Crunching the numbers for my first flat, under shared ownership. Good deal?

P-Ride

Hi, I am 27 and it looks like I'm about to buy my first property - a two-bedroom apartment in Cambridge - under shared ownership. I'd like to double-check how sensible a proposition it looks with you guys.

I am an Account Manager for a publishing company and currently earn £26,300 basic. My annual bonus this year (it's my first six months at the company) was around £2,100, but they can be up to £15-18k - although naturally I cannot expect these to be factored into my earnings by a mortgage company yet; nor should I depend on them (as you cannot guarantee you will always receive them).

So, I have close to £1,700 after tax going into my account each month.

I was investigating renting in Cambridge. Initially I was looking at a studio flat, but a decent studio, with clean, modern interior design and a Cambridge-central location is £700/month minimum before bills; and they disappear quickly. Very quickly.

I then decided to look at taking a room in a two bedroom place, as you can get a decent flat with modern design, good location and a balcony for around £1,200/month (£600 each) before bills; but that raises the issue of finding a decent flatmate.

I knew little about mortgages until recently, but I have a £10k lump I can access, so I looked at a 5% deposit scheme, which would open me up to a £200k property. However, the 3.5-5 times your salary rule would limit me to a maximum £125k mortgage - which is basically a shed in Cambridge.

Under suggestion from a family friend whose son has a shared ownership flat and has had a generally positive experience, I then investigated this option.

I identified that the local authority had a block of apartments about to become available under shared ownership, in a simply fantastic development in Cambridge centre, next to the station and several hundred metres from Microsoft’s new research centre. I really could not choose a more exciting location.

Unfortunately, I came in just under the eligibility criteria for a studio flat.

I could have saved to increase my deposit, but decided to speak to my sister, who is 24, has access to around £5k in savings and currently earns £18k (having received a £700 bonus this year). We get on very well; and I’d happily live with her for several years.

Together, with our combined income of £44k before bonus and a £15,000 deposit, we have been approved for a 45% stake in a £325k two-bedroom apartment, which is therefore worth £146,250.

Rental on the 55% we do not own will be £409.64 PCM, with an £86.78 monthly service charge.

With a 10% deposit (£14,625) we’ll then be looking at a mortgage of £131,250.

We used the broker recommended by the housing association, who has offered us the mortgage with Leeds Building Society. It’s a ‘Shared Ownership Fixed, which is fixed at 5.29% until 31st May 2016. From 1st June 2016, Leeds Building Society’s standard variable rate, currently 5.69%, for the remaining term of the mortgage.

The form says ‘the total amount you must pay back, including the amount borrowed is £248,131, which means you pay back £1.89 for every £1 borrowed; and the overall cost for comparison is 5.9% APR. (Although, the mortgage broker explained that typically we’d look at re-mortgaging to bring this down?)

So, the 36 payments made whilst fixed will be at £799.46; rising to £828.36 under the current variable rate. Combined with the rent, that’s just over £1200/month and £1280 with the service charge.

So, that’s around £640 each before bills.

I understand there will be several K for the legal fees and 1% stamp duty, but £640 is cheaper than renting an equivalent property; and we can enjoy it more, decorate it and know we’re paying into a mortgage.

What are your thoughts?

Is this a reasonable mortgage?

Would you take this opportunity if you were me; and if not, why?

When we go our separate ways in a few years, can we easily get each of our halves out of the mortgage? Whether we sell and buy a new place each, or I buy her half out remains to be seen.

I can see this being a flat I'd happily live at for many years, so it may well be me buying her out eventually.

brit1234

P-Ride wrote: »

I knew little about mortgages until recently, but I have a £10k lump I can access, so I looked at a 5% deposit scheme, which would open me up to a £200k property. However, the 3.5-5 times your salary rule would limit me to a maximum £125k mortgage - which is basically a shed in Cambridge.

8 x salary is crazy/suicidal. What happens when interest rates go up?

Shared ownership/equity is nothing more than subprime lending designed to keep house prices high, avoid.

How much of your £10,000 deposit have you saved? If all of it well done and I recommend you continue saving, constantly moving your cash to the best saving accounts recommended on MSE.

http://www.moneysavingexpert.com/savings/savings-accounts-best-interest

If you haven't managed to save a deposit on your own your post sounds very reckless and I recommend you start really studying mortgages and the housing market to become educated or you could make a costly mistake.

P-Ride

8 x my salary was the reason I didn't take the 5% option, aside from it not being possible.

£10k deposit was put away for me, so no I didn't save it.

The two main concerns of Shared Ownership seem to be:

- Negative Equity
- Increased rent/maintenance fees

Firstly, Cambridge property prices are high; and with the heavy investment going into the Science Park, there will be more competition for housing. We've seen friends invest in property there four years ago, who have seen its value increase by 40%; and flats in the city can go in an afternoon. I'd be surprised to see a drop in value.

The prospect of dramatically increased rent/maintenance fees are more of a concern for me. I've introduced this conversation with our agent, who said the maintenance is unlikely to go up much; but have sent another email highlighting the cases I have read.

I have some flexibility in my budget to accommodate a moderate rise, just not a massive one (until I hit bonus); and am a million miles from thinking about kids yet.

I need to move out shortly, as my mum is moving house and I'm already due to move out. The alternative is paying £700/month in rent for somewhere comparable.

Again, the numbers stack up and look attractive in my budget; long-term negative equity seems less likely in Cambridge than most places; it's the fees I need to ascertain more clarity on.

The organisation is BPHA, which is a non-profit.