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

MissMoneypenny

ajbrown141 wrote: »

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.

Using mitchaa's example, it does not work in your favour if you buy now and there is a drop of 25% next year. It does work in your favour if you don't buy and there is a drop in 25% nest year

eg. You buy now and get a mortgage of your 25% share of 240k which = 60k. So you have a mortgage of 60k

Using the example from mitchaa, if the value then drops by 25%, you lose a quarter of the 60k you put in, which would be = 15k. But you still have to pay that 15k back to the mortgage lender even though you have lost it due to falling house prices.

Using this mortgage calculator http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml it shows that 15K over a 25 year term mortgage is £97.78pcm if the rate stays at 6%.

Therefore £97.78 x 300 (which is 12 (months) x 25 (years) = 300 payments of 97.78 ) = £29,334.00 that you owe the mortgage lender for that 15k you lost when the value of the property fell.. Yet if you had waited a year and bought when the flat had dropped in value of 25%, you would save yourself that £29,334.00.

If you buy now, you still have to pay the mortgage and all other bills associated with buying, which is more than your rent of £700.

If you move in with your mother, you save the rent and can save for a bigger deposit.

If you can find a house share as NDG suggested, it should work out cheaper than renting a flat on your own.

ajbrown141

In repy to questions:

- I know newbuild flats go down in value, but not how much. Do you have any figures or data? Are prices likely to slump 10%, 20%, 30%, more, less?

- Kids planned in about 5+ years, so the idea is that we'd be in this flat for 5 years then buy a nice 3-bed house.

- Service charge is £65 a month, which is a lot lower than many I've seen.

- Not sure about maintenance costs and whether we're required to get them from specific companies. I will check this out tomorrow, thanks for flagging it up.

- The development is private, and only 10 are owned by the HA so overall I think we're safe for the development to stay looking pretty nice. The HA are unlikely to get any for social housing in the future.

- Not sure about mortgage rates yet, will definitely be asking about this tomorrow. I can either get a mortgage with the HA directly, or go private (though I know I am limited with choices as some lenders do not do shared ownership). What interest rate is usual for private mortgages? 6%? 6.25%?

ixwood

Check out the auction threads, house prices board generally re falls. I don't think falls of 40% are unusual.

240k really is a huge amount of money for a 2 bed flat. What income would you need to buy it without the SO? That should give you an idea of the real worth of it.
Even though the SO scam makes it artificially affordable, it's not SO properties that set prices.

Mortgage rates have been going up recently (credit crunch and banks repricing risk/rebuilding profits), but they may possibly have peaked for now. 6% seems fairly normal these days. Maybe a bit lower, but with huge fees.

Scabs

People seem to forget the interest on the loan.

If you borrow £60k @ 6% for 25 years the total you pay back after 25 years is £115974

If prices do drop 25% which in my opinion is very likely then you will need to borrow 45k. So again £45k @ 6% for 25 years the total you pay back after 25 years is £86982

Total saving £28992.00 not rocket science there are loads of mortgage calculators on t'internet.

Its your choice however if it was me I would wait and save as much as possible, the more you put down the less you pay the bank.

brit1234

No one is buying shared equity homes at the moment and there is a huge oversupply. That's why the government opened them to the public from key workers. However I think every one knows prices are falling now so people will get a normal property without all the grief and extra cost shared equity provides.

Scabs

Sorry missmoneypenny i didn't read your post. I seem to have said much the same thing.

ajbrown141

I think I'm going off the idea of shared ownership schemes now. The points made by MissMoneypenny and Scabs pretty much show that if house prices fall (as predicted) then we would lose out by a decent amount (as much as £30k in the long-run).

I'm still not convinced, and am definitely going to view one of the schemes tomorrow, but it just seems like it's too big a risk. If house prices would stay constant or only fall 10% then it would be worth it, but as it stands it feels like the property would be over-valued and then fall by a reasonable amount (20-30% maybe) over two years, thus leaving us with negative equity and it would have been better if we'd simply waited.

My remaining issue is when on earth are house prices going to stabilise? Are we talking two years, three years, five years? I know that no-one here will have an answer, but any predictions or ideas are appreciated so that I have a rough idea what people are thinking.

happytails

This is what put me off the SO idea. We are renting a 3 bed terrace at £480 a month and with the credit crunch we can only afford SO 50% or a small flat - and when you have many dogs the latter isnt an option. As much as i dislike renting it seems the only option and just saving for a bigger deposit 10-20% ideally.

Seriously, if you both can manage to live with your mum go for it otherwise carry on renting and watch the house prices fall

neverdespairgirl

ixwood wrote: »

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

Yes! I walk past loads of them every day in central London - Victorian and Edwardian mansion blocks (as they are usually called) are lovely!

http://www.rightmove.co.uk/viewdetails-18730562.rsp?pa_n=10&tr_t=buy

This is an Edwardian block

http://www.rightmove.co.uk/viewdetails-16762786.rsp?pa_n=13&tr_t=buy

this is from the 1920s

http://www.rightmove.co.uk/viewdetails-10133310.rsp?pa_n=19&tr_t=buy

and this one is Victorian

MissMoneypenny

Scabs wrote: »

Sorry missmoneypenny i didn't read your post. I seem to have said much the same thing.

The more that talk about the real cost of borrowing, the better:T