Shared ownership - will we have enough to live on?

robin_banks

Mmmmm, a tough call tbh.

Shared ownership most certainly ain't for everyone, and you also need to consider there is very very little chance of ever buying outright.

Is there a service charge on this property. I know of one s/o development in Sarf London where the service charge doubled in a period of 4 years.

Have you looked into mortgages, you may have a job getting a s/o mortgage esp on flats with .>5 storeys.

pinkarsenalprincess

Make sure you get thorough independent mortgage advice.
We bought a shared ownership last year in SE london. All of our paperwork from the company told us we would get a 5% deposit mortgage. The sales people told us we would, as did the financial advisor we spoke to when we reserved.

However, when it came to getting the mortgage the banks wanted at least 10%. Then when they realised it was a SO new build we had to have a minimum deposit of 25%. Although buying a small share, that is still a lot of money to suddenly find! (We went from needing £6K to needing £16.5K)

gabyjane

Hi me again! reading the post about deposits is something you need to look into too..we were obviously lucky as ours was a £250 reservation fee..that was it. The fees for solicitor etc are what everyone has to pay but check it out! x

Mark_In_Hampshire

Sosa wrote: »

Hi Everyone,

This is the first time I've posted here, just after some objective advice really.

Ok, the situation is this. [FONT=&quot]Me, my partner and our 9 month old [/FONT]are currently living in a crappy 1 bed flat, I'm very unhappy here as its falling apart, cramped and I really want our son to grow up ina nice home environment We are on the council housing list but as we both work we are not a high priority and the average waiting time is 3 years!

Anyway I went to see a shared ownership development of new flats yesterday and they were sooo lovely. If we went for it we would own 25% of the flat and pay a mortgage and we would pay rent on the remaining 75%. My parents have offered to help us out with the deposit and fees etc. OH is worried that we might be over stretching ourselves finanically and thinks it could put too much strain on our relationship, he thinks we should wait but said as its my parents money and me covering most of the costs the decsion is down to me. Either way it looks like one of us will be unhappy with whatever we do - argh!
I've done a little budget plan thing below - do you think it looks like we would be taking on too much?


Total Minimum Monthly Income (after tax) £1,935

Potential Monthly Expenditure
Rent & Mortgage £850
Council Tax £95
Contents Ins. £20
Phones £50
Broadband £10
Travel £120
Utility Bills (est) £150
Shopping £450
Total £1745


So that leaves about £200 left over each month - what do you think, is that too tough?

Yes, it's way too tight. It means your mortgage is about half your income, which is simply too high.

You don't say what "shopping" is however (must confess I haven't read the whole thread) - if it's mostly discretionary then take out of the list and add to the surplus.

Personally I expect the base rate to rise to about 2% within a year or so however nobody could forecast where it will go. As the rate came down, banks did not drop mortgage rates at the same rate, but as it goes up, mortgage rates will rise in line.

Yes, it could hit 15%, but nobody can "plan" for that as such, if you did you would never buy.

However that's the point of having enough left over. Do the maths based on the mortgage rate being circa 4 points higher than it would be now. How afforadable is it?

One thing I think can be predicted is some serious inflation in the cost of petrol, food and energy over the next couple of years and that's the main reason I think your budget is just too tight based on a household income that just isn't high enough.

One final point: shared ownership is not good value. If the house were worth say £100k and you're buying 50% what tends to happen is the selling price is overinflated to £120k so your 50% costs you 60k, not 50k.

Added to that, newbuilds tend to lose value in the early days as they're not new any more, they become second hand. They are also frequently overpriced which is why some mortgage lenders simply stopped lending on them.

Nobody can predict exactly where the property market will go, but all the economic indicators are to the downside e.g. indicating prices falling in the next few years, perhaps very sharply depending on how bad it all gets, so the option to "get out" may not exist.

You may be financially better off waiting for your incomes to increase and looking at the possibility of house prices falling very sharply, which would mean you might in time be able to buy 100%.

woody01

Yes, it could hit 15%, but nobody can "plan" for that as such, if you did you would never buy.

True....but then this is the most turbulent time in the last 15 years.
Also, i think anyone even thinking about a house buy, would be mad to not factor in interest rates of a minimum 6% (if not 8-10%).
The prediction of 2% base rate is also incredibly generous. Tory governments are renowned for interest rate hikes, and i think 4% is a very likely outcome by Christmas. This will then drive up inflation, and ALL costs will increase. The £200 surplus will the turn into a £400 deficit.

£200 left over all bills is a VERY small amount and would not be sustainable even if interest rates remained where they are for the next 30 years.
I would not feel comfortable if i had less that 40% of my income left after bills.
I currently pay almost £1450 a month for my mortgage, and i factored in having to pay £2200 so my house is safe (as possible anyway).
That way, i was still left with the magic 40% of my income once the bills are paid.

Mark_In_Hampshire

Personally - I'd say 2% base rates by March, 5.5% by the following March.

Interest rates are raised to quell inflation, they don't cause it; interest rates too low for far too long is part of what has got us into this financial mess.

People have come to believe that circa 2% base rates are normal, whereas 5.5% is actually much closer to normal.

Hence you get articles like this:
http://uk.finance.yahoo.com/news/five-million-home-owners-unable-to-afford-interest-rate-rise-tele-89e099a80613.html?x=0

Our economy is the perfect recipe for inflation.

afropuff78

I almost bought a shared ownership property a few months ago in South London but pulled out once the contract landed on my doorstop! I had an financial assessment to see if I could afford the 30% I wanted to buy and after council tax, bills, food etc I would have had about £220 left over each month. I thought this was quite low but obviously this is within acceptable to the HA whose main concern is that you can afford the rent and mortgage, which on paper I could. Even the guy who did my assessment agreed that new build properties were overprice!

My aim was to buy a SO flat and save up so that I could eventually own 100% of the property but that would never happen with only £220, plus you have to factor in any increase in service charge, unforseen repairs and other bills etc. So for me, I thought this would be unsustainable and too much of a financial burden especially as I'm buying on my own. It does mean saving and living at home for another year (thanks mum!), but to me it makes more sense to build a bigger deposit where I can get a traditional mortgage on a property of my choice that is actually affordable.

Bloomberg

afropuff78 wrote: »

I almost bought a shared ownership property a few months ago in South London but pulled out once the contract landed on my doorstop! I had an financial assessment to see if I could afford the 30% I wanted to buy and after council tax, bills, food etc I would have had about £220 left over each month. I thought this was quite low but obviously this is within acceptable to the HA whose main concern is that you can afford the rent and mortgage, which on paper I could. Even the guy who did my assessment agreed that new build properties were overprice!

My aim was to buy a SO flat and save up so that I could eventually own 100% of the property but that would never happen with only £220, plus you have to factor in any increase in service charge, unforseen repairs and other bills etc. So for me, I thought this would be unsustainable and too much of a financial burden especially as I'm buying on my own. It does mean saving and living at home for another year (thanks mum!), but to me it makes more sense to build a bigger deposit where I can get a traditional mortgage on a property of my choice that is actually affordable.

You are doing the right thing, save as much as you can and do not be in too much of a hurry to buy a place. I work in the city and watch the economy very closely, nothing is more certain than sharp interest rate rises. Please do not think that house prices are going to shoot up because they are not.

People are being deceived into thinking that the housing market is over the worst and that the only way is up. The government has introduced quantitative easing (QE) and held rates at a ridiculously low half a percent. QE has meant an extra £200bn being put into the economy, this in conjunction with low interest rates is making things look far more rosey than they really are.

The affordability index states clearly that house prices are seriously out of kilter with peoples incomes. Those in the know predict that it will be eleven years before house prices start to properly recover. A house builder, estate agent nor the government will ever tell you this. If you want to know more then feel free to send me a personal message. Good luck and keep saving.

Bloomberg

Mark_In_Hampshire wrote: »

Personally - I'd say 2% base rates by March, 5.5% by the following March.

Interest rates are raised to quell inflation, they don't cause it; interest rates too low for far too long is part of what has got us into this financial mess.

People have come to believe that circa 2% base rates are normal, whereas 5.5% is actually much closer to normal.

Hence you get articles like this:
http://uk.finance.yahoo.com/news/five-million-home-owners-unable-to-afford-interest-rate-rise-tele-89e099a80613.html?x=0

Our economy is the perfect recipe for inflation.

Thanks for another great post, I think you are spot in with your prediction. I too have noticed that people think that low rates are the norm. My colleagues and I think that a 5.5% base rate would have the same impact on people as 15% did back in the day - a house price crash!!!!