Shared ownership/equity is a scam.

edgex

pioneer22 wrote: »

For my partner and I we are guaranteed pay rises every year or couple of years so paying off the mortgage won't be a problem.

:rotfl:

presumably youve got this in an iron-clad contract?
& your employer has also guaranteed not to sack you?
& they can somehow guarantee that they wont go out of business?
& theyve somehow guaranteed that none of your living costs will increase?

edgex

gazfocus wrote: »

We are currently looking at shared ownership houses and think they are a good idea in some instances.

The area we live in is quite a fair priced area. There are a number of 2-bed terraced properties for around £60k-£70k, a number of 3-bed terraced properties for around £70k-£110k and a number of small semi's for around £90k-£120k.

The shared ownership properties in our area range from around £60k for a 50% share of a reasonable sized 3-bed semi (pre-owned) to around £70k for a smallish brand new 3-bed semi, so the hike in prices isn't as big as it is in some areas.

One particular house we have our eye on is for sale at just over £60k for a 50% share in a good sized 3-bed semi and is in a nice area. The monthly rent on the other 50% share is £210pcm. This would be much cheaper than the mortgage payments on a £120k mortgage and we wouldn't realistically be able to get a mortgage for a £120k house. Plus it means we'd get better mortgage rates as our deposit would be a bigger %

problems with this post;

these are asking prices, not sold prices
sold prices give you the real value of the properties

even if the sellers got the asking price, the SO valuations are greater than the standard properties (why?)
realistically the selling price is ~90% of asking, so that £120k property is selling for £108k
so in fact your looking for a mortgage on a £108k house


rent is £210pcm to start with
what is the annual rate of increase?
what will the rent be in 5 years? 10 years?


what are the charges involved in staircasing?
add them onto the amount you would be looking at buying in the future, & how they will value the extra share you want to buy


then you have to factor in the problems with trying to sell on an SO property if you needed/wanted to
surely that would reduce the value?
so if you deduct an amount for the fees they charge, & then something for the reduced market
lets put the 'real' value of the SO property at £100k


why would you overpay by at least £20k?
even more so when house prices are falling

edgex

gaz141 wrote: »

is less than I will be paying on over inflated London rent

what will the rent & service charge be in 5 years time?

ali82

gazfocus wrote: »

You must've seen the flat advertised somewhere. Can you provide a link to the advert (not the spreadsheet).


Here isthe link for the SO company http://www.firststepslondon.org/ I’m not going to post a link to the actualflat on here, I don’t have one anyway.


Are you looking to buy the two bed or one bed flat?

I wouldlike to buy a 2 bed so I can get a lodger NOT tenants.


How much is the full price of the flat you want to buy?

£195,000


What percentage do YOU want to buy (35%, 50%, etc)? - a word of warning, it would make better sense to buy in 10% intervals so if you're thinking of 35% I'd go for 40% because most shared ownership will say you must staircase in 10% steps.


35% asI don’t want to commit myself too much just yet, I would like to see how itgoes. I will look into how much 40% willbe.


How much deposit do YOU have to put down on a property?

About£10,000 my mum has just sold her house and can lend me the money.

How much do you earn per year?

Approx. £21,000 plus £6 – 9k from my own business.




Do you have any outstanding debts / credit commitments? If so, what?


£200per month for a loan that there is about £2k left, I have a 2 defaults 1 thatis about £1k that I will pay off the other one shouldn’t be there so I willdeal with that.




Howmuch deposit will I need for 35% or 40%? Are you saying that £9,750 deposit would be what would be required for100% as I wouldn’t get a mortgage for 100%


If you can answer the above we'll be able to give you advice but the figures you've given are all over the place (one price is based on 35% purchase then deposit is based on 5% of the full price).

Total you would've paid off over five years (roughly) is £5633.40.

Thanks for the calculations, £5633 is not that much, I'm not really doing it for the end equity, I'm doing it so my living expenses are cheaper and my money is not being wasted anymore on rent, even if I made a profit of £100 it would be better than wasting £8k a year in rent.

Thanks again

gazfocus

Right, ok,

Full property price £195,000
35% price £68,250
40% price £78,000

Basing this on 35%

Purchase Price: £68,250
Deposit: £10,237.50
LTV: 85%

Basically, you need a minimum of 10% of the purchase price for a deposit, especially given that you have defaults, however, you will need to settle defaults before any lender will consider you I believe.

I've struggled with a default that's 5.5 years old so you will definately need a good mortgage advisor.

I'm like you, I'm not buying a house to make a profit, I'm seeing it as a way of building up savings (i.e. in equity). As long as I pay a mortgage I will be building up equity in the house each month rather than paying a landlords mortgage for him.

saverbuyer

You could have a problem as you stated above your deposit is a "loan" from your parents. You can't borrow money to fund a deposit.

ali82

Hi thanks for your comments, I would like to have some money left over, is 5% or even 8% with defaults unacceptable then?

The SO company require 5%



My mum probably will not ask for the money back so it would be a gift but I wouldstill try to pay back as much as I can, there would be no time limits or creditagreements therefore the mortgage provider etc. would not need to know wherethe deposit came from, it’s not as if I have taken a bank loan or credit cardto obtain my deposit.

gazfocus

edgex wrote: »

these are asking prices, not sold prices
sold prices give you the real value of the properties

Fair enough, I agree that the sold prices should be used and not the asking prices.

edgex wrote: »

even if the sellers got the asking price, the SO valuations are greater than the standard properties (why?)
realistically the selling price is ~90% of asking, so that £120k property is selling for £108k
so in fact your looking for a mortgage on a £108k house

This doesn't make sense. You say that even if sellers got their asking price, the SO valuations are greater...that's not the case because the Shared Ownership properties are subject to the exact same mortgage valuations as any other house.

Then you go on to say about selling prices being 90% of asking, etc which contradicts what you said about sellers getting their asking price.

In our case, the house we're buying was on for £66k and we've had an offer accepted for £62k.

edgex wrote: »

rent is £210pcm to start with
what is the annual rate of increase?
what will the rent be in 5 years? 10 years?

The rent increases annually at RPI+2% (Maximum) but the housing association we are buying with have frozen the rent until Jan 2014 so it's not all doom and gloom.

edgex wrote: »

what are the charges involved in staircasing?
add them onto the amount you would be looking at buying in the future, & how they will value the extra share you want to buy

The only charges involved are typically the cost of the valuation and the solicitor costs on both side which I'm led to believe are minimal because it's quite a simple process.

Value is determined by an independant RICS surveyor.

edgex wrote: »

then you have to factor in the problems with trying to sell on an SO property if you needed/wanted to
surely that would reduce the value?
so if you deduct an amount for the fees they charge, & then something for the reduced market
lets put the 'real' value of the SO property at £100k

The housing association we are buying with have written in the lease that should we decide to sell the property, we can choose to sell it as a shared ownership or we can sell it as a normal outright sale and the housing association then take their cut when the house is sold. Therefore, there's no real drop in value when coming to sell.

edgex wrote: »

why would you overpay by at least £20k?
even more so when house prices are falling

I wouldn't overpay by £20k and I would only go into shared ownership after an awful lot of research which is probably why the lease we've got is so favourable.

However, I would be willing to pay slightly over the odds for the benefit of getting a property that I wouldn't necessarily be able to buy outright.

gazfocus

ali82 wrote: »

Hi thanks for your comments, I would like to have some money left over, is 5% or even 8% with defaults unacceptable then?



My mum probably will not ask for the money back so it would be a gift but I wouldstill try to pay back as much as I can, there would be no time limits or creditagreements therefore the mortgage provider etc. would not need to know wherethe deposit came from, it’s not as if I have taken a bank loan or credit cardto obtain my deposit.

Your mum will likely have to write a letter to the mortgage lender stating that the money is a gift. They will want to know where the money has come from and they will ask on the application form.

95% mortgages are incredibly difficult to get for people even with an immaculate credit history so, in my opinion, you'd had no chance. You would definately need to put down at least a 10% deposit but remember that the smaller the deposit, the higher the monthly mortgage payment is going to be and the more interest you'll be paying.

ali82

Ok, many thanks