Shared Equity Taylor Wimpey £119,995 flat

BadgerFace_2

poppy10 wrote: »

Shared equity and shared ownership are scams, pure and simple.

That's a particularly bold statement, which I presume you base on much research?

Shared ownership has it's place and always will, not that I personally like it or think it's a good deal; but for some it offers them the stability they could never have with renting, but could never afford with buying.

Shared equity is designed by builders to keep properties selling (and prices high...yadadada). Some are good, some are bad. There's so many schemes, I don't profess to know much about all of them. I do, however, know a lot about a few of them. Two I have come across are brilliant deals...One is practically robbery.

In response to is it a good deal? You need to sit down and work out what the situation would be with or without the money.

Very simplified-

Scenario 1- House price £100k, £15k from builder, £5k from you, Mortgage for £80k

Scenario 2- House price £100k, £5k from you (Now as it happens, this isn't available at the moment, mortgage-wise, but this shows you how it works.)

In scenario 1, the 10 year cost for an 80% loan (@4.29 for 2 yrs, then 3.99, assuming steady payment @£435.18) would be £52,222.

In scenario 2, the same cost for the 95% loan would be (assuming 5.19%, then 3.99%, assuming steady payment @ £565.93)would be £67,911.

So, although you have to pay the builder his money back, simply having that money has enabled you to save over 15k in mortgage payments, which incidentally is enough to pay the builder back his money. That is simplified and doesn't take into account houses going up (or down!) in value.

That makes it look better than it actually is, but it does show how it can work. There are pitfalls to it though, you have to be confident of not wanting to move AND having the money to pay back the builder. If you want to do either of these too soon after buying, there are more things to go wrong.

Finally, it is not a discount, it is to keep properties selling! So you still want a discount on the price of the property, as it may be poor value, being a new build!

rh203

BadgerFace wrote: »

In response to is it a good deal? You need to sit down and work out what the situation would be with or without the money.

Very simplified-

Scenario 1- House price £100k, £15k from builder, £5k from you, Mortgage for £80k

Scenario 2- House price £100k, £5k from you (Now as it happens, this isn't available at the moment, mortgage-wise, but this shows you how it works.)

In scenario 1, the 10 year cost for an 80% loan (@4.29 for 2 yrs, then 3.99, assuming steady payment @£435.18) would be £52,222.

In scenario 2, the same cost for the 95% loan would be (assuming 5.19%, then 3.99%, assuming steady payment @ £565.93)would be £67,911.

So, although you have to pay the builder his money back, simply having that money has enabled you to save over 15k in mortgage payments, which incidentally is enough to pay the builder back his money. That is simplified and doesn't take into account houses going up (or down!) in value.

Hi, Thanks for the explanation. So put even more simply, because the builder has loaned interest free the 15%, that fact alone means that I don't need to fund that 15% from a mortgage (should a 5% deposit mortgage still be in existence).

To be honest, I don't see a bad thing about it as I am viewing it as a long term investment and don't aim to be selling it in the near future and more to rent out if I ever need to move elsewhere. The only real issue I can see in my case is the high Salary multiplier I'm up against with the remaining mortgage payment being relatively high. If I could get that down from 95k to 85k more then I'm sure I'd be in a much better position, but that's not likely unfortunately

rh203

Hi, another question.

I'm likely to have the ability to pay off the 15% loan from Taylor Wimpey in around two years time. The lender has provided more information on the mortgage deals available and I would basically be linked up with a 40 year repayment term on a product which lasts for two years. (I know I would be paying mainly interest, however I'm going to be throwing it at rent anyway if I didn't buy). If after the two year period was up, I were to pay off the 15% loan on the property, this would mean that I would have a good lump of equity in the house that I can call my own and would also be untied from having to use the shared equity mortgages available and could use any product on the market that best suited.

Anyone gone down this route or provide any comments?

Cheers

poppy10_2

rh203 wrote: »

If after the two year period was up, I were to pay off the 15% loan on the property, this would mean that I would have a good lump of equity in the house that I can call my own and would also be untied from having to use the shared equity mortgages available and could use any product on the market that best suited.

That would be sensible, if you are in the position to pay off the loan, it would open up a much wider range of lenders to you. Remember though that the value of the 15% loan fluctuates depending on the value of the house, you would have to have it revalued (at your own expense) if/when you wanted to settle up.

BadgerFace_2

Whilst it may give you more stability, paying off an interest free loan would be stupid when you have a large mortgage still outstanding.

An idea would be to keep the money in an offeset account, which would enable you to have easy access to the money, should you feel the property value is rising too rapidly and want to buy the builders share; but also lets you have the benefit of using it to save yourself paying interest on that money mortgage-wise.

If the loan is interest free for 10 years and, providing the property doesn't go up too much (though this is offset by the money you save on interest), then the ideal time to repay is after 10 years.


You need proper financial advice on how to make the specifics of the deal work for you.

beecher2

Why the rush? If you can save up the 15% loan in two years, why not just save it as a deposit, and have more options?

Thrugelmir

rh203 wrote: »

To be honest, I don't see a bad thing about it as I am viewing it as a long term investment and don't aim to be selling it in the near future and more to rent out if I ever need to move elsewhere.

Don't confuse owning your home with a purchasing an investment property. The criteria for both are different.

With new build flats you need to watch the service charges levied. These can be quite horrendous and rise rapidly.

There's nothing wrong with shared equity providing you enter into it with your eyes open.

I'd be more concerned that you are over extending yourself. As your increasing pay could soon be wiped away by higher interest costs on the mortgage.

A good measurement is could you afford the mortgage on a 25 year term. You are going to want to move at some point. So will want to release equity towards your next property.

Remember if house prices were to rise , then you'd have to find a bigger deposit. Increasing equity , the amount you own of the flat is your key.

rh203

BadgerFace wrote: »

Whilst it may give you more stability, paying off an interest free loan would be stupid when you have a large mortgage still outstanding.

Yes but it would release me from having to only use shared equity mortgages and give access to all standard mortgage products across the board.

Paying £504 per month is cheaper than renting anything and yes I would only be lucky to have 45 of that going toward paying off the actual mortgage balance, with the rest as interest, however that's 45 more than I would with renting, plus after the two years, I pay off the shared equity portion and take out a standard mortgage product with a much better rate..

wymondham

rh203 wrote: »

I can see how shared OWNERSHIP is a scam in a way, but how do you come to the conclusion that shared EQUITY is a scam? I'm struggling to see how a builder giving an interest free, 10 year loan for you to use as a deposit is scamming anyone. Unless the house prices are inflated, which for the majority they don't appear to be...

Also, to answer a question, why do new build houses pose more of a high risk investment than second hand homes?

Thanks again.

The fact a buider has to give you ANY incentive is reason to question their motives. Remember these incentives allow them to sell properties that people would not otherwise even consider - after all, you are thinking seriously about this - would you still consider it without the incentives? If their property was well built and reasonably priced then they would sell with no incentives.

Newer property poses more of a risk as it is much more likely to drop in value, as you are also paying for the builders profit on top of the real value of the property - something older properties obviously don't have.

brit1234

Both shared equity and ownership are scams designed to exploit buyers out of as much money as possible. To ignore this is disingenuous.

There are many dangerous to both schemes and they are amplified in a falling house price market especially when inflation is rapidly rising, unemployment rising, and wages are being frozen.

Take a step back, do some research and reassesses.

The last thing members here want you to do here is see you overpay for mortgage payments and face a high percentage of negative equity.

With house prices falling over the last 6 months what discount has the builder offered you or have you not asked?

For your own research watch this BBC report to start.
http://news.bbc.co.uk/1/hi/business/7613781.stm