due to the dodgy games.

PasturesNew

You can only tell with hindsight what is good and bad.

I bought a SO property 20 years ago. I couldn't "choose" to buy it, as I had to be chosen by them - I had to put my name down and there was a meeting. All I could do was be aware of it and apply ... and hope. It was experimental and there was only one. I paid rent from day one, seven years later when I sold it, I was still in negative equity by 5% and so had to write a cheque out to cover that in order to complete the sale.

I did benefit, no matter what the overall cost, through stability of a roof over my head, which is what I needed. I'd been living in a caravan before that (leasehold/mobile home), with a hitler-like, unreasonable, mad landlady.

Muhasib

CloudCuckooLand wrote: »

If that is the case, wouldn't the smart choice be to buy 100% now, rather than have to pay a higher price for the second 50% at some future date..?

Regarding "artificial prices", I cannot speak for others' opinions/generalisations, but my own opinion is not linked to any individual purchase, where there may be good timing/luck/good haggling/helpful valuations, or whatever.

Someone will always get the good deal, just as someone else will get the worst deal.

But those deals are made in the market as it currently stands.

If developers were not being propped up by taxpayers money, they would need to price according to strict supply and demand.

This would evolve into a new market level.

The worst deal in that market would be better than the best deal in today's market, imo.

Don't we always try to advise people on MSE to live within their means ? so if the monthly payment at 100% ownership is too much of a stretch then it wouldn't be the smart choice. There are people who can be fairly sure that their salaries will increase (eg. doctors) so that when the interest free loans start to charge they are able to start taking more equity.

Also if the notional valuation of the property rises at less than the mortgage rate charged then it would make financial sense not to take on the extra share until the rise is greater than the cost of borrowing.

The reality is that Developers are being supported by these schemes and at least the OP seems to have had their eyes open when they entered this scheme and congratulations to them that it is to their advantage to buy under these conditions.

Wickedkitten

You can hardly say it's a success story when you are still in the first chapter.

CloudCuckooLand

muhasib wrote: »

Don't we always try to advise people on MSE to live within their means ? so if the monthly payment at 100% ownership is too much of a stretch then it wouldn't be the smart choice...

MSE also recommends not using extremely long mortgage terms, as the interest builds up horrendously. By needing two 25 year mortgages, each buying 50%, that's effectively a 50 year term - he will be aged 72...for a 1-bed flat.

Being only 22 he's well below the average age of an FTB - and as I stated in my first post, I'm not against specific deals, its the principle of falsely supporting the market I have trouble with - so older FTBs, who get sucked into this apparent "status quo" that they feel limited to, will be in their 80s before staircasing and mortgages are paid off...

Pay rises etc, may help to reduce the term, but most people will look to be in something bigger than a 1-bed flat, 5 or so years down the line, so increases in salary need to fund the deposit/fees for that.

The OP says the mortgage is around half of a £700/£800 rent. Say he is paying £400, over 25 years for £75k.

That means the interest element is £250 a month.

That's £75,000, for 50% of a 1-bed flat. Just in interest.

Plus another £75,000 in interest, to buy the second half of a 1-bed flat, minimum. (More, depending on the price it has risen to, if the OP's certainty on prices rising is realised.)

A total of £150,000 just in interest, on top of the £150,000 capital itself.


Yes, its obviously sensible not to over-extend. But the OP is adamant its such a great deal, half the equivalent rent etc, and in other posts talks about being easily able to save ready for staircasing. So, I don't think there is a problem with being over-extended.

Instead, he is letting the scheme benefit from the prices rises he is so sure will happen, which makes the future price of the second half even higher - and more interest to be incurred - or it limits the equity he gets to carry to the next property.

Wickedkitten

CloudCuckooLand wrote: »

MSE also recommends not using extremely long mortgage terms, as the interest builds up horrendously. By needing two 25 year mortgages, each buying 50%, that's effectively a 50 year term - he will be aged 72...for a 1-bed flat.

Being only 22 he's well below the average age of an FTB - and as I stated in my first post, I'm not against specific deals, its the principle of falsely supporting the market I have trouble with - so older FTBs, who get sucked into this apparent "status quo" that they feel limited to, will be in their 80s before staircasing and mortgages are paid off...

Pay rises etc, may help to reduce the term, but most people will look to be in something bigger than a 1-bed flat, 5 or so years down the line, so increases in salary need to fund the deposit/fees for that.

The OP says the mortgage is around half of a £700/£800 rent. Say he is paying £400, over 25 years for £75k.

That means the interest element is £250 a month.

That's £75,000, for 50% of a 1-bed flat. Just in interest.

Plus another £75,000 in interest, to buy the second half of a 1-bed flat, minimum. (More, depending on the price it has risen to, if the OP's certainty on prices rising is realised.)

A total of £150,000 just in interest, on top of the £150,000 capital itself.


Yes, its obviously sensible not to over-extend. But the OP is adamant its such a great deal, half the equivalent rent etc, and in other posts talks about being easily able to save ready for staircasing. So, I don't think there is a problem with being over-extended.

Instead, he is letting the scheme benefit from the prices rises he is so sure will happen, which makes the future price of the second half even higher - and more interest to be incurred - or it limits the equity he gets to carry to the next property.

The OP said in another thread that they bought the flat for 160k, and in a different thread said

After all bills and direct debits etc, I am left with £550 a month to spend as I wish.
I have an extra cost coming in next January of the service charge for my flat at £125 a month.

If he's only got £425 a month to play with after bills but before food and everything else now, its going to take him forever to staircase even 10%, and even more so if the prices do rise as a result of the olympics

poppysarah

As long as your rent doesn't go up, as long as the repair bills and neighbours don't annoy you... fine.
But shared ownership is a cop out by a government who've screwed up the economy so badly it's going to hurt for a long long time.