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?