Friday, 16 May 2008

Shared Equity shock

With Gordon Brown announcing the extension of his shared equity schemes - I thought I would take a closer look.

With shared equity schemes you would take a mortgage out to buy a property and also take a loan out with a housing association(HA). The HA loan is based on a % of the property so you might buy a flat for £200,000 with a £100,000 mortgage and a 50% (£100,000) HA loan. You pay a small % interest rate on the HA loan.

Now if property is forecast to fall by around 10% by Caroline Flint the housing minister that flat is going to be worth £180,000 in the near future.

If the buyer then decides that they want to sell the property, they have to repay the £100,000 mortgage and the 50% (of the lower sale price £180,000). So that is £100,000 and £90,000 = £190,000.

But they only have £180,000 or more like £176,000 after fees. so they are £14,000 short.

Is it ethical to encourage individuals to borrow money to buy into an asset that you predict will fall and leave the buyer in negative equity?

Does this government have any morals?


Anonymous said...

Hi Crown

I follow and enjoy your posts on HPC (I am garybug on the site), and have been looking at Shared Equity with an open mind.

From your example, it seems that even though the price has fallen by 20k, the buyer has been 'cushioned' to only 50% of the fall. I.e. the house falls 20k, but they are only 10k worse off (less fees as you say). Not ideal, but not AS bad as it could be. I still take your points about encouraging buyers in though.

I thought you may be interested in this too. I live in East Herts, and we have a local new build development that I would CONSIDER to be a good deal - if it was not for the fact that HP's will fall 30-40% in my view, and you risk living next to some HA nutter at some point. Here is the linky..

The first point about this is that the price has fallen by >10% on the 2 bed new build (it was 220k - I have Property Bee installed), so some poor bu66er who bought earlier will now be paying more, for a reduced share. Scary...

However, as it stands at the moment, would you not agree that it looks like a 'relatively' good deal? 2 bed apartment, nice area, for circa £290/month + mortgage of £69,650 (say 500) = £790 / month (although as I type this, it does look a bit pants really(!))



Anonymous said...

Loving your work, but it's important to point out you don't get a loan from a HA. In your example you would get a £100,000 mortgage and pay a small rent to the HA for the 50% you don't own. Normally the local councils put a limit on the rent that can be charged, in some cases you can get the part you don't own rent free for the first 10 years.

So your total debt is £100,000 not £200,000.

CROWN said...

You do get a loan from the HA under the shared equity scheme being pushed

CROWN said...


I agree it does look a bit pants!!

buying half a house - whatever next!

CROWN said...
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CROWN said...