Can anyone give me advice/information on the shared equity scheme?

nikki2804

Hi

Myself and my partner are FTB (currently renting). In the last year we have managed to save approx £6000 but to be honest I am getting a bit annoyed at paying off someone else's mortgage when I could be paying my own. (Only good thing is that the house is unfurnished so I have all my own furniture etc)

I have heard a little bit about the shared equity scheme which I would be very interested in (as my deposit is quite small atm) but my friend google isn't really helping. Is it a case of just approaching a mortgage advisor and they will explain it all and set the ball rolling?

Between us we have a fixed income of £27k and about £1k a year CTC and CB (I have a little beauty business but I cannot guarantee a fixed income from this)

Can anyone shed any light on this scheme for me? Any online sites or information would be much appreciated. I'm in Scotland if that makes any difference?

TIA

leitmotif

My advice is to steer well clear of shared equity. The reason many FTBs have been priced out is because other people have been too keen to pay through the nose for property. Higher demand has an inflationary effect on prices.

To give an example of why shared equity is generally silly:

A 2-bedroom flat in my area would have cost £60K in 2002 (I live in SE England). The same flats were selling for £130K at the peak of the boom in 2007. After dropping to about £115K in Q2 2008, the asking prices are now between £150K and £180K!! This is, of course, insane, and thankfully they're not selling for that. In fact, they're not selling at all - as people know that they're not worth anything close to that.

Perhaps as a consequence, some shared equity schemes have sprung up in my area. You can, if you are naive enough, buy 25% of one of these flats for £40K, and then pay the rest off in rent at £350/month (this is based on an actual example). So, first of all, assuming no interest whatsoever, the assumption is that 25% of one of these flats is worth £40K (so assumes an overall value of a whopping £160K). Secondly, and again assuming no interest, £350 per month for 25 years is £105K, so without even taking interest into consideration you'd be paying £145K for one of these flats!! Add interest (which will no doubt be at substantially higher rates than those offered by high street lenders) and you could be paying truly VAST sums.

I have two gripes with shared equity, therefore:

1) Shared equity is a sure way to pay way over the odds for a property. They're designed to rip off the naive who haven't been shrewd enough to say "sod it, I'll save up". Please be careful and be certain that you know exactly what the terms, conditions and applicable interest rates are, as well as rights, etc. etc. How much will you pay over the full term? How long is the full term? Don't assume it's 25 years - it might be longer. Can you afford the repayments if interest rates go up?

2) Shared equity schemes perpetuate high prices. As long as there are people out there that say "I can't afford an overpriced house so rather than save I'll buy a fraction of a house and end up paying substantially more in the long run", house prices won't be realistic. It's overborrowers (and overlenders) that drove prices up to insane levels in the first place, and shared equity schemes only encourage people to think that property is worth more than it is. Think of the shared equity scheme provider as one of the worst forms of overlenders - the loan sharks of the property world.

You say that you don't want to be paying off someone else's mortage through rent. What are you paying? Somewhere between £6K and £9K a year. The landlord will be paying tax on that, as well as any repairs to building, etc. If you rent it for another 3 years he/she won't get rich from that. People buying into shared equity schemes make some developers/construction firms very rich indeed. You want to line their pockets instead by paying 50% more for a place than you need to? Besides, think of the advantages of renting: freedom, not being responsible for the building's maintenance, not being in debt, etc. etc.

You never know how people read posts - perhaps it sounds like a lecture or a diatribe - but it's genuinely meant as friendly advice, so I hope it's taken that way!