Shared ownership/equity is a scam.

Shadow65

Hi I have just found this forum... I have been looking at buying through shared ownership, an have looked at quite a few properties over the year and yes, the service charges have put me off, however, over the summer I was emailed by a housing asociation to advise me that they were offering a property on behalf of the seller, they gave a price etc and a cut off date, due to work pressures i was unable to view within the timescale, but the seller said I could go view it still, so i did and i loved it, the very next day i applied an was told it had been taken off the market.... I then got another email from a different housing association advising of a property etc again with a deadline, so i made sure I applied in time! again after viewing I told them I was exremely interested... only to be advised that this one had also been taken off the market... and within 2 weeks BOTH properties had been placed back on the market and BOTH were asking £5,000 MORE than when they were 'advertised' a few weeks earlier... the word scam really did spring to mind... and I couldnt help thinking that they were seeing how much interest there was in their properties before upping the price I was wondering if anoyone else had similar experiences

Promsan

I've read most of this thread (well, I got halfway from the beginning and then skipped to the end).

I started off 2/3 in favour of shared ownership, and now I think I'm 2/3 against; so I think "Brit1234" has for the most part, won the argument. Having said that, it's not a straigh sets win, and some like G in Devon have salient points.

What seems to underlie this whole issue is that the vast majority of people seem to be less interested in "getting on the ladder" (when did that toxic phrase begin?!) or acquiring some "equity", and more interested in two things:
1. reducing their monthly outgoings on accommodation;
2. having more security than private rent offers.

To my mind, this is the role that the Council House used to provide, and I might venture to suggest that it's not simply "building on the greenbelt" that is the answer, but for the state to find a more benign way of solving this problem than simply running to "private investors" and companies to get involved.

There are a lot of causational factors for the current situation - massive increase of women working (and dual incomes); EU membership and unprecedented mass immigration from everywhere; wealthy foreigners keeping their dubiously-sourced wealth in UK property; a decade (the 90s) of TV programmes obsessed with making a buck on property (starting with Home Front on BBC2! - sometimes it's like watching Estate Agent TV!); but one of the biggest issues is the collapse in the housing stock... whilst I take Thatcher's point that for the most part, people tend to look after a place more if they own it, that sell-off was (ironically for the Tories) a disgraceful gift of taxpayer capital to a whole generation, and it's helped turn a lot of council estates all over the country into little property empires that make money off barely legal rentals to students, immigrants, and low earners.

With all that in mind, and the unsustainable size 0 interest rates that are STILL propping up the market (Gordon Brown's legacy), these schemes are, I agree, not the answer.
OK, they might work for the short term, for keeping the wolf from the door for a lot of people, but they are not solving the fundamental structural problems in the housing market.

In the area I'm working in now, I rent a studio for an extortionate £595pcm, and to buy it, £90,000 would apparently be considered "cheap" (makes me laugh)... there's a newbuild/HA shared ownership scheme, where (skipping all the details), you could end up with a similar but slightly larger 1-bed flat for about £485pcm... but here's the rub... I can very well believe that the service charge is set temporarily low and would quickly work it's way up to the same level as the rent I'm paying (this is the owner's risk management strategy/business model I imagine), the crucial difference being that if I rent, I can go without much fuss; with the share ownership, life could get pretty complicated if my plans had to change suddenly.
Having said all that, saving for a deposit seems a bit of a tall order, so like an increasing number of people with more than one degree and above average earnings, I am shut out of having a stake in society... and thus, so are my children.

If the attitude is that we the people are not worth anything, and that if we fall on the wrong side of the property divide, we can be effectively replaced by temporary or permanent cheap immigrants from the 2nd and 3rd worlds, in order to sustain what George Bernard Shaw criticised as a rentier class, then a lot of people are in chronic trouble - some of us and do a bunk to pastures new, like Australia, but too many, just can't. So, in the end, I think however clumsily argued, Brit1234 has a strong case.

Blue22

Good post Promsan. As an older person I really hope that Government policy will soon change so that you and others of your generation can have a full stake in society.

averageguy11

Interesting post Promsan.....Brit i have certainly known people with problems re there service charge that arent on shared ownership deals..its not exclusive..interesting thread though...i am currently at the beginning of selling my 'shared ownership' house....no service charges though

Idiophreak

Promsan wrote: »

I started off 2/3 in favour of shared ownership, and now I think I'm 2/3 against; so I think "Brit1234" has for the most part, won the argument. Having said that, it's not a straigh sets win, and some like G in Devon have salient points.

I'd urge you to read the thread again and discount all of the *many* shared equity/shared ownership "problems" Brit has linked to that have nothing to do with shared equity / ownership.

"Help, I paid too much for my house and now I'm in negative equity" - this is equally possible without SE/SO.

"Help, house prices have fallen and I'm in NE!" - likewise.

"My service charges aren't set at a fair level!" - not exclusive issues to SE/SO - Take it up with the LVT.

"I took out a loan and didn't bother to pay it back - now the lender's upset!" - Really? This is the fault of SE/SO?

The *real* problems with shared equity are typically:
* People feeling "forced" to pay over the odds for a property for the convenience of using a scheme. It's about the way it's sold, more than the agreement itself...a bit like those free photo scams you see on here....But both are really easily avoidable - by just saying no.

* People not working out how they're going to save for their deposit - or crossing their fingers and hoping for the best. There's an argument that "traditional" mortgages just don't allow "hoping for the best" as a method of payment, so you can't wind up in that situation.

For shared ownership, add:

*Paying rent to a degree where mortgage + rent = the cost of private renting - so the whole point is somewhat lost.

Beyond that, it's all "big picture" stuff. To be honest, I'd rather people were given help to buy their own home than live in social housing for their whole life - but that's personal preference, really. I agree, as another person with more than one degree and above average earnings, that house prices are pretty high - and these schemes do contribute to that (although muchlessso than, say, BTL)...but I'm also well aware of the possible negative consequences of them falling significantly...So, things being as they are, I'm happy taking a foot up, building some equity and enjoying the stability and enhanced flexibility SE affords me.

chequer71

Hi all,

Prospective first-time buyer here that has been reading endless articles, guides, and forum threads for a long old time and still only feels he's grasped about 5% of what there is to learn on the subject!

My partner and I are looking to take the plunge into ownership (or at least part ownership) this year with a fairly modest deposit of around £10000 as it stands. Mostly this is so that some of our money each month is actually doing something for us rather than going direct to a landlord. Partly it's down to security and planning for kids in particular. Partly it's to save money against rental costs in the short-term.

I've got a general grasp of the pros and cons of SO by now I think and yes, if we could comfortably afford what we want outside of the schemes then that would be the preference. But considering the cons it seems we have some specific circumstances that might partially nullify them (or am I being naive/missing something)?

1) We're in London - surely something of it's own indemnity against dramatic price drops? We're also very confident that our area is particularly picking up with several significant developments in the pipeline, lots of young professionals moving in, transport links etc.

2) Even though the mortgage + rent + service charge combo might make it more expensive than a straight mortgage, it would still be cheaper than our £800pcm rent at present (which is itself comparatively low for our one-bed and due to rise this year). In five years time if we're still renting we'd probably be priced out of the local market.

3) Surely the facts of increased energy efficiency and building warranties help to save some of the money back in lower bills and maintenance costs?

Our options seem to be:

a) Save a little longer to hit the 10% deposit for £140-150k that would just about scrape us a pretty bog-standard 2-bed that might need maintenance work from the off and would lump us with a fairly big mortgage relative to our means.

b) Go for the smallest flat we could feasibly live in (say £110-120k) with a view to moving on again within 3-5 years. (Even though the 2-bed level we really want will probably have increased in price).

b) Take up something like a FirstBuy, new build, SO 2-bed at 25 or 50%. Yes, I've seen ridiculously costly ones (£225k for example) but have also seen ones in the £180-90k range of decent standard. That would leave us a lesser mortgage burden, but I would expect that we'd then want to be staying there longer (perhaps 7-12 years) in order to take full advantage of the "newness" and hope that the area has taken off sufficiently to cover any disparity between their "full market value" and a truer "open market" value.

Any thoughts on the scenario would be greatly appreciated.

Thanks in advance!

Idiophreak

chequer71 wrote: »

3) Surely the facts of increased energy efficiency and building warranties help to save some of the money back in lower bills and maintenance costs?

Certainly does...and it's something that's often overlooked...but it varies wildly from builder to builder.

Personally, our flat is insanely well insulated, our energy bills are a fraction of those some of our friends pay. We also had the builders around a few times in the first couple of years fixing little snags we'd notice...and as they were supplied with the house, all of our white goods, boiler etc were brand new and had warranty, which was good. Conversely, however, something has to be pretty seriously wrong before the NHBC etc warranty will be of any use - so if you have a poor builder, you don't actually have a whole bunch of protection.

That said, this is a feature of "new builds" in general, more than it is of SE/SO, which is why it's not been mentioned much on this thread.

In terms of your situation, I'm concerned that you appear willing to pay, essentially, 40k above normal asking price to do FirstBuy / new build...which is, plainly, nuts - and why this thread exists, basically.

Personally, I'd not have a problem paying 10k more for a new build...afterall, most people think nothing of buying a second hand home then immediately spending 10k on a new kitchen/bathroom and redecorating...so there's definitely stuff worth paying a premium for, but as soon as you move in, you effectively lose this money. Again, losing 10k is one thing...losing 40k is something quite different!

Doing option A, you're going to be fairly unlucky to have to pay out anything like 40k on maintenance in your time in the flat...And, typically, a portion of the money you invest in works will stay as equity in the property, anyway....but as you say, it's the option that lands you with the largest mortgage, probably.

Assuming that leaves you a little uncomfortable with your level of payments, you're down to option 2 or 3...And both are concerning...You seem to assume with option 2 that you're magically going to be able to afford to move to somewhere bigger in a few years - what's driving that assumption? Will you really be able to save a significant chunk of cash in that time to use for the upsize? If so, option A is probably OK afterall, or are you anticipating significant pay rises in that time?

Option 3...as well as being massively overpriced as far as I can see (there really should be no difference between "full market value" and "open market value" - only between "new value" and "second hand value"), you've the same issue as above...What's the point in buying 25 or 50% of the place without a good plan as to how you're going to buy the rest? You may save a few quid monthly and maybe accumulate a couple of grand in equity - but I get the impression you've greater aims than that.

What you need to do is get yourself a spreadsheet and map the whole thing out, probably monthly and for the next 7 years or so...How much will you earn, how much will you save...Where will you be in 5 years if house prices rise 10% in that time...Where will you be if they fall 10%...That's how you get all the information in front of you.

Beyond that, I'd say you're relatively fortunate in that the numbers you're talking about are at the more "reasonable" end of the scale. You seem to think you'd be stretching yourself a little to take on 140k at 90%LTV - but I imagine it would be much more comfortable at 75% LTV - and there's "only" 20k difference between them - which is much less than a lot of people on these boards have to worry about saving.

How long do you think it would take you to save 20k? If you saved really hard, cut your outgoings, tried to increase your income, called in all favours etc. If it's a couple of years, I'd give that option *serious* thought...You'd wind up with a decent chunk of equity in a "bog-standard" property, but with a lower mortgage, a better interest rate and a real feeling of being "on the ladder". Remember, if you got a 2 bed place, you could get a lodger in on the rent a room scheme and get 4200 tax free per year...So if you could rent your spare room out for £350/month, you'd make a real dent in your mortgage payments or other debts accumulated in the process. It would be a tough couple of years, but you'd reap the rewards for the next 30odd years beyond that...

brit1234

Shared Equity Time bomb

elizabethdane wrote: »

Hi folks, I'll keep this as simple as possible and stick to the facts.

We purchased our home eight years ago with a mortgage of £120k and a dreamstart offset of £40k. We were told at the time that the £40k would be repayable either upon sale of the property or after ten years, and that the figure would be adjusted in line with the value of the house.

We were assured repeatedly that in any event we would be able to remortgage should we need to, and absorb the 40k into our existing mortgage.

As there's only two years to go and with the house in negative equity I decided to get the situation under control and started the process of remortgaging only to find that there is not one bank willing to give us the finance. We have been informed that the repayable figure adjusted for current market value is a little over 37.5k and if we don't come up with it then we have to sell the house. This will leave us renting and absolutely unable to get back on the property ladder.

We have a combined income of 46k but we've always been on a repayment mortgage and now have a son, so there's been no money left to save. We had no idea that this could happen and are now facing a life of paying somebody else's mortgage for them. I am devastated. Has anybody got absolutely any suggestion at all for how we should proceed? Any advice is greatly appreciated. There must be many, many people in this position.

Many thanks. Vic.

https://forums.moneysavingexpert.com/discussion/4426021

2008 was the year Shared equity really kicked off. The majority of them were overpriced new builds where you paid 80% mortgage and about 20% 5 year interest free loan. The loan repayments really start to kick in now as we are about to go into a trip dip recession. It will get nasty with shared equity, stay clear.

Idiophreak

brit1234 wrote: »

Shared Equity Time bomb



https://forums.moneysavingexpert.com/discussion/4426021

2008 was the year Shared equity really kicked off. The majority of them were overpriced new builds where you paid 80% mortgage and about 20% 5 year interest free loan. The loan repayments really start to kick in now as we are about to go into a trip dip recession. It will get nasty with shared equity, stay clear.

I'm genuinely curious as to how many of your rambling you actually believe and how much is just deliberate scaremongering as a part of your quest to try and drive prices down.

You're linking to a thread where the OP (sympathetic as I am toward them)
a) Signed up for a FRICKIN MORTGAGE without bothering to read or understand what they were signing.
b) Has taken no interest in trying to repay a 10 year loan for the first 8 years.
c) Has a bunch of maths that doesn't add up and, really, doesn't indicate any kind of "scam" even if it did....in fact, they've done quite well out of it, in the scheme of things (see my post on the thread).

Having linked to it, you've offered no comment, or advice to the OP for that matter - and highlighted only the bits that suit your agenda...

At this stage, your contributions to this thread are, bluntly, trolling. You really need to start adding some kind of value to the thread, or *just give it up*.

HAMISH_MCTAVISH

Idiophreak wrote: »

deliberate scaremongering as a part of your quest to try and drive prices down.

Sadly, all of it.

Note he hasn't updated his signature since prices went year on year positive.

Having linked to it, you've offered no comment, or advice to the OP for that matter - and highlighted only the bits that suit your agenda...

At this stage, your contributions to this thread are, bluntly, trolling. You really need to start adding some kind of value to the thread, or *just give it up*.

Well said.

This thread is now just misleading scaremongering, and should be locked.