shared ownership

tedglen3

Hello everyone.

Me and my Girlfriend where looking at a shared ownership scheme, where we pay 70% and the housing association pays 30%... We are struggling to understand what the catch is?

Thank you

kingstreet

Shared ownership, where you pay rent on their share, or shared equity where you have an equity loan on which you don't pay interest for a qualifying period, usually five years?

tedglen3

Its called Homebuy, here is what the website (http://www.gwyrhomes.com) says:

Homebuy:

Through the scheme you can buy a property for a percentage of its overall value, which means you pay more affordable monthly mortgage payments, with Gŵyr Homes funding the remaining share. Unlike shared ownership there is no rent to pay on the Gŵyr Homes' share. To buy your percentage of the purchase price you will need to arrange a mortgage from an approved lender.
When you sell your home the sale price will be split between between you and Gŵyr Homes with respect to the relevant percentages.
The cost of buying your own home
You must seek advice from an independent financial advisor to ensure that you can comfortably afford the mortgage repayments. We will often ask for a mortgage in principle certificate from a recognised lender for verification. You must also bear in mind that there are additional costs to pay for when buying a home. For example, you will need to pay for a survey and legal costs and land registry fees.

kingstreet

Right. This is shared equity, not shared ownership.

You buy the property outright using a mortgage and an equity-loan which is normally interest-free for a fixed period. You will only pay your mortgage in the early years, but the clock will be ticking and at some point you'll have to find the money to pay off the equity loan by selling or remortgaging, or you'll have to start making interest payments on the loan.

If the property is leasehold, watch out for service charges, maintenance charges and ground rent.

Although easier than shared ownership, shared equity properties can be more difficult to sell as they may be in areas which have been regenerated and where people may not want to live.

Finally, when you sell or remortgage, you repay the equity loan in terms of the percentage value you had originally, so it isn't a fixed sum. If you have a 25% equity loan, when you pay it off, you repay 25% of the market value at the time, which could be more if property values have risen.

Watch out for a "collar" on this, which means if property values fall, you still have to repay 25% of what you paid originally. You don't get to pay back less because values have fallen. So you get the worst of both worlds?

Check very carefully what you're being offered and make sure you know about all the charges and interest rate on the equity loan before you make any kind of commitment.

tedglen3

Thanks a lot for response

sonyhamster

Does anyone know whether this affects the selling side of things? Would it devalue your house / flat and would it make it difficult selling it on - would I have to buy out the rest of the property?

I was considering it as a first step on to the property ladder, but I'm not sure the ins and outs (as basic it may seem).

Also, from what I've heard (from my mortgage broker), is that shared ownership properties often attract higher rate mortgages - which really annoys me.

kingstreet

If you buy a shared ownership property you have similar re-sale concerns as I mentioned above, plus you have to have someone who wants to buy a part-share rather than 100%, or you have to look at buying the remainder so you can sell 100% yourself.

I would imagine your concerns about mortgage rates are more about the size of your deposit than the fact it's a shared ownership case. Unless you have a 40% deposit, you aren't going to get the best deals in the market place, shared ownership, or not.

brit1234

I believe shared equity are easier to sell than shared ownership. However they are renowned to be very overvalued and designed to keep house prices inflated.

The BBC did a program on the dangers of the scheme a couple of years ago. They are principally sub prime lending with either a 5 or 10 year time bomb when you have to repay the 25-30% loan.

Personally I would avoid and save a bigger deposit. House prices are continuing to fall and will be significantly fall in the next year. Buy normal and not one of these scams.

iamana1ias

kingstreet wrote: »

If you buy a shared ownership property you have similar re-sale concerns as I mentioned above, plus you have to have someone who wants to buy a part-share rather than 100%, or you have to look at buying the remainder so you can sell 100% yourself.

I would imagine your concerns about mortgage rates are more about the size of your deposit than the fact it's a shared ownership case. Unless you have a 40% deposit, you aren't going to get the best deals in the market place, shared ownership, or not.

I bought on a 70/30 shared ownership scheme in 1997. I found the house on the open market, had a standard mortgage for my 70%. I never had to pay the HA anything until I came to sell in 2005. I had to pay £100 for a valuation from the HA (which matched that of the 3 agents I had value it for sale).

I sold (100%) for the asking price a week later on the open market - just as you would if I'd owned the whole house. The HA got 30% - they made about 30k, I paid off the mortgage and walked away with a nice 55k profit.

Not all shared equity is complicated

kingstreet

iamana1ias wrote: »

I bought on a 70/30 shared ownership scheme in 1997. I found the house on the open market, had a standard mortgage for my 70%. I never had to pay the HA anything until I came to sell in 2005. I had to pay £100 for a valuation from the HA (which matched that of the 3 agents I had value it for sale).

I sold (100%) for the asking price a week later on the open market - just as you would if I'd owned the whole house. The HA got 30% - they made about 30k, I paid off the mortgage and walked away with a nice 55k profit.

Not all shared equity is complicated

Funnily enough when I first came to work in Stafford in 1995, the council had shared ownership property available with a nil rent on their share. I haven't come across it since. Nice to know you managed a profit.