My Shared Equity Success Story

Catblue

thriftychap wrote: »

These schemes get soooooo much negative publicity on this board i thought i would put an alternative story forward. I do however concede that many government schemes are propping up the housing market BUT they can help people!

I purchased my flat in 2009 for 109,500 i had a 60% mortgage (61,000) and a 40% loan (43,900) from places for people. The scheme I used was open market homebuy. I could buy any property I liked new or old and negotiate the price just like a 100% purchase.

3 happy years later (now married and earning more) we have sold the flat for 131,000. I have to pay back 40% (52,000) to places for people and repay the remaining mortgage (<50,000) this leaves me with 28k equity.

I'm interested in your figures. You've left a few bits out, I think.

So you initially borrowed 61K from the mortgage company and then another 43,900 loan from the bank? That comes to 104,900. Presumably you had 5K of a deposit to put down?

- So you have paid out 5K deposit.
- You've paid at least 11K off the mortgage (plus obviously all the interest payments on the mortgage). At an interest rate of 4% then that is just over 7K over 3 years. Shall we say 18K all in?
- You have also paid off the loan. So that's another just over 8K that you've had to pay it off.
- Presumably you've also had buying and selling costs (solicitors, mortgage arrangement fees and whatever these shared equity people take for this). Does 5K for buying and selling sound about right?

If you add up all the above figures, it means that the pleasure of owning the flat has cost you around 36K in the last 3 years.

So you're selling it now at 131K. It cost you 109K, you've spent 36K (before any maintenance costs), so this scheme has made you a loss of around 14K surely?

Or am I missing something? Feel free to tell us your exact figures because for the life of me I just can't see where this 28K "equity" comes from.

Not being sarky by the way. Just interested. Would you post your exact figures? I think it could help some others when they are looking at these schemes.

Kynthia

Catblue wrote: »

I'm interested in your figures. You've left a few bits out, I think.

So you initially borrowed 61K from the mortgage company and then another 43,900 loan from the bank? That comes to 104,900. Presumably you had 5K of a deposit to put down?

- So you have paid out 5K deposit.
- You've paid at least 11K off the mortgage (plus obviously all the interest payments on the mortgage). At an interest rate of 4% then that is just over 7K over 3 years. Shall we say 18K all in?
- You have also paid off the loan. So that's another just over 8K that you've had to pay it off.
- Presumably you've also had buying and selling costs (solicitors, mortgage arrangement fees and whatever these shared equity people take for this). Does 5K for buying and selling sound about right?

If you add up all the above figures, it means that the pleasure of owning the flat has cost you around 36K in the last 3 years.

So you're selling it now at 131K. It cost you 109K, you've spent 36K (before any maintenance costs), so this scheme has made you a loss of around 14K surely?

Or am I missing something? Feel free to tell us your exact figures because for the life of me I just can't see where this 28K "equity" comes from.

Not being sarky by the way. Just interested. Would you post your exact figures? I think it could help some others when they are looking at these schemes.

Isn't equity the difference between the selling price and the outstanding mortgage?

I'm confused as if you're looking at the scheme itself, why are you including costs that would be incurred even if the OP had bought without the scheme? Mortgage interest, buying and selling costs, deposit, etc, would all be incurred either way. Surely you should look at the difference in costs from full ownership? Or really shouldn't we look at the difference in costs and quality of life between the scheme and renting, as people generally use the schemes because they can't afford to buy and renting is the remaining option?

A roof over your head for three years costs money whether you rent or buy.

Catblue

Kynthia wrote: »

Isn't equity the difference between the selling price and the outstanding mortgage?

I'm confused as if you're looking at the scheme itself, why are you including costs that would be incurred even if the OP had bought without the scheme? Mortgage interest, buying and selling costs, deposit, etc, would all be incurred either way. Surely you should look at the difference in costs from full ownership? Or really shouldn't we look at the difference in costs and quality of life between the scheme and renting, as people generally use the schemes because they can't afford to buy and renting is the remaining option?

A roof over your head for three years costs money whether you rent or buy.

This is a money-saving forum. I just wanted to know the OP's figures for his success story. On the face of it, this scheme does not seem to have served the OP terribly well (based entirely on the figures that the OP did give and which I admittedly mangled/guessed at).

If the OP looks at his actual figures (and he's under no obligation to provide them here of course) then he would be absolutely well advised to make the comparisons with regards to renting/full ownership. Although obviously he should have done that before buying the Shared Equity flat.

Another thing to mention is that the OP obviously lives in a relatively cheap area where you could get a flat 3 years ago for 109K. This area has seen a big jump in house price rises in just three years. So this makes the OP's case a bit unusual - most of the country has not seen these rises. And of course, the rising house prices mean that if the OP had bought the flat with a normal mortgage then he would be better off now.

When we've had threads like this in the past, the OPs never give a proper breakdown of costs unfortunately so you get the OP saying that "shared equity/ownership is great" and other people saying "it's not". Without precise figures it is always hard to come to a definitive conclusion either way. It is all just noise.

I just thought that the OP could help others with a full breakdown of his costs so that the debate could be advanced a bit. Like I said, the OP is under absolutely no obligation to do so. Nobody else's business really. Good luck, OP.

RenovationMan

Catblue wrote: »

I'm interested in your figures. You've left a few bits out, I think.

So you initially borrowed 61K from the mortgage company and then another 43,900 loan from the bank? That comes to 104,900. Presumably you had 5K of a deposit to put down?

- So you have paid out 5K deposit.
- You've paid at least 11K off the mortgage (plus obviously all the interest payments on the mortgage). At an interest rate of 4% then that is just over 7K over 3 years. Shall we say 18K all in?
- You have also paid off the loan. So that's another just over 8K that you've had to pay it off.
- Presumably you've also had buying and selling costs (solicitors, mortgage arrangement fees and whatever these shared equity people take for this). Does 5K for buying and selling sound about right?

If you add up all the above figures, it means that the pleasure of owning the flat has cost you around 36K in the last 3 years.

So you're selling it now at 131K. It cost you 109K, you've spent 36K (before any maintenance costs), so this scheme has made you a loss of around 14K surely?

Or am I missing something? Feel free to tell us your exact figures because for the life of me I just can't see where this 28K "equity" comes from.

Not being sarky by the way. Just interested. Would you post your exact figures? I think it could help some others when they are looking at these schemes.

I get the following figures:

Bought: £109,500 = £61,000 + £43,900 = £104,900 + £4600(?) deposit.
Sold: 131,000 - 52,400 = £78,600.
Profit: £78,600 - 4600 deposit = £74,000 - £61,000 = £13k profit.
House purchase/sale costs: £5k = £13k - £5k = £8000 profit.

I'm not adding anything for mortgage interest and rental because I'd imagine that these combined would be the equivalent to (if not less than) the OP renting somewhere else, especially as his mortgage payments would have gone down due to his overpayments.

The OP may have had subsidised legal cover when he purchased it, but the sales costs (estate agent & legal) would be in your £5k ballpark .

While £8k isn't a huge profit, it is a profit nontheless and more than he would have gained in a bank account over the same period. I think the OPs main discussion point though was the fact that his lower housing costs (mortgage & rent vs rent) allowed him enough excess money to overpay the mortgage (further reducing his mortgage costs and allowing him to make greater overpayments, and so it goes on).

As you say, without comparable figures to see what the OP was paying in rent before be did the equity share we have no way of knowing if was better or worse off. Though unless his rent was extremely low and he somehow found a savings account that gave a decent return on his House Deposit savings, then I think we can assume that he was better off in the equity share.

SandC

It's great that these schemes can work for some but it seems this is generally because your career and income has taken off in this time. Which, by the way, also refreshing to hear.

For a lot of people who can't get onto the property ladder any other way they a)might not have had the savvy to find a new build and negotiate hard to get a good price, b)may have had little or no rise in income over the period. It would be very difficult for most first time buyers to overpay the mortgage whilst also having a very large loan on the side, if they could even get such a sizeable loan in the first place.

RenovationMan

For me, the advantage of these schemes over renting would be the security of tenure. I've not had too many forced moves during my years as a tenant, but I have read some posts where the tenant has had to have several moves in one year.

GDB2222

RenovationMan wrote: »

I get the following figures:

Bought: £109,500 = £61,000 + £43,900 = £104,900 + £4600(?) deposit.
Sold: 131,000 - 52,400 = £78,600.
Profit: £78,600 - 4600 deposit = £74,000 - £61,000 = £13k profit.
House purchase/sale costs: £5k = £13k - £5k = £8000 profit.

I'm not adding anything for mortgage interest and rental because I'd imagine that these combined would be the equivalent to (if not less than) the OP renting somewhere else, especially as his mortgage payments would have gone down due to his overpayments.

The OP may have had subsidised legal cover when he purchased it, but the sales costs (estate agent & legal) would be in your £5k ballpark .

While £8k isn't a huge profit, it is a profit nontheless and more than he would have gained in a bank account over the same period. I think the OPs main discussion point though was the fact that his lower housing costs (mortgage & rent vs rent) allowed him enough excess money to overpay the mortgage (further reducing his mortgage costs and allowing him to make greater overpayments, and so it goes on).

As you say, without comparable figures to see what the OP was paying in rent before be did the equity share we have no way of knowing if was better or worse off. Though unless his rent was extremely low and he somehow found a savings account that gave a decent return on his House Deposit savings, then I think we can assume that he was better off in the equity share.

Thanks, Ren Man, a decent analysis in amongst all the hype on this thread. I agree that you can only gauge the success of this particular transaction if you know what alternative transactions were available.

What people generally complain about with shared equity properties is that they are sold at well over market price, based on affordability rather than value. That is the recurring theme.

Shared equity is not bad in itself, but it is often used to disguise over-valuation. Fairly clearly, the OP avoided that trap by some astute negotiation**, so that's good. And hats off to him, but I think that other people tempted by shared ownership should still be extremely cautious.

** Or house prices in his particular area have simply shot up to!

martinsurrey

GDB2222 wrote: »

What people generally complain about with shared equity properties is that they are sold at well over market price, based on affordability rather than value. That is the recurring theme.

Shared equity is not bad in itself, but it is often used to disguise over-valuation. Fairly clearly, the OP avoided that trap by some astute negotiation**, so that's good. And hats off to him, but I think that other people tempted by shared ownership should still be extremely cautious.

** Or house prices in his particular area have simply shot up to!

exactly, you walk into a sales office at a new build and want to buy in a traditional way (deposit+mortgage).

the list price is never what you pay, usualy 10~15% off.

you walk in and want a shared equity scheme, and you will in 99% of casses pay the list price, so your already over paying by 10%-15% on a new build, which is always more expensive.

Its a dangerous game in stagnent prices!

thriftychap_2

Catblue wrote: »

I'm interested in your figures. You've left a few bits out, I think.

So you initially borrowed 61K from the mortgage company and then another 43,900 loan from the bank? That comes to 104,900. Presumably you had 5K of a deposit to put down?

- So you have paid out 5K deposit.
- You've paid at least 11K off the mortgage (plus obviously all the interest payments on the mortgage). At an interest rate of 4% then that is just over 7K over 3 years. Shall we say 18K all in?
- You have also paid off the loan. So that's another just over 8K that you've had to pay it off.
- Presumably you've also had buying and selling costs (solicitors, mortgage arrangement fees and whatever these shared equity people take for this). Does 5K for buying and selling sound about right?

If you add up all the above figures, it means that the pleasure of owning the flat has cost you around 36K in the last 3 years.

So you're selling it now at 131K. It cost you 109K, you've spent 36K (before any maintenance costs), so this scheme has made you a loss of around 14K surely?

Or am I missing something? Feel free to tell us your exact figures because for the life of me I just can't see where this 28K "equity" comes from.

Not being sarky by the way. Just interested. Would you post your exact figures? I think it could help some others when they are looking at these schemes.

Hi Catblue - Although your figures are not completely accurate I can see what your point is, however you fail to take into account we have lived in the flat for 3 years so cost of living is not entirely applicable but i take your point, i would have been paying rent otherwise.

If we were being critical you could calculate my basic mortgage payments of £300 ish over the 3 years so £10800 and deduct this but as i said before i have been living in the flat.

Yes basic mortgage payments of arounf 11k made (where have you got the other 7k from)
I think your fatal error in the calculations is viewing the over payments as an expense, they are in fact an asset. You have also deducted the loan twice as this was included in my original calculation and you have deducted 8k again.

Im very confused with your workings out!

troffasky

GDB2222 wrote: »

What people generally complain about with shared equity properties is that they are sold at well over market price, based on affordability rather than value.

How does this work from a lender's point of view? Surely they would only want to lend what a property is worth, otherwise they don't have security? And how do they repossess 50% of a house? :-S