85/15 Shared Ownership

benylin

Making an offer on a new build, the developer offers an 85/15 shared ownership scheme where basically we only need to find funding for the 85%, they cover the 15% and you pay them back when you sell the house (or after 10 years but we intend to move on before that). It is a 0% APR scheme (quite rare) - you don’t pay any interest on the 15% they are effectively lending you, you just pay them back the equivalent 15% of the house value when you sell. I do hear a lot of nightmare stories about shared ownership schemes but this type sounds ok. It enables us to afford a slightly better house and the 15% will affect our LTV so, after stumping up a bit of deposit ourselves, our LTV should be around 75%.

Just want to know if there are any additional catches to deals like this?? – I already know there are limited mortgage deals for said schemes and I realise the developer will get 15% of any increases in the house value too but we are prepared for that.

Any help appreciated.

Henry_P_Chester

The only think I can think of is what if you can sell for what you paid for it? Say for example it's worth 20% less then you would owe the developer a fair some of money when you move. New builds devalue very quickly once they become lived in.

BadgerFace_2

A lot of people are going for these schemes at the moment to 'stretch' their money further. It sounds like the house is at the edge of your affordability and you are using it to get a better house than you could otherwise afford. These schemes can work fine, but you MUST have a repayment vehicle for the 15%, if you don't the builder can and will force you to sell the house in 10 years. If you cannot afford to save enough to pay for it, then you CANNOT AFFORD the house. If say the builder was lending you £30k, you'd need to put £250 a month extra away to pay them off in 10 years as if the current climate tells you anything, you cannot rely on re-mortgaging to repay the stake. The other problem is they will not negotiate on the house price.

Barratt run this scheme and when I was looking it worked like this-

85/15, 10 year limit- House £219995, they put in 33k, you put in 187k, then repay the 33k in 10 years. NO OFFERS, but they may throw in carpets
Buying 100% of the house, they offered it to me for 190k...I didn't think it was worth that either and walked away.

I'd try just haggling if I was you.

BadgerFace_2

Also another thing to think about-

Buying a new build is not an investment, it will drop in value over the next few years. Yes it might go up again in line with the economy, but if you intend to move in the future, this will not be as good a way of building up equity as buying a second hand home would. I would estimate your whole 10% deposit will be lost the day you move in, if not more.

sonastin

Other things to think about are what restrictions will the developer's 15% interest place on you? i.e. can they restrict how or who you sell the property to when the time comes, can they stop you making alterations and extensions on the house, etc?

What would happen if the developer went bust? I would presume that the administrator would be dealing with the debt you owe them but will it have any effect on when or how you need to pay it back?

What about when you get the end of the current mortgage deals? You might find interest rates have gone up, mortgage lenders are no longer willing to lend on 85% of a property and you're stuck on a massive SVR. Will you be able to afford that if the lending climate tightens its belt even further in the future?

I don't necessarily think it is a bad idea but there is more to consider than buying your own place outright.

poppysarah

New build = worth less than 85% after a few years.

Why not compare prices with older houses?

corbyboy

benylin wrote: »

It is a 0% APR scheme (quite rare) - you don’t pay any interest on the 15% they are effectively lending you, you just pay them back the equivalent 15% of the house value when you sell.

Presumably you pay them 15% of the current value of the house rather than 15% of what you sell it for.

If your house value drops significantly when you sell it then you could end up owing a lot more than you can afford.

I know somebody who is in a similar position. She originally bought 80% of her flat 3 years ago. She wants to buy the rest now, but the money she owes the developers equates to 35% of the current value of her flat.

benylin

Presumably you pay them 15% of the current value of the house rather than 15% of what you sell it for.

If your house value drops significantly when you sell it then you could end up owing a lot more than you can afford.

I know somebody who is in a similar position. She originally bought 80% of her flat 3 years ago. She wants to buy the rest now, but the money she owes the developers equates to 35% of the current value of her flat.

You pay 15% of the house value at the time of sale. i.e. the actual amount you owe the developer will be less if the value of the house decreases. I guess they are banking on them going up.

The only think I can think of is what if you can sell for what you paid for it? Say for example it's worth 20% less then you would owe the developer a fair some of money when you move. New builds devalue very quickly once they become lived in.

If the house does devalue then the amount we owe the developer decreases inline.

A lot of people are going for these schemes at the moment to 'stretch' their money further. It sounds like the house is at the edge of your affordability and you are using it to get a better house than you could otherwise afford. These schemes can work fine, but you MUST have a repayment vehicle for the 15%, if you don't the builder can and will force you to sell the house in 10 years. If you cannot afford to save enough to pay for it, then you CANNOT AFFORD the house. If say the builder was lending you £30k, you'd need to put £250 a month extra away to pay them off in 10 years as if the current climate tells you anything, you cannot rely on re-mortgaging to repay the stake. The other problem is they will not negotiate on the house price.

Barratt run this scheme and when I was looking it worked like this-

85/15, 10 year limit- House £219995, they put in 33k, you put in 187k, then repay the 33k in 10 years. NO OFFERS, but they may throw in carpets
Buying 100% of the house, they offered it to me for 190k...I didn't think it was worth that either and walked away.

I'd try just haggling if I was you.

Why MUST we have a repayment vehicle?? We intend to sell the house before the 10 years so (assuming we get at least what we paid for it) we would pay them back through the sale then. I get that if we wanted to stay for 10yrs or over we would need to save an extra amount a month but we dont.

Plus they are willing to negotiate on the house price with this scheme.

spud211

Avoid unless you plan to live there for a very long time, and have a repayment method ready for that 15%. The big catches to this are 3 fold:

1) Developers only ever put these deals on their hard to sell houses - think about whats wrong with the property..tiny garden, poor location on the estate, poor access etc..I have never ever seen this scheme or homebuy (essentially the same scheme) on a "good" plot.
2) You will not be able to sell your house for at least 10 years, or until you have paid off the 15%. Oh ok to stop people being picky - you will find it very very difficult to sell it in these 10 years, and to be able to pay back the loan when you do.
3) You will overpay for the property as the developer won't discount it down to market rates..so you are likely to lose 10% straight away anyway.

I don't buy into this whole "newbuilds lose 15% when you move in " mentality, it's a wide generalisation that isn't true..this board is heavily biased against them so you have to take criticism of new builds in general with a huge pinch of salt. They can and do go up in value if you choose the right ones, the right plot with the right estate and area..they drop in value slightly when you move in but no where near the amount people say. The trouble that you have is that you are overpaying by 10% at least anyway when you buy on one of these schemes..so it becomes very risky.

Oh and one more issue is that you become very restricted in terms of the lender (and therefore rates) - iirc only 3 banks will do these kind of deals, so you don't have the pick of the market..

Steer clear, make a cash offer instead and if you don't have a deposit (hence why the scheme attracts) save up a bit first, you'll be better off for it

Running_Horse

poppysarah wrote: »

New build = worth less than 85% after a few years.

Why not compare prices with older houses?

Agree with this. I'm not one of the crash merchants here, but can remember very recent history when developers were forced to accept 85% offers and less anyway. It sounds like a wheeze to shore up prices short term, which means until they have sold the development and prices then find their true level. Be very cautious of schemers offering schemes.

benylin

spud211 wrote: »

Avoid unless you plan to live there for a very long time, and have a repayment method ready for that 15%. The big catches to this are 3 fold:

1) Developers only ever put these deals on their hard to sell houses - think about whats wrong with the property..tiny garden, poor location on the estate, poor access etc..I have never ever seen this scheme or homebuy (essentially the same scheme) on a "good" plot.
2) You will not be able to sell your house for at least 10 years, or until you have paid off the 15%. Oh ok to stop people being picky - you will find it very very difficult to sell it in these 10 years, and to be able to pay back the loan when you do.
3) You will overpay for the property as the developer won't discount it down to market rates..so you are likely to lose 10% straight away anyway.

I don't buy into this whole "newbuilds lose 15% when you move in " mentality, it's a wide generalisation that isn't true..this board is heavily biased against them so you have to take criticism of new builds in general with a huge pinch of salt. They can and do go up in value if you choose the right ones, the right plot with the right estate and area..they drop in value slightly when you move in but no where near the amount people say. The trouble that you have is that you are overpaying by 10% at least anyway when you buy on one of these schemes..so it becomes very risky.

Oh and one more issue is that you become very restricted in terms of the lender (and therefore rates) - iirc only 3 banks will do these kind of deals, so you don't have the pick of the market..

Steer clear, make a cash offer instead and if you don't have a deposit (hence why the scheme attracts) save up a bit first, you'll be better off for it

we're actually very happy with the plot/estate and the area is a big positive too.

i dont understand why we would find it impossible to sell under 10 years though?