Shared ownership/equity is a scam.

brit1234

Idiophreak wrote: »

Sorry to say it, but there are plenty of threads around where people can't afford to pay their mortgage and damage their credit rating. This has more to do with the recession's impact on their income than it does shared ownership...(and how paying more interest was going to help them in anyway, I just can't imagine..)

Or an example of how shared ownership gets you to pay more for a property than they should and the after effects it can cause.

Ihatesharedowner

brit1234 wrote: »

If you ever want to move again or get a bigger home when you start a family avoid shared equity. It seems desperate or financially illiterate people with no deposits go for them.

I could not disagree more with this sentiment at all. We currently own a shared ownership property and are trying to staircase - someone linked my thread to this one previously. When we bought, the face of the housing market was very different - the deposits issue has been a major problem that we simply could not have foreseen. My husband was offered a job at a leading stock market company about 18months and used to play 'beat the calculator' at school. Our circumstances have changed radically in 4 years though (again in a way that we could not possibly have predicted) and we thought we should look at securing our future and get away from paying rent. With the housing market as it is, staircasing seemed logical and sensible. We fit just about as far away from the 'desparate or financially illiterate' cliche as you can possibly get. Hell, we avoided a mortgage with northern rock as we thought they were too risky and predicted the crash which is more than can be said of the last government!

I think this thread highlights some major issues, but in no way do I think it is balanced or accurate. I think to phrase shared ownership as a scam is wrong, but I do think it is right to say there is huge potential for putting it on a par with endowment mortgages for mis-selling and misleading people. We are educated and did our homework and still feel as if we didn't fully understand what we bought. I feel sorry for people who aren't in as fortunate or privileged position and aren't able to do that for what ever reason. Our scheme is a decent one. Others aren't as great. People will definitely have been caught out.

We've been very happy with our shared ownership scheme, and I really do believe that it has a place for a lot of people. It could be a solution to housing problems. The problem is too many schemes, lack of regulation and no one having a clue how they work. Not the idea behind them being flawed. It makes it a complete nightmare when you come to sell or staircase and in a few years I think they will have a very bad name as a result. I don't think it will necessarily devalue them all, as there will still be a demand, but I think it will put off a lot of people for whom them could work, if more thought had been put into the way they were set up and they had been standardised.

At the moment, NO ONE understands them. Not the mortgage providers, the housing associations or solicitors. So how you can say you have sold them to an average Joe with them fully understanding them is very questionable. Hence the endowment mortgage comparison being very apt.

We are having problems now, and realise shared ownership financially has been a bad choice for us in hindsight. Its been one thing after another - very stressful and very frustrating, including problems with the valuation and having been missold a mortgage by YBS to staircase. To their credit this has now been resolved with the net result (after unsubtuly whispering the words FSA and miselling) of us getting an alternative package which would normally cost £1000, but this has been waved and a better interest rate than we would have got. They have been slow though and its delayed everything.

We were supposed to complete by next friday or face having to get another valuation at our expense by the housing association. Fortunately, due the housing association cocking up too, as even they don't understand staircasing and us persistantly complaining over everything they have agreed to cover this fee, but obviously its going to slow things again. We also now face extra legal costs, that we hadn't budgeted for as we thought we were covered by YBS's original mortgage (we had raised the question several times whether a fees assistance mortgage was suitable for us). Fingers crossed this valuation will come in the same as our previous one, or we will be facing even more issues and potentially will end up spending upwards of £1000 - £1500 on fees only for our purchase to fall though. We will be unlikely to be able to have another crack at it for another couple of years if that happens.

I'm at the point of just putting it down to experience and being philosophical about it. We could have bought a bombsite of a house and found problem after problem doing it up and it could have been just as much of a money pit and as stressful. If we had bought something outright, we would be in negative equity now but we aren't. Its all very frustrating and should be better, but I've had to put it into perspective.

It is worth remembering that full ownership homeowners are facing a lot of similar problems too - its just that shared ownership buyers have additional concerns and a lack of flexibility.

If I could offer any advice at all to someone considering shared ownership, I'd still say consider it but I'd have to say this:
1) Get a specialist solicitor even if they cost slightly more! Our saving grace has been we've had a decent one, who has known whats going on even when no one else has. They will help you read the small print!
2) Ask your mortgage company repeatedly at every opportunity about how they deal with shared ownership, is this suitable for you etc etc.
3) If you can afford to rent and save, and then buy a full priced property in 5 - 6 years then be patient and do so.
4) Check out who runs the housing association that rents you the property. Are they not for profit? Avoid privately run profit ones.
5) SERVICE CHARGES!!!! Check them out. Particularly if you are looking at flats
6) Consider the area, the likelihood of more new developments and whether its got a good chance of being high demand area. If its in a nice area, with good schools etc and you won't have another chance of living there, it might be worth considering.
7) Take horror stories with a pinch of salt but realise what the problems are, so you can avoid them
8) Don't believe the sales pitch. Find out for yourself too.
9) Don't compare one shared ownership scheme with another. They are all so different so cant easily be compared!

From my point of view, what I would like to see, is them being controlled and the government instead of pushing them still actually look at the problems first. They need to try and get more protection for owners as we are being let down by the lack of it at the moment.

My greatest bug when it comes to government policy is very simple; why are shared ownership buyers, with our first house, do we have to pay stamp duty between 125k and 250k when our portion goes above that when other first time buyers don't? We are penalised for buying in chunks despite being termed the very people who need the most help. We already pay extra in legal costs and mortgage fees.

Even if you are happy with the scheme you have, there is a strong possibility you won't come across problems for several years or until you come to move. Whilst I do agree with the shared ownership timebomb sentiment to an extent, I don't think it helps to sensationalise it, or blow it disportionationately either. There are a great deal of benefits to shared ownership. It hasn't worked for us 100%, but I can't blame all of that on the lack of information and lack of support. There have been massive changes in the housing market since 2008 - things beyond our ability to predict even though we had thought about the possibility and planned for a downturn in the market and still got stung. But in all honesty we could have rented and had a different set of problems - including financial ones, and buying our home has offered us the opportunity to live somewhere we love, close to my parents and a security we wouldn't have had otherwise. Hindsight is a wonderful thing.

We have been asked to work with our housing association after we complete the sale to help them improve experience with future staircasing and we will definitely do so. They seem keen to actually make this work, even though they have been useless at the same time. Its lack of education and knowledge. (Manchester and District Housing Association for the record - also goes under outlook homes, fortis and harvest housing group umbrellas). Equally, YBS have been very slow, but it has gone to head office and is under investigation as they were not aware their soliticitors had problems with the shared ownership thing - hopefully they will sort out the problem for others too.

I would like to see people working to IMPROVE the situation and HELP people rather than accusing them of being in some way stupid (which is in no way true) or scaremongering and making the sharedownership timebomb a self forfilling prophecy as a direct result. BE CONSTRUCTIVE!

Idiophreak

brit1234 wrote: »

Or an example of how shared ownership gets you to pay more for a property than they should and the after effects it can cause.

How? I just don't get what shared ownership has to do *at all* with that poster's problems...

brit1234

Ihatesharedowner wrote: »

or scaremongering and making the sharedownership timebomb a self forfilling prophecy as a direct result. BE CONSTRUCTIVE!

Actually it is shared equity schemes like homebuy, firstbuy which are a timebomb waiting to happen, not shared ownership. The schemes are different each with their bad points.

However the time bomb element of shared equity schemes is for when the extra loan payments kick in (5-10 years after purchase). Its just like sub prime, option arm, alt a mortgages, you can predict when the defaults will occur.

Sub Prime was around 2006-2008, option arms/alt a's 2009-2012. Shared equity problems will occur 2013-2022 I predict. Most of the 2008 shared equity deals had a 5 year leave of grace till the loan had to be repaid, lately this has moved to 10 years which I think first buy is included.

I believe people will be trapped as we get to closer to 2013. There are already problems with remortgaging happening already. This will increase rapidly with time. This will be due to negative equity and difficulty changing lenders due to small pool of lenders who support the scheme and other lenders not happy with taking another companies mortgage with a loan attached to it.

So you may be stuck with your particular lender unable to take their best rate deals. Also in this 5-10 year window there is the danger of interest rates going up. These higher interest rates on poor deals combined suddenly with extra loan payments is what makes up the time bomb effect.

This is my prediction and I believe it represents the next big housing disaster in the UK.

afterthegap

I am a shared owner in Swindon and I have to say it has both benefits and dis-advantages in my view. As it stands now, I would never go shared ownership again.

I purchased my one bed flat for a 50% £63,000 share in January 2008 and finally moved in in May because the association had the wrong lease and needed to sort that first. I had a 5% deposit. So 95% mortgage.

I secured a two year fixed rate mortgage deal which was around £400 p/m. In addition to this the rent element for the other half (inclusive of service charges etc) stood at £188. At the time I thought this was a pretty good deal. However for some reason I was refused the chance to staircase and own the property outright over a period of time? Could this be someone high up deciding this wouldn't be as profitable for them....?

The recession hit, im now in negative equity and to make matters worse the association have increased the rent element by 27% since I moved in! My earning haven't changed much in that time either. I can't afford to move house so have changed my mortgage over to a tracker to make ends meet. Obviously this is only going to help for the time being.

To conclude...

Shared ownership is very appealing to those on middle and lower incomes wanting to get on the property ladder but the reality is that most are not actually ready and could have been in a better position now if they held out for 100% ownership via convential means. Once you are tied in you are at the mercy of the associations putting up rent and not dealing with things properly. Not only are most owners who purchased properties in 2008 in negative equity they are also covering the associations downturn of market prosperity by paying higher rent / service rates for no real reason?

They are cunning, steer clear in my advice!

and_another_thing...

brit1234 wrote: »

Actually it is shared equity schemes like homebuy, firstbuy which are a timebomb waiting to happen, not shared ownership. The schemes are different each with their bad points.

This is my prediction and I believe it represents the next big housing disaster in the UK.

Not all shared equity schemes operate this way. With my scheme I have paid a 'rent' since I signed up. This increases in line with RPI each year plus 1%. And yes, RPI could increase by an unmanageable amount in the future but since I purchased my property my salary has increased considerably as has the value of my home so I think I'll be able to afford it. Who knows though!

Anyway to reitterate not all schemes operate in the same way so make sure you do read up all about them before you commit. Be financially savvy and you should be OK as long as you buy in a desirable area and have a decent ans secure job as well as some savings just in case...

brit1234

and_another_thing... wrote: »

Not all shared equity schemes operate this way. With my scheme I have paid a 'rent' since I signed up.

I think you are getting confused with shared ownership and not shared equity.

1. Shared ownership = Mortgage/Rent/service charge
2. Shared equity = Mortgage/service charge/loan repayment 5-10 years in

and_another_thing...

brit1234 wrote: »

I think you are getting confused with shared ownership and not shared equity.

1. Shared ownership = Mortgage/Rent/service charge
2. Shared equity = Mortgage/service charge/loan repayment 5-10 years in

No I'm not. I am in a shared equity scheme. I pay a monthly fee which I described as 'rent' in my previous post as I felt most people would understand this term in realation to these schemes. However as I said all schemes are different. My particular scheme does not have this 'repayment in 5-10 years thing', I paid my fee from day one and I will continue to do so monthly until I sell up. It's about £130 per month. I don't pay a service charge as it's share of freehold (a Victorian conversion flat).

charleyroo

brit1234 wrote: »

If you ever want to move again or get a bigger home when you start a family avoid shared equity. It seems desperate or financially illiterate people with no deposits go for them.

I would like to dispute this.

Not ALL shared equity schemes are a scam. You have to read into them fully and understand what exactly you are signing up to.

I was not desperate and I am certainly not financially illiterate. I simply stumbled across an offer from a housing association I could barely refuse - the chance to buy a house that I wanted.

I bought on the open market at a price I negotiated with the seller (as with any normal house purchase) and then I arranged my own mortgage with a broker I chose. I obtained a mortgage at 3.59% which I'd tend to believe is quite low. I pay no rent or charges and I pocket all profits that result from improvements that I make to the property.

I pay no interest on the share that the housing association lent me. I never have to pay it back, if I don't want to move (I arranged life cover to cover the HA equity should I pass away). If I do want to pay it back, should house prices have risen then of course they will pocket 30% of the remaining profit after any gains from improvements are deducted. If I want to sell the house, it will be sold on the open markets to buyers that I choose and I am able to accept any price around valuation that is offered to me. Should prices have fallen, the housing association swallows 30% of the loss.

The best bit is that I am saving quite a bit of interest on £35k and am able to make overpayments on my mortgage, and can afford to save or borrow for other things as I see fit. It's in my interest to leave the £35k alone for as long as possible while I pay my mortgage down. I aim to have £7k paid off by the end of year two and as my salary is incrimental my overpayments will increase in line with this after I re fix.

If I wasn't quite as sure that I was shortly due a promotion in work I would have possibly not considered this scheme because the chances would have been that it would have been a while before I could buy the remaining equity/look to move on. As luck would have it, things have gone my way and by the time I come to remortgage in 2013 I would have possibly had enough equity to remortgage and buy out the housing association leaving me at 90% LTV - but of course, it's not in my interests to do that!

I'm not an argumentative person and I don't dispute that some schemes are a complete scam, but I just wanted people who are researching to know that not all schemes are completely bad!

Charl :beer:

billybear1

HappyMJ wrote: »

It allows a low income earner with cash to spend it on a deposit and claim Housing Benefit on the rented portion. They wouldn't have got any benefit at all if they had over £16,000 in cash.

Your right, this does sound like a scam ....... To the tax payer! Honestly, unbelievable!