Different prices for 100% purchase and shared equity.

Newbiescot

Hi,

I'm looking for some advice from anyone who may have been in a similar situation or anyone with some experience in this field. I have found a property that I'm keen on, but it's a new property and as a 1st timer buyer, shared equity is the route I am going down because of LTV issues with new build properties. My issue is that the developer is marketing the home at 145000 if you purchase conventionally, but want substantially more - 160000 to base shared equity deal on. Is this a common situation or are they trying to essentially rip me off? Both values are below the 'homevalue report value, but it is definitely a buyers Market in my opinion.

Any advice appreciated before I go back to them to really discuss deal.

Thanks,

Dave

hcb42

avoid shared equity, the answer is in your post!

brit1234

Shared equity is a scam, avoid at all costs. Reasons on linked thread below.

https://forums.moneysavingexpert.com/discussion/3177256

Newbiescot

The link given relates to mainly shared ownership schemes in developments set up specifically for people on low incomes. This does not relate to me specifically, the property is in a converted warehouse in the city centre and is available to all forms of buyers. It is a simple 80/20 split and I pay a mortgage on the 80% and in 10 years I own 80%, whether this is higher or lower. I can see why this may not appeal to some people but it allows me to stop renting at a higher rate than the mortgage payments and get some slice of the Market.

Shared equity schemes differ vastly from shared ownership and lots of misinformation is out there.

I am still looking for answer to my original query whether it is standard practice for them to attempt to charge varying amounts based on the purchase type?

kingstreet

Newbiescot wrote: »

It is a simple 80/20 split and I pay a mortgage on the 80% and in 10 years I own 80%, whether this is higher or lower

That's not my definition of shared equity as it works in today's terms. However there are regional variations and as you're in Scotland this may be a concept we don't have in England. I'll continue and you can shoot me down later if it turns out you're right and I need to brush up on my Scots property developments.

You buy 100% of the property with a mortgage, your deposit and a loan from the developer. The loan is interest-free for a fixed period but you repay a percentage of the property value, rather than a fixed amount.

On a 80/20 split, you'd have, for example, a 75% mortgage, 5% deposit and 20% "equity loan." The equity loan would be repayable after perhaps ten years from the sale proceeds or from funds from another source. The 20% would be based on the sale price or market value at the time.

If you have correctly described how your deal works, it is still shared ownership in my opinion. You own 80% and the developer owns the other 20%. You may, or may not, pay rent on their share.

Approaching your original question, it is unusual for sellers of any kind to attempt to dual-price, although I can see the attraction for them in so doing. Can you tell us more about the value of the property given in the report? Would the possible lack of a rent charge I mentioned in the last paragraph justify the higher price?

brit1234

Newbiescot wrote: »

The link given relates to mainly shared ownership schemes in developments set up specifically for people on low incomes.

It coves both in detail, you just have to go though the pages.

Paying £15k more for shared equity will put you into larger negative equity than buying a normal new build in the price falls.

The you have the shared equity timebomb effect.

Newbiescot

Hi kingstreet,

There are variations between Scots law and English law. In Scotland every property now must have an independent valuation report as part of the sellers package, rather than you commissioning a survey, although some banks still insist on there own valuation and you can conduct another survey if you wish. These homereports are available on the web widely to view. The property I am interested has been valued at 170000 recently. The reason for the reduction in price is due to it being 1 of only 2 properties left in the development, and a previous sale falling through. I am obviously not going to just accept the 15000 difference between the 2 prices, but was wondering if anyone had come across this situation elsewhere?