Shared Ownership vs. Renting vs. Moving back with Mum!

ixwood

The crash has been obvious since last summer/autumn IMHO. That's when the smart money got out of property.

Advising someone to buy a 25% share in a 240k(!) new build flat (about the worst combination for oversupply and under demand) at the worst point in 10 years is crazy IMHO.

Live cheap, Save and get a non SO house (or flat if you really want one for some odd reason, other than it's all you can currently afford) seems by far the best plan to me.

ixwood

New builds and flats will drop more than older properties and houses.

And SO are pretty much always way overpriced anyway (only paying for a quarter of it makes it seem cheap i guess. Or the sort of people that buy SO tend to be more desperate?), so heading for even bigger drops.

Your example sounds ok on paper. It probably would be better to buy a SO flat now, so someone else talks the biggest share of the losses , but that doesn't mean it's a good option.

Not buying, saving and picking up a nice solid 3 bed terrace with garden or whatever is a better option.

SO Negatives:-

Normally Overpriced
Mostly shoddy undesirably placed new builds.
Lot of extra costs (including big fees to "Staircase")
Hard to mortgage.
Hard to sell
100% maintenance costs

ajbrown141

Thanks a lot for all the information and opinion guys. It's a really difficult decision and I think it's a case of the lesser of two 'evils'. We can either go with the shared ownership scheme (which are most likely overvalued, and thanks to trudiha for pointing out that these particular flats are expensive for the area) and prices are likely to fall as well. Also as ixwood points out new-build flats do tend to drop even more than others. Or we can move back in with my Mum, which is not an ideal move and probably won't actually gain us that much financially (just another 5k or so in savings) so we still probably won't be able to afford to buy outright in a year!

I suppose the question is: if the shared ownership scheme is overvalued AND goes down in price then what does that actually mean for my wife and me? Is it possible that we will have negative equity? And if so what impact would that actually have on our futures? Sorry that's probably a bit of a basic question, but I don't quite understand the risks at the moment and think I need to before committing to it.

mitchaa thanks very much for your comment. My wife is definitely thinking your way and straight away pointed out your comment and agreed with it! She seems overly-enthusiastic about Option 1, but then perhaps I should stop being so cautious and listen to her!?

neverdespairgirl and Mac Sami raise the very interesting point about struggling to sell this property in the future. I'm not sure but I think the Housing Association offer some sort of guaranteed sale or something to help you sell the property, so this might not be a huge problem, though obviously the price might be substantially lower than what we bought it for if prices do fall as predicted by some. Am I misunderstanding or underestimating how serious this might be? (also, sorry what does "OP" mean?)

Thanks again for all these comments, they are all very helpful.

MissMoneypenny

mitchaa wrote: »

Privacy surely? I'd personally hate to stay with parents at any age over about 21.

Why would you encourage the OP to buy in a falling market? Have you just bought a house as a FTB yourself?

mitchaa wrote: »

Simple things like walking about in the nude, lying on the setee in just your boxer shorts, not being able to have sex etc....sod that for a laugh :rotfl:

Is the mother housebound and never goes out?

mitchaa wrote: »

This may be totally wrong, i know nothing about SO properties so please correct me if im wrong...

Today House valued at £240k, 25% share = £60k (£180k difference)

1 year on, May 09 House prices have dropped by 25%

House now valued at £180k, 25% share now at £45k (£135k difference)

You've gained/saved £45k

They have LOST 15K - of their own money, or money they would have to pay back with interest to a lender over x number of years.

In your example above, they will save 60k on the price of the property alone, if they wait 1 year. Then factor into that the interest they will save on 60k over 25 years (term of mortgage).

mitchaa wrote: »

You gain by properties slumping, or have i missed something blindingly obvious

Only if you didn't buy at the top of the market.

mitchaa wrote: »

Factor in the 12 x £700 rental also that you are currently wasting (£8400pa)

Then surely you can factor this in or offset against the £15,000 you've just lost by property slumping by 25%, so real loss to you only £6600, more the longer you carry on renting, but yet you get to buy your property £45000 cheaper.

If they stay on rental their monthly rent is £700 yes, but you have forgotten about the £800 monthly cost of buying the property. Plus they will have mortgage arrangement fees, solicitors buying fees, maintenance costs and building insurance.

So in just your example, they will lose heavily.

gabyjane

To the OP we purchased a S/O house last year and if you want any info feel free to pm me, it was the best move for us and i cannot honstly see any of ther esons given on here that make it a bad thing..maybe it varies up and down the country? I would go with S/O and not just because we have one!

To ixwoodShared Ownership is just a big con to let greedy developers continue selling their overpriced, oversupplied, shoddy, ugly boxes at a huge premium IMO.

Hmm sorry i diasagree, as said mnay times on here buying on the open market where we are would buy us the above property, also leaving us with no spare cash each month to live as such..that or S/O i know what id'e choose..the amount of people who have come round and said ''ooh isn't it big' becasue it is! Maybe we were lucky but i have a few friends with S/O properties and cannot see a downside to them..

We LOVE our house and that's all that matters to us, we are not planning on moving, it is a new build, secure, big and warm, no outlays for a long while and we are not paying for our friends previous mortgage!..priceless!!

mitchaa

MissMoneypenny wrote: »

So in just your example, they will lose heavily.

No they will not, they will lose £15k based on my 25% example. Factor in 1 yrs rental at £8400, they actually only stand to lose £6600.

But yet they have the foot in the door and instead of paying £180,000 for the remainder 75%, they now only have to pay £135,000

That in my eyes is not losing heavily, thats actually a good position to be in.

If for instance they waited a year and let the house fall down naturally and then go in with 25%, they will have to pay a £45,000 25% share, and then the remainder £135,000 will be that of the 75% share.

So they save themselves £15000 by waiting a year, but in that time, they have spent £8400 in rental. (So only a £6600 loss)

If they do it now, they will have paid a little off that £60k also come a years time, so its not really a £15000 drop, probably only around a £13-13500. At that, i'd be willing to take that gamble.

Above only a years example, i personally dont think there will be a 25% drop in 1 year, probably more like 2. So if you factor 2 yrs worth of rental vs the 25% saving you will get over the 2yrs on the purchase price, it makes sense.

Anyway, im just trying to show the other side of the coin. The major bonus i can see here is they get a better home NOW to live in, rather than having to wait another year or 2 waiting on this 25% drop. (If it ever happens)

Mitchaa

MissMoneypenny

mitchaa wrote: »

So they save themselves £15000 by waiting a year,

15K they would still have to pay back with interest. Over a 25 year term, that would equate to them having to pay £29,334.00 to their mortgage lender, if the rate stayed at 6%. http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml

mitchaa wrote: »

but in that time, they have spent £8400 in rental. (So only a £6600 loss)

They are not going to be living in the flat for nothing. You are still forgetting about their £800 pcm mortgage and mortgage arrangement fees, solicitors buying fees, maintenance costs, and all extra insurance associated with buying a house. That alone will be a loss against the cost of renting - if they stay in rented and don't move in with the OPs (original posters) mother. They could always house share as NDG mentioned.

ajbrown141

This discussion is really drilling down into my concerns/questions!

I must admit that in the given example (house valued at 240k, 25% share of 60k, and a price drop of 25% over 1 or 2 years) I am struggling to understand the maths and whether this works in my favour or not!

On the one hand, if prices drop by that amount then our share has lost value so we face the possibility of negative equity (is that right?) or at least have lost some money.

On the other hand, the other 75% share drops in value as well, so that we can then pick it up much cheaper two years later (when I am earning a decent amount of money).

Balancing these two together I'm not sure if we gain or lose? And either way by how much? MissMoneypenny and mitchaa, both of you are raising really good points, and I'm struggling to work out in the given scenario (which is reasonably likely over 2 years) what position my wife and I will be in in two years.

Any help would be greatly appreciated!

MissMoneypenny

mitchaa wrote: »

You gain by properties slumping, or have i missed something blindingly obvious

In the last crash my sister got into negative equity and she wasn't even a first time buyer - it was her 3rd house. They had a 74k mortgage on a house they paid about 98k for (I can't remember the exact price and she lives in Oz now so not the right time to phone and ask her). They sold for 68k and the market was still falling. They were lucky to sell when they did.

ixwood

If you had a quarter of a million pounds cash in in your wallet (OK, briefcase), would you happily hand it over for a 2 bed flat?

Have you seen how much new build flats are selling for now at auction? Never mind in 2 year time.

Do you know how many millions of flats have been thrown up in the last 10 years and how many more are in the pipelines?

Do you plan to have kids, or progress to a house at any stage?

Do you know the service charge?

Are you liable for huge unexpected bills for maintenance from rip off companies?

How may of the other flats are owner occupied? Is there any HA? Are the council likely to buy any cheap in the future for social housing?

Do you know what rate your mortgage will revert to when your deal runs out and you can't re mortgage with anyone else?

Do you realise how quick nice new blocks of flats can turn into run down ghettos?

Have you ever seen a nice block of flats over 15 years old?