Questions about buying a Shared ownership property

gazzabib · 14 January 2017 at 7:46PM

Can't seem to find an answer for this anywhere so if anyone has any experience with shared ownership, it would be greatly appreciated.

The best way to explain this is to give an example

( These are not the actual figures, just makes it easier to do the math)

50% on a shared ownership property which was worth £200,000

I now have £100,000 in the property.

The property itself if a new build and im assuming there is a premium for new builds but not sure.

10 years down the line i decide to sell up and move, i have not staircased and therefore still only own 50%

I have the property valued and it has lost 25% of its value ( yes this is over the top but makes it easier to explain )

now the house is worth £150,000

AS i own 50% of this property... is my share in this house now worth only £75,000?

on the other side, if my £100,000 is still worth £100,000 after the total value has gone down does that mean that my share has increased from 50% to about 66%?

Sorry if this is a little confusing, i tried to make it as easy as possible to read.

This is my first time buying and i really dont want to commit myself to negative equity straight away.

Elfbert · 14 January 2017 at 8:08PM

Your share would be worth £75,000 in the scenario you suggest.

Exactly the same as if you bought 100% of a property which then lost value.

There may be a premium for a new build. Very much depends on the price and the area.

gazzabib · 14 January 2017 at 8:21PM

i guess i would only lose half the loss in value which isnt as bad. thanks. seemed like a bone question but wasnt quite sure

Elfbert · 14 January 2017 at 8:35PM

It is indeed only half the loss - and if you did want to buy the other 50% then that would also have dropped in value, so you would pay less for the 2nd 50% than you did for the first.

However, then rent - which is usually done as a percentage of the value - is very unlikely ever to go down - only up. So factor that in too.

Or, if you can only afford shared ownership, see what's around on resales? Less likely to lose value - although nothing is guaranteed!

gazzabib · 14 January 2017 at 8:54PM

thanks for your help

gazzabib · 14 January 2017 at 8:57PM

ah just read what you put again, the rent would go down as its done on a percentage of the value remaining, rather than paying rent on 100k it would be just 75k...

unless im very much mistaken, this is what im led to believe

gazzabib · 14 January 2017 at 9:00PM

just got this from a help to buy south rep.

"Good afternoon Gary,

Thank you for your email.

Based on your scenario of purchasing a 50% share in a property, valued at the full asking price of £200,000, the property would not necessarily lose value when you move into it. The property has been valued by a RICS surveyor as if it were an open market property, so there is no premium for using the scheme.

Once you have purchased 50%, unless you purchase more shares, you will always own 50%, until you sell and pay rent on the remaining 50%. The rent is a fair rent and will be assessed annually.

If you sell the property, you will receive 50% of the current market value, at the time of selling. If at the time of sale, the price is below the original purchase price, we will not ask you for the shortfall. Similarly, if the price has increased at the time of sale, we will not request more than 50% of the sale price.

To be eligible for any Shared Ownership property, you will need to register and complete an application form with the agency covering the area you are looking to live in.

I hope this information is helpful.

Regards"

the risk of sounding little dumb here... does this mean i wont lose out if the price went below the original asking price ?

or am i misreading this

booksurr · 14 January 2017 at 9:25PM

gazzabib wrote: »

or am i misreading this

you are misreading it

it means they will not ask you to make up the loss that they "suffered" when the property loses value in the same way as they will not ask for a cut of your increase when it goes up

you own 50%, they own 50% that is the set in concrete position
you get 50% of the price it fetches when it sells, same as they do

you paid 100k to buy, they "paid" 100k for the other 50%
if it sells for 150 you get 75k , they get 75K
in that case you have lost one quarter (100-75 = 25. 100/25 = 0.25) of your original investment, they have lost one quarter of theirs.

The response you are struggling with confirms that they will NOT ask you to make good their loss (shortfall) of 25k, ie they have no more right to take 100K out of the 150k sales proceeds than you do, as you each own half of everything and they have not put any special contract conditions on you to alter that

sell for 250 and you get 25k and make 25%, just the same as they do

gazzabib · 14 January 2017 at 9:30PM

thanks for clearing that up!!

Elfbert · 14 January 2017 at 9:44PM

gazzabib wrote: »

ah just read what you put again, the rent would go down as its done on a percentage of the value remaining, rather than paying rent on 100k it would be just 75k...

unless im very much mistaken, this is what im led to believe

That might be the case, but you would have to read the lease carefully. Many only allow rent to be re-assessed upward, not downward. Usually it's done on RPI + a certain percentage.

It's just something to look out for. If you were in a rental property it would also be unlikely your landlord would put the rent down, so in that sense you're no worse off!