Help and advice on Mortgages/buying a house

pjgoober

beecher2 wrote: »

Sorry, that's completely my fault - I didn't take away the deposit. I think that leaves you about 15k more than I thought, but to be honest I don't trust my maths anymore! I suppose these are all sums that you have to do yourself, and you need to work out all the scenarios. I would 't touch it with a bargepole as after 10 years I don't think you're any further forward and if you work out you'd need a larger mortgage to own the same house once you've paid of the loan then I really dont' see the point.

Ok. This is my rough back of a fag packet maths:

Initial Mortgage = £70000

assuming 6% compound interest and paying off £500/month

Mortgage after 10 years = £49300 (I think - compound interest is complicated)

Saving £208 a month (as you'd have to, in order to service the initial 25% loan)

savings = £25000.

So assuming house prices stay the same, you could pay off the 25%.

If the house price goes down you can pay off the 25%.

In a scenario where the price hypothetically goes up by 50% to 150k (highly unlikely)

You'd owe £38k (25%) which means you'd have to sell.

you sell for £150k

you keep £112k

minus Mortgage leaves you £63k + your £25k savings.

This would be good no?

Assuming the house price only goes up slightly:

You sell for £110k

you keep £82.5

minus Mortgage leaves you £33k + your £25k savings. Which is still better than a kick in the teeth, right?

______________________________

Either my maths is wrong, or theoretically this is a good deal (assuming I can afford the extra £200/month in savings on top of the mortgage repayments)

However my gut is telling me there is something wrong here, so please - what have I missed???

beecher2

I think you'd owe more on your mortgage as you pay off mostly interest in the early years. Type in mortage amortization calculator in google and you can calculate it better.

pjgoober

beecher2 wrote: »

I think you'd owe more on your mortgage as you pay off mostly interest in the early years. Type in mortage amortization calculator in google and you can calculate it better.

Ok. Clearly I'm not that great at calculating compound interest.

that seems to think that after 10 years you'd still owe about £58k.

(Interestingly that amortization calculator seemed to think you'd only be paying off £400 a month. If you only took the mortgage over £20 years instead (paying off £500/month) you'd only owe £45k. So my maths isn't that bad!)

Still means that if the house was worth £110k after 10 years you'd (assuming you couldn't find an extra £7.5k) sell it and keep £82.5k

Leaving you about £50k once you'd paid off the mortgage and added in your savings.

Basically, you take home 3/4 of any sell on profit if the house goes up in value. Not as good as if you owned the whole house, sure, but not unexpected or shockingly bad? right?

blueberrypie

pjgoober wrote: »

I'm not really looking for affirmation or warning. I'm really looking for peoples advice on what the shared equity thing means in real terms.

One of the things it means is that you could well be stuck in this property whether you want to be or not. See this thread for an example: https://forums.moneysavingexpert.com/discussion/comment/40153580#Comment_40153580

pjgoober

blueberrypie wrote: »

One of the things it means is that you could well be stuck in this property whether you want to be or not. See this thread for an example: https://forums.moneysavingexpert.com/discussion/comment/40153580#Comment_40153580

Interesting, not an identical situation, but certainly similar.

I think you are right, and my main concern would be what happens if we needed to move for any reason. Isn't that a concern with buying any house though, regardless of whether it is shared equity or not?

Edit -

I've been searching around on this forum, and there does seem to be a prevailing view of "steer well clear of Shared Equity schemes" but a slight lack of reasoning as to why, other than that you could end up not being able to move until you own the property 100% and that it might not be a great investment.

The horror stories all seem to be people who bought into these schemes at the peak of the market and are now in negative equity because prices have dropped. But that would be an issue whether you were shared equity or not surely? Also, do people really think the market will continue to drop for another 10 years+ ??

adwat

"Do people really think the market will continue to drop for another 10 years+ ??"

Yes, I think it will. This houseprice bubble took 12 years to build up, so it's quite likely that it will take a similar time to deflate. This has been the pattern historically, certainly for the last 2 houseprice bubbles. This one is no different to the previous ones, so assume roughly 10 years of falling prices until the bottom is reached.

blueberrypie

pjgoober wrote: »

Interesting, not an identical situation, but certainly similar.

I think you are right, and my main concern would be what happens if we needed to move for any reason. Isn't that a concern with buying any house though, regardless of whether it is shared equity or not?

It's more of a concern with a shared equity property for several reasons. It is likely to be much more difficult to sell a shared-equity property - the number of potential buyers is lower, and usually the developer usually has to accept the buyer. But also your equity in the property is much less than it would be with a standard property purchase, and that leads to numerous potential problems. If you buy a property with a 20% deposit, and it loses 10% of its value, you can sell it, even if it leaves you having made a loss. But if you buy a property and you only have 5% equity, it doesn't take much of a fall in property values before you can't sell it and cover the outstanding mortgage. And if you don't even own the whole property - if you only own 5% of 75% of it - you're putting yourself even more at risk.

If you buy a house on a standard contract, even with a mortgage, you can probably let it out if you find yourself needing to move to a different area - your mortgage provider might charge you for this, but at least you can do it. With a shared equity property, again, you (probably) lose this option.

The reason I posted the link to that thread was that it was a very good ilustration of someone who has found themselves boxed in. Not enough money to buy the other part of the property from the developer. Not enough equity to sell and pay off the outstanding mortgage. Not enough equity to get a buy-to-let mortgage, even if that were permitted by the developer. Not enough equity to remortgage on a standard mortgage.

Circumstances change: people find themselves out of work or unable to do the work they previously did, or saddled with unexpected expenses, or needing to move hundreds of miles away. Those things happen to people who aren't in shared equity properties too, of course - but almost always, they have more options than those who bought shared equity, or who took out very high LTV mortgages.

Can you be sure that your circumstances won't change? Can you be sure that the value of this property will go up - soon? If it was all that good a deal, there would be lots of people wanting to take it. If it was genuinely cheap, there would be buyers (plural). If there aren't buyers...by definition, it's not a genuine bargain.