Shared Ownership: Resale & Rent

Supersonic_2

Hiya!

Am exploring SO at the moment, so checking out the past threads and suchlike but trying to understand rents... My info so far says that the rent component is likely to be around 3% of the HA's share and this is my query...

Original new build apartment was bought by current owner in 2007 with 50% share being £59k. They're paying around £280-320pm rent (with service charge included which is approx £100pm). Now, 7-8 years on, pricing has plummeted and neighbouring flats sell for between £70-80k, so i'm thinking then that their 50% share is now only worth £35-40k. Current owners will face a serious negative equity loss IMHO.

That aside...

Anyhow...I read a past thread in that the HA's rent is unlikely to change from the higher value of the property (£120k) so no prospective purchaser such as myself would entertain such a high price. Mortgage would be around £200-225pm so all in all, with rent at the higher valuation would be in the region of £480 to £545, well above reality. Open market rents are £400-£450 in adjacent blocks and mortgages are about the same.

Is the issue of the rent being based on the original, higher valuation true? Anyone experienced this, or is it likely to be based on the new, much lower valuation?

Cheers in advance!

phemark

We are in the process of buying a SO property. Our lease says that rent can only stay the same or go up. However, once you staircase (i.e. increase your share %), I think rent is recalculated to be based on new share and flat value (but I will need to check that in the lease).

In any case, each HA gives different lease, so it would be best to check with them about this.

Supersonic_2

phemark wrote: »

We are in the process of buying a SO property. Our lease says that rent can only stay the same or go up. However, once you staircase (i.e. increase your share %), I think rent is recalculated to be based on new share and flat value (but I will need to check that in the lease).

In any case, each HA gives different lease, so it would be best to check with them about this.

The issue / question is the original purchaser in 2007 paid around £280-£320 variable, but thats based on their 50% being £60k

Now, my potential 50% buy of their property is likely to be about £35k, so i assume the rent component will be less to start with, based on the drop of the value of the property (some 30-40%)

EmmyLou30

Ask them if their rent portion has dropped as the house prices fell....I'm guessing they won't have. It's likely it'll stay exactly as it is and it just leaves the vendor in a horrible situation where, like you rightly say, no -one in their right mind will want to pay the HA above the local rental values for the other 50% so they won't be able to sell.

phemark

As Emmy said, you will know best by asking the HA, as we dont know the lease info.

Loopy28

I lived in a shared ownership property for several years, the rent and service charge was reviewed annually but increased at the rate of inflation and had no bearing on the house value.

I think the biggest monthly increase was £4 a month, one year it went up £1 a month. In 5 years of living there and house prices rocketed, my rent went from £155 month in year 1 to £170 in year 5 when I moved out.