Mortgage on "affordable" flat

blueboy2001

I'm interested in buying a flat which was sold to the first owner under a Local Authority Developer Discount scheme for 80% of it's full value. They are now looking to move.

The property is not shared ownership - the owner owns it outright, so there is no rent element to pay. However, the restriction on the property being sold at 80% of market value (as determined by an independent RICS surveyor) applies in perpetuity, so if I were to ever sell it the same rules would apply.

The control are in place through a Section 106 Agreement (Planning Obligation). The agreement states that the property must be sold at 80% of market value, and that it must be marketed and offered to people who meet the Council's criteria (which are fairly liberal, it's not restricted to FTB's) for 6 months, after which you can sell to anyone.

I've not made an offer yet, but I'm wonder what the best approach to get a mortgage would be? I've got a 20% deposit (based on the 80% sale price).

I asked the agent about mortagages on these sorts of properties and they said it doesn't present an issue. However, I'm wise enough to take that with a pinch of salt. Is this something a broker would be best placed to help me with, or is it really not an issue?

property.advert

The good thing is that it is a stable percentage. You only pay 80% and have to sell for 80%. However, I imagine a valuation being very interesting !

There is a future problem of not being able to market it to the full spectrum of potential buyers for 6 months but how that risk is weighed up I do not know. It may well be simply disregarded but it would certainly restrict the options for repossession, which any lender has to consider.

There is another issue here. At 80% restriction, what happens if it is valued at £100k ? It is ridiculous to think that the only possible price it can sell for is £80k. There must be more complex terms. The true market value is what the market will stand, not an agent's valuation.

More information needed.

Pincher

How is the mortgage lender supposed to auction this property if you can't keep up the mortgage payment? It's the same with disabled ground floor apartments, live/work studios: insane. Check out the council tax, you might find that it's classified as some sort of business rate.

thewinkshow

stay away from this IMO

blueboy2001

As I understand it, it is for the vendor to agree a sale price, but this must be verified by an independant surveyor to confirm that the property is being sold at the appropriate level of discount, so in your example if it was valued at £100k you could sell it for anything at or below £80k, but not over £80k because you wouldn't be applying the discount.

There are quite a few properties in the area that were built between 2002-2006 available on this scheme, and they do seem to sell.

The Council tax is treated normally - it's a Band B.

I've requested a copy of the agreement from the Council to see if there is any provision for mortgageees in possession.

I wouldn't touch a shared ownership property, but this seems like a better deal and would allow me to buy a nicer flat that I could otherwise easily afford.