Shared ownership/equity is a scam.

Idiophreak

edgex wrote: »

in this case, the shared equity simply enables the purchaser to leverage their earnings to a greater extent than those that dont use these schemes
that means they can then 'afford' the over-inflated asking price, which of course comes with an associated inflated rent.
which pushes house prices up again, so yet more people cant afford to buy a property.

I don't understand why people on this thread have so much difficulty in understanding the difference between shared ownership and shared equity.

If you're talking about rent, you're talking about shared ownership, *not* shared equity.

gazfocus wrote: »

I agree shared equity is complete nonsense because it means you're needing to raise the money you will owe on the equity loan but with shared ownership the rent + mortgage payment + service charge (if any, houses don't tend to have a service charge), is generally cheaper than an equivilant mortgage.

For example, mortgage plus rent for the house we're buying (a shared ownership resale) works out at £575 per month. A mortgage for the full value would be £700 per month (based on £124k purchase, 10% deposit and 5.69%).

I think you're missing the point somewhat. The point of shared equity is that the cost of mortgage + service(if applicable) is less than the cost of rent in a comparable property. Thus allowing you to save a deposit (the equity loan) faster.

It also enables you to borrow at a more favourable LTV and thus get lower rates than you could manage without the scheme.

For example, on our shared equity deal, we took £142k mortgage (75% LTV, 4.38%, 35yrs) and pay 665/month. Service is £65/month, so £740 all in. The flat next door rents for £950.

£210 x 120 (length of loan) = £25,200 extra savings toward a deposit.

If you compare this to a "typical" mortgage on the same place...Say a 90% LTV for 171k, over 25 years using your 5.69%...you're looking at £1080 + the 65 service = £1145...£405 more per month...but without any need to save a further deposit (and a shorter term!)..Of course, you're likely to only have fixed rates for, say, 3 years - after which, the rates on the two mortgages may well become much more similar.

So, looking at it over 10 years....
Shared equity dude vs normal mortgage guy.

first 3 years -
dude pays £740/month.
guy pays £1145/month. by end of period, dude has saved £14,600.
of course, he also didn't pay the £19k deposit guy did, so he's saved that too...£33,600.

After the fix, both drop onto BMR at say, average of 6%
dude pays 815+65 = 880
guy pays 1115 + 65 = 1180
So, in these 7 years, dude saves £25,200

Over 10 years, total saved is £58,800. Property prices would have to have risen by around 30% in order for this not to be sufficient funds to repay the equity loan...In which case, dude could sell, keep the cash saved and have made over £40k on the deal anyway. The real question is whether the extra equity normal guy's been building (by taking the mortgage over a shorter terms) be *at least* 15% more? Nope. Dude was smart and used the money he saved as offsets, so has likely gathered much the same amount of equity over the 10 year period. Thus meaning he's actually got 15% more equity in his house than normal guy, once he's repaid the equity loan.

So, over the full 10 years, it's cheaper to do shared equity than to rent, or to buy "normally"...but this shouldn't really be massively surprising...that paying back 25% of your property at 0% makes it cheaper than paying it back on the mortgage...

saverbuyer wrote: »

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.

Good point, was going to mention that myself

ali82

I have decided against this property now for a number of reasons, they havenow sold out of 2 beds and only have 1 beds available averaging at £175,000which I don't think it is worth it as if I did eventually buy 100% it would notbe as easy to rent out, also currently I would not have a second room to rentout (allowed or not).

I enquired into renting a 1 bed there for 6 months before deciding if it wasfor me under the intermediate rental scheme however I have since found out thatthe other half of the development that is not shared ownership is rented tocouncil tenants, which I believe explains why the service charge is so high asthe SO portion is paying service charge for the whole development (thisincludes building insurance, buildings maintenance, lift maintenance etc).

So I need to come up with a new plan now.

Idiophreak

ali82 wrote: »

So I need to come up with a new plan now.

I'll keep my fingers crossed for you

gazfocus

ali82 wrote: »

I have decided against this property now for a number of reasons, they havenow sold out of 2 beds and only have 1 beds available averaging at £175,000which I don't think it is worth it as if I did eventually buy 100% it would notbe as easy to rent out, also currently I would not have a second room to rentout (allowed or not).

I enquired into renting a 1 bed there for 6 months before deciding if it wasfor me under the intermediate rental scheme however I have since found out thatthe other half of the development that is not shared ownership is rented tocouncil tenants, which I believe explains why the service charge is so high asthe SO portion is paying service charge for the whole development (thisincludes building insurance, buildings maintenance, lift maintenance etc).

So I need to come up with a new plan now.

Sounds like a very wise decision to be honest. I'm not at all opposed to sharing a development with council tenants, but it's not fair that the service charge be increased to fund the difference. If the council want to house people there, then the council should foot the bill for the service charge in my opinion.

Hopefully though, you will find something more suitable soon enough

ali82

Yeah, everythings happens for a reason so onwards and upwards! (btw sorry for the typo's my space bar keeps freezing)

rgmerke

Hi
I'll start with a little Warning – it’s a long post with a lot of simulations and guestimations so if you don’t feel like going through it all maybe you would be interested in responding to my general thesis which is :

- it’s better to go for shared ownership than to rent privately
- it’s better to go for a lower share of the property ( lower mortgage , better capital/interest ratio, taking advantage of subsidised rent on not owned part of the property)
- shared ownership offers bigger stability in terms of not having to extend rental contracts/move out etc and in many case better quality (bigger/more modern property etc)



So here's the situation :

I found a very nice brand new shared-ownership 3/4 bed house.
Knowing that chances of us buying something similar on an open market in the future are pretty much equal zero i thought about considering a much maligned shared ownership option.

i've read a lot of comments on this forum which where very helpful and curbed my enthusiasm a little bit. However I’ve been renting privately for the last 9 years …..

Housing association encourages you to buy the largest share but I thought that the opposite approach could possibly be better :

Here’s my little simulation – I would appreciate if someone could tell me if this makes any sense :

Renting :
We are currently renting paying 1250pcm for 2bed flat
We can roughly save around 500 per month after all the costs

Over the 5 year period we spent 80K (assuming 5% annual increase) on rent and save 30K (optimistic version:)

Shared Ownership :

3 bed house with 2 receptions full value 395K (probably overpriced but there are no similar properties in the area so difficult to compare )
rent 2.75% on the share not owned
£40 service charge

Mortgage :
Buying 25% share would mean we need to find £98,750
If we come up with 15k deposit we end up with 83K mortgage
That means 540 pcm (according to excel's amortization table template assuming 6.5% rate,25yrs ) 120 capital 420 interest initially

Rent on 75% share (calculated as 395 000 – 98 750 = 296,250 – 2.75% / 12)
= 680 pcm

Service charge = 40 pcm

Total monthly = 1258

Over the 5 years we spend 45K for rent (same assumption 5% annual increase)

Since our monthly outgoings remain pretty much the same we should save 500 per month . Here I have a bit of a problem because I should assume some additional costs from the fact that I would be financially responsible for repairs, but than it’s a new built house with, I guess should have some sort of guarantee for major breakdowns ??? I halve this figure but also include some potential income from rental of one of the bedrooms (not allowed I know)
So let’s say I save 20K in 5 years living in shared ownership. Instead of keeping this money in the bank I make monthly overpayments of 300.

So in 5 years, my liability to the bank would be 54K (believing excel’s simulation) and I would pay off roughly 30K of capital.

Assuming the above and no major dramas I should be able to pay off the mortgage part of this shared ownership business in 10-12 years.

I assume we will never buy 100% of the property, which would leave us exposed to rent increases. I assume that we will move out at some stage , ideally after we repay the bank. I assume a lot of hassle selling but looking at shared ownership resale properties I assume we do eventually sell. I assume we sell cheaper than we bought say 20% drop in price, so on our part it means getting 80K back from the whole project compared to 60K saved over the same period (10-11yrs) . Does this make sense?



thanks in advance!

poppy10_2

Some more mainstream coverage of this scam, from today's Independent:

Shared ownership dreams shattered

Tens of thousands of Britons who bought their homes through shared ownership arrangements are struggling to sell them, leaving them in limbo as they are unable to move for work or family reasons, according to a damning new report from Cambridge University.

The report highlights problems including the inability to secure a mortgage, poor demand from buyers, high upfront costs of sales and delays to sales caused by inefficient housing associations.

"Many of the problems that affect the wider housing market are magnified when a property is bought on a shared ownership arrangement," Henry Pryor, a former estate agent and housing expert, says.

"The experience of those in shared ownership should be a lesson to those looking at New Build and other schemes which try to buck the market through clever engineering," says Trevor Kent, former head of the National Association of Estate Agents. "You are at greater risk of negative equity and having additional regulations thrust upon you. I wonder if our approach to first-time buyers is like sending lambs to the slaughter."

More:
http://www.independent.co.uk/property/house-and-home/property/shared-ownership-dreams-shattered-7878446.html

brit1234

Thanks Poppy, highlights every thing we have been saying on this thread for ages with real experiences from MSE members on these scam schemes. Here is another.

gizmo1234 wrote: »

My house has been on the market for a year and half, ive sold it 4 times! Because its shared ownership the buyer has to be accepted by the housing asssociation and everytime they get to the interview stage they get declined due to not having enough money left a month after all their outgoings.
What seems hard to grasp is all thes people have seen fiancial advisors at the start of the process and been told they fifnancially have more than enough money to go for my house and there will be no probs getting accepted, but they never do! The last lady that got refused worked full time and had a substancial amount of cash savings and she still got refused.
Im litterally getting ill over it all, im getting made redundant soon as well and seem to keep hitting a wall with the housing association. Is there any way I can challenge them to stop this happening? or legally can i do anything? im feeling like im never going to sell it because they are making impossible for anyone to fit their criteria and they advertise it as affordable homes! I just dont see who would be able to go for it, maybe someone with a recent lottery win!!!

gizmo1234 wrote: »

Everyone has always had the mortgage side sorted at the start and had enough money to get that side of things accepted so as far as i know they would have the money for the deposit, my estate agent everytime has said that its all been ok with that side of things. From what the housing association keep telling me its when they work out all the outgoings like mortgage, rent, bills etc that after that their criteria says they have to have a certain amount of money left a month in their pocket and according to them no on ever has this amount they require

gizmo1234 wrote: »

Ive found out today that the lady that has got declined had £65,000 cash! to put down on my house so she wouldnt have a mortgage as my 50% share is £61,500 and she works full time which i worked out all the bills she would be left to pay e.g rent, water, gas, electric, council tax, contents insurance etc and thats only £500 a month. At the worst if shes earning minimum wage she would ne coming out with over £800 a month after tax and they still tell me shes not got enough money to but my house! I really dont know what to do, someone has mentioned i should contact my local MP or the housing ombudsman

https://forums.moneysavingexpert.com/discussion/3752395

This illustrates another hurdle of selling the property even when you get buyers.

richardw

brit1234 wrote: »

... real experiences from MSE members on these ... schemes. Here is another...

https://forums.moneysavingexpert.com/discussion/3752395

This illustrates another hurdle of selling the property even when you get buyers.

Please read the link https://forums.moneysavingexpert.com/discussion/3752395 for a full story.

richardw

poppy10 wrote: »

Some more mainstream coverage of this scam, from today's Independent:

More:
http://www.independent.co.uk/property/house-and-home/property/shared-ownership-dreams-shattered-7878446.html

The most important bits in this are

"She was also hit with substantial rent rises and maintenance fees by her housing association.

"They would always get estimates wrong and come back for more money in rent or service charge. This despite costs rising by 5 per cent a year on average. When it comes to staircasing the legal fees are huge.""

"...housing associations should improve the way they market second-hand, shared ownership properties to allow people to move more easily."

"...you have all the responsibilities of a home owner without the full ownership, so you may have to gain permission if you want to redecorate or make improvements. You are also solely responsible for repairs and maintenance, so if you own 25 per cent of the property, you still pay 100 per cent of these costs..."

"..a fundamental problem with shared ownership is that you cannot rent out your property, temporarily or otherwise..."