Shared Ownership purchase - help!

RichyRich

Hi!

We're part way through the process of buying a shared ownership apartment and I'm hoping one of the experienced folk on here might be able to help us.

The landlord placed a FMV on the property of £234,750 and we're buying 25%. Unfortunately the lender valued the property at £220,000.

The lender asked us whether we were in any position to contribute to the shortfall - we replied that we weren't (if we were, we wouldn't be buying shared ownership, would we?!?).

However, they have appraised us and said that they will not accept £220,000. Our Sales Consultant has "suggested" that, if we can, we offer to pay an extra £1,000 for our share (i.e. a FMV of £224,000) - this would obviously mean finding the full £1000 as the lender won't lend against collateral that they think isn't there.

We do like the flat. But the development's been built nearly a year and they still haven't shifted them all. But I'm also very concerned that if negotiations become protracted we're going to end up paying an extra £925 in rent as it will roll over an extra month. I suspect that this is exactly why the sales advisor suggested the figure of £1,000 - we'll lose almost that amount by trying to stick it out - either way it will cost us a grand! I fear it's just a ruse to get a £1,000 out of us for not providing any extra value, just because they can. Not what someone more naive than me might expect from a Registered Social Landlord!

So....any idea what we can do to minimise our costs? Or do we have to bite the bullet and offer to pay £4k over the odds?

Thanks in advance

RichyRich

bryanb

Are you sure you want to buy shared ownership? Seems daft to me.

RichyRich

bryanb wrote: »

Are you sure you want to buy shared ownership? Seems daft to me.

The short answer is that, in our own particular circumstances as they stand at the moment, it works for us.

Obviously we would prefer to buy "properly" but we can't afford the deposit and have little chance of saving one while we're still paying London rents. Under the Shared Ownership scheme, because the "rental" element is subsidised our outgoings will be almost exactly the same as what we're paying now. However we will be building some equity and not "just" paying someone else's mortgage.

The way I see it, house prices will have to fall by at least £950 every month (what we're paying now) for us to be any worse off than we are at present. If they fall, we get to buy more of the flat more cheaply. If they rise, at least we got 25% of it at a lower price. Call it hedging our bets, if you like.

But - back to my question. Can anyone help? We need to call our sales advisor back tomorrow.

brit1234

Pull out, save some more money, enjoy the price falls and later buy a normal property.

Shared Ownership is a con and you don't want to be trapped in negative equity in a property that is far harder to sell than all others.

RichyRich

I didn't mean for this thread to become a pros/cons of shared ownership thread. We have already decided to buy on this basis, but thanks for your advice anyway.

I actually agree that house prices might fall when interest rates rise. That's part of the reason we're buying on a shared ownership basis. If they fall, once we've saved enough deposit we can buy further shares at the new market price. If prices rise, which I think to be unlikely any time soon, at least we've already secured a percentage of the value at a lower price.

However, we're currently paying £925 a month in rent anyway.That is not going into financing an asset that we own, it is going into our landlord's back pocket. We need to live somewhere, and our mortgage plus rent on the s.o. property is about the same as we're paying now - but some of it will be going on the mortgage used to buy the property. Even if prices fall, we'd still have to pay rent. If prices fell by 11,100 by this time next year, we'd have paid that on rent anyway - prices have to fall by at least the rent we're paying for us to be any worse off. So we might as well try to make a move.

If anyone has any advice on how to play the "give us an extra £4k on the FMV" tactic, I'd be grateful.

Richard_Webster

I'm not against SO in principle but I think you have to understand the way mortgages work for buying further shares.

25% of £220K is £55K. Let's suppose they will lend you 90% of that = £49.5K. Say the value falls to £200K and you want to buy another 25%.

That means you have to find £50k and total value of 50% share would be £100K. Lender will only lend say 90% LTV = £90K but as they have already lent you £49.5K the largest further advance they will give would be £40.5K which means you would have to find the other £9.5K yourself.

Even if they were prepared to lend 100% of the 25% = £55K to start with they would only lend a further £45K to buy the further 25% and you would have to find £5K.

If prices go up and the 100% is worth £250K then 50% would cost a further £62.5K and 90% of the total value of that would be £112.5K so if we assumed that LTV and your income supported it you would not have to save anything to buy the further 25% because £112.5K - £49.5K = £63K which is more than the required £62.5K.

I am not saying don't go ahead but please understand the way things work. If lenders lend say 90% when it comes to the second and further tranches they won't lend 90% of the cost of that but they will only be prepared to bring their lending to 90% of the value that you will then have.

poppysarah

RichyRich wrote: »

The landlord placed a FMV on the property of £234,750 and we're buying 25%. Unfortunately the lender valued the property at £220,000.

I think this one word sums up your confusion.

Do you want to pay more for something than the lender thinks it is worth?

I hope you've read up on it properly - including all the issues about rents increasing, resale problems and the fact you're not actually buying 25% of it -- legal case recently :
https://forums.moneysavingexpert.com/discussion/2663581

anyusernameleft

As a new user I can't post a link so please read this if you can from new law journal:


Shared ownership leases

Date: 29 February 2008
Authors: Mark Sefton, Oliver Radley-Gardner
Issue: Vol 158, Issue 7310
Categories: News, Landlord&tenant, Property, Public

SHARED OWNERSHIP LEASES, RICHARDSON V MIDLAND HEART LTD

According to the Office for National Statistics, nearly one in a hundred households in England has a shared ownership lease. That is perhaps not surprising, in these dark days of unaffordable housing. But, following the recent decision in Richardson v Midland Heart Ltd (unreported, Jonathan Gaunt QC, 12 January 2007) and with the gathering downturn in the economy, shared ownership could turn out to have been a costly mistake for many occupiers.
The shared ownership lease is a concept that was developed by the Housing Corporation in the early 1980s. The aim was to help low income families into home ownership. The Housing Corporation explains the concept, in its guidance note, published in September 2005, like this:

“Through shared ownership you buy a share of the property and pay a rent on the remaining share you do not own. Gradually you may buy further shares and eventually own your home outright.”

The decision in Richardson, however, is that that description of shared ownership is badly wrong, or at the very least seriously misleading.

Legal structure
By and large, registered social landlords use a model form of lease which is published and revised from time to time by the Housing Corporation. The householder pays the registered social landlord a capital sum equivalent to half of what it would have cost to buy the property outright. The landlord then grants the householder a long lease, usually for a term of 99 years or more. The lease contains a rent, but the rent is half what it would have been in the open market, to reflect the capital payment the tenant has made.
The lease will also contain “staircasing provisions”. The nature of these varies from lease to lease, but generally they entitle the householder to make further capital payments to the landlord in order to buy further shares in the property. With each additional share that is acquired, there is a corresponding reduction in the rent. Once all the shares have been bought, the rent is reduced to nil and the householder has the option to call for a transfer of the freehold (or, in the case of a flat, to call for a grant of a new long lease at a peppercorn rent).

The problems
The problems occur if the tenant falls into arrears of rent and the landlord brings possession proceedings. If this occurs then there are, according to Richardson, two unhappy consequences.

The first is that, provided there are two months of rent arrears at the hearing, the court cannot refuse the landlord a possession order and, once the order has been made, the tenant has no right to pay off the debt and save the situation.
The second consequence is that the landlord is then entitled to retain for itself the whole of the tenant’s capital investment in the property.

The householder was not, it seems, the owner of a half share in the property, paying a rent on the other half share that the association still owns. There is no shared ownership at all. What the householder owns is the lease and nothing else, and once the lease has gone then so has the householder’s stake in the property. It is the way these two consequences intersect that makes the result so unpalatable. Once arrears have accrued, the tenant only has a short window of opportunity to pay the debt or lose the whole investment.
Rebecca Richardson acquired a shared ownership lease of a house in Tamworth in 1995. She paid half its then market value for it. In addition, for the next 10 years or so, she also paid half the market rent. Then, in 2003, her situation took a turn for the worse. Her husband was sent to prison. She started to receive threats from his criminal associates. In the end, she left Tamworth and went to live in Bournemouth to escape from them.
In the past she had been assisted with her rent by payments of housing benefit. But in February 2005 this was stopped, on the basis she no longer lived in Tamworth. She did what she could to try and have it reinstated, but without success. The result was that rent arrears developed. Her landlord, to its credit, gave her quite some time to sell the lease and pay off the debt.

But eventually, in October 2007, it began possession proceedings.

Richard_Webster

A lot of the difficulty is the builders get HAs to pay over the odds for "affordable housing" on their estates and so HA has no choice but to pass on the same "market value" to the buyer. (Builder has then gone on to offer "discounts" to those buying similar properties privately immediately illustrating that the HA properties were overpriced!)

May I suggest that a better proposition for SO is to buy a second hand 40-50% share because the person selling will be bearing a loss and the buyer will get the property at a percentage of its real rather than inflated value.

SouthCoast

I live in a low wage economy and nobody can actually afford to buy the affordable SO housing so they are let out on AST's.

ItMightBeUsefulOneDay

RichyRich wrote: »

The landlord placed a FMV on the property of £234,750 and we're buying 25%. Unfortunately the lender valued the property at £220,000.

Leaving aside the SO discussion...

A man tells you he has a watch for sale that you really want and is exactly what you've been looking for all these years. He says it's worth £234.75. You're a bit suspicious though and decide to have it independently valued. Your independent valuers say it's worth £220.00.

Do you pay
a) over the odds
b) the actual value of the watch
?

In this climate as a buyer, particularly a FTB you are a rare breed. Use it to your advantage and negotiate yourself a substantial discount.