Purchasing new build house - equity share

kitch

Hello - looking for some advice if possible please. I realise there are some strong opinions out there regarding equity share purchasing, but I'm hoping to get a balanced view.

We're in the middle of negotiations at the moment and we've been offered a deal that includes an equity share (the overall deal isn't quite right for us, but I need to understand the ES aspect). The reason being that they can't offer us what we need for our property (with the market being like it is) to create the majority of our deposit.

We would be looking at a fixed mortgage and most competitive seems to be over a couple of years. With house prices being a little temperamental we probably need to 'buy back' the equity share as soon as we can to avoid any problems in the future. But surely that means that at some point in the future our mortgage will have to suddenly jump up in value to accommodate the value we've had to 'buy back' from the builder?? So whilst the monthly payments look reasonable for us now (certainly for the next two years on the fixed mortgage) what happens after that? It might be too much to pay.

The equity share is actually set for quite a few years with no interest (10) so we obviously don't have to do it straight away, but if houses prices go a little crazy again we could be in trouble.

I may be way off the mark with my understanding on this, so hopefully you guys will be able to help us clarify some of this information.

Thanks.

Kitch

pioneer22

If you pay off the mortgage and the equity loan can stay interest free for 10 years then really you would avoid any drop in house price.

pioneer22

Also interest rates arent set to go up until at least late 2015 generally i believe its one percentage point = £50.

http://www.thisismoney.co.uk/money/news/article-1607881/Interest-rates-News-predictions.html

brit1234

I say again that shared equity is a scam. Do your research on threads here.

kitch

As I say, more than happy to take the rough with the smooth as far as opinions are concerned. I've done more research since posting originally and I actually find it more appealling now.

Can you sum up in one sentence why its a scam? Is it because people believe it helps keep house prices high? Rather than taking money off the top they offer and equity share instead? If that is the case, I'm not sure that qualifies as a scam as such.

Hopefully there will be a positive opinion along in a minute too!

Cheers.

GeorgieB123

kitch wrote: »

Hello - looking for some advice if possible please. I realise there are some strong opinions out there regarding equity share purchasing, but I'm hoping to get a balanced view.

We're in the middle of negotiations at the moment and we've been offered a deal that includes an equity share (the overall deal isn't quite right for us, but I need to understand the ES aspect). The reason being that they can't offer us what we need for our property (with the market being like it is) to create the majority of our deposit.

We would be looking at a fixed mortgage and most competitive seems to be over a couple of years. With house prices being a little temperamental we probably need to 'buy back' the equity share as soon as we can to avoid any problems in the future. But surely that means that at some point in the future our mortgage will have to suddenly jump up in value to accommodate the value we've had to 'buy back' from the builder?? So whilst the monthly payments look reasonable for us now (certainly for the next two years on the fixed mortgage) what happens after that? It might be too much to pay.

The equity share is actually set for quite a few years with no interest (10) so we obviously don't have to do it straight away, but if houses prices go a little crazy again we could be in trouble.

I may be way off the mark with my understanding on this, so hopefully you guys will be able to help us clarify some of this information.

Thanks.

Kitch

Hiya kitch,
I too, am looking at shared equity and I dont believe its a scam. Yes, I know its better value if you buy an older house rather then a new build, and also if the price of the house goes up, so does the equity share. But in terms of here and now i.e the next 5 years, it works out a really good way, for us anyway, to buy your house now. The interest is normally about 1.75% which isnt that bad, and the money we will save on rent by buying, we are going to save so in 5 years we can pay off a good chunk off the equity. If we are still there, then we can just remortgage in order to pay for the equity, if we are looking to sell which will be likely, we will pay off the equity loan. As you have 10 years interest fre, you would have a really good chance of saving the money to pay off the equity, or hopefully the market will be a lot stronger and you can pay it off.
I think i have rambled a bit but hopes it helps

clairecymru

Shared equity worked for me. Bought in 2009 and sold in 2011 and made a £10,000 profit which was enough to put down as a deposit on a house that was all mine.

brit1234

clairecymru wrote: »

Shared equity worked for me. Bought in 2009 and sold in 2011 and made a £10,000 profit which was enough to put down as a deposit on a house that was all mine.

You were lucky, you bought just at the beginning of the dead cat bounce and sold at the peak of the bounce.



Do you think if the original poster bought now after this dead cat bounce they would make a profit or be in negative equity with the falling prices?

Its a scam as it is a scheme designed to get the buyer to purchase at an inflated cost through a scheme which they wouldn't be able to afford. Only benefit to the builder.

pioneer22

Buy if you are there for the long term including children which is why I have a 3 bed. It isn't a scam no ones tricking you your getting what you want.

I would like Brit to answer this, if the op doesn't repay the loan but pays the mortgage won't they be safe from neg e?

Brit is waiting for a huge reduction in prices which I don't think will happen, people will hang on thru the rough ride rather than face repaying the debt when they sell for a reduced amount. There are too many people invested for a huge house price crash.

Rosey78

We purchased via the Homebuy direct scheme in 2010, and it's working for us.
We have a 79%/21% ( 21% intrest free for 5 year) split on a £250k property. We managed to ensure that our mortgage was 75% LTV, to get a better rate. We are currently making over payments on our mortgage so that in 2015 we can remortgage to pay off the 21%. If we didn't go for this scheme we would not have been able to get on the property ladder until at least 2015 and even then we would have not have had a deposit for 75% LTV.

pioneer22

Rosey78 wrote: »

We purchased via the Homebuy direct scheme in 2010, and it's working for us.
We have a 79%/21% ( 21% intrest free for 5 year) split on a £250k property. We managed to ensure that our mortgage was 75% LTV, to get a better rate. We are currently making over payments on our mortgage so that in 2015 we can remortgage to pay off the 21%. If we didn't go for this scheme we would not have been able to get on the property ladder until at least 2015 and even then we would have not have had a deposit for 75% LTV.

That's really good to hear! How are the prices holding up?