Shared ownership mortgage

[lizzydripin]

Hi,

Can anyone tell me if this is a sensible purchase.

We are looking at buying a 40% share of a house the vendor has made improvements to the house to include a conservatory and an extension to the ground floor and this is what is confusing things, this is the information I have received from the housing authority that has the 60% share.

"The purchase price has been calculated as follows:

Current Full Market Value: £250,000 (in current condition including improvements)
Market Value Disregarding Improvements: £220,000
£30,000 difference in value made by improvements.

40% of £220,000 = £88,000
Plus £30,000 difference in value made by improvements = £118,000 (purchase price for 40% share)

However a lender will value the 40% share as 40% of the current property value (£250,000) which would be £100,000, therefore you would need to fund the additional £18,000 via cash."

We hope to staircase in the future to buy more shares but I am worried that we may not get our deposit amount of £18,000.00 back. I only have this money due to a redundancy or we would not even be able to think about buying a share of a house. We also will only have 16 years to run on a mortgage hence why we are looking at a low value purchase.

Any advice on this would be really appreciated as I am finding it really hard to understand. The alternative is that we keep the money in the bank and carry on renting our present house and hopefully we would be able to save some more, but each year that goes by will reduce our overall mortgage term.

Help!!
totally confused and overwhelmed
Lizzy

[Alaric]

40% of £220,000 = £88,000
Plus £30,000 difference in value made by improvements = £118,000 (purchase price for 40% share)

Would they be prepared to rebase their interest in the property to the current market value? You would be paying £ 118,000 which would then give you a 47.2 / 52.8 split.

[lizzydripin]

Hi Alaric,

I have been told that the housing association can not profit from the extensions

many thanks
Lizzy

[Stonge]

What do you gain by buying 47.2% of a property on a mortgage? Presumably you would pay rent on the other 52.8% plus the mortgage repayments. And you would be liable for maintenance charges. Might you be better off renting?

[lizzydripin]

Hi Stonge
This is a question I keep asking myself,

I think the advantages are:
- Home security as long as payments are met.
- Able to treat the place as your own (decorate, put up shelves etc).
- Possibly some return on the money paid out each month.
- Able to take our animals.
- The house is in a much nicer area than we could ever afford to buy otherwise (edge of village location).
- Affordable monthly payments (we could not afford a £250,000 house if we were to buy100%).

It would cost us around £650 t0 £700 for the mortgage and £300 for the rent and service charge.

Disadvantages would be:
- Responsible for your own repairs, maintenance.
- Parting with all my savings and OH's redundancy money, I am not sure if they could be recouped if we had to sell.
- Back in debt (mortgage)
- Much smaller house than in now (maybe not a disadvantage!).
- The thing that worries me the most is the fact we are having to pay for the difference in value between the original value and the improved value cash.

We can stay where we are for another 12 months at £900 a month, but we have no way of knowing if the lease would continue to be renewed after that and looking for somewhere nice to rent with pets is nearly impossible.

Many thnaks
Lizzy

[lizzydripin]

Hi All

The question my mortgage broker asked is "how often do first time buyers that want a shared ownership property with £23,000.00 deposit come along "
He thinks not very often, he says that shared ownership houses themselves are like hen' teeth the problem is the high deposit. He reckons if you have £23,000.00 saved for a deposit you would probably be looking at a higher value property and buying outright.

Saying that someone else did also put an offer in on the property, I believe her parents had offered help with the deposit but in their position with 25 years to run on a mortgage could you not afford to buy a house outright?

This is my main worry with this house if we did have to sell would we be likely to find a buyer that would also pay us our £18,000.00?

We would not be able to rent it out if it did not sell so are we putting ourselves at greater risk?

But then we would lose money any way if we pay £900 plus per month in rent so does that in some respect mean we would not have lost as much?

If anyone has thoughts on this I really would be pleased to hear them
Thanks
Even more confused
Lizzy

[Alaric]

This is my main worry with this house if we did have to sell would we be likely to find a buyer that would also pay us our £18,000.00?

I think you have to know who pays what and who gets what for various future valuations were you to sell at sometime in the future and also the terms for buying out the other side of the ownership.

What might bother me is that the gap between "improved market value" and "market value" could narrow. Depending on the nature of the improvements, they might be a depreciation effect. That may apply to conservatories as well as new kitchens.

[lizzydripin]

It has been suggested by my mortgage advisor that I might be better of to get a loan in order to be able to increase the deposit I put down for the mortgage from 5% to 10%

Any thoughts, if you know my history you will also know that I have only just had my happy dance!

Would I be jumping back in head first at the deep end

I have posted an SOA if that helps for advice.

Many thanks
Lizzy

[lizzydripin]

Hi Aleric

I have been told that the Housing Association can not profit from the extensions and they will always be outside their valuation of the property for resale purposes.

The extensions are said to have added £30,000.00 to the property. One is a conservatory and the other has doubled and a bit more the size of the kitchen.

I have been told after the purchase is complete the remaining shares can be bought in 10% blocks at the value of the property at that time.

We would not look to purchase further blocks for at least two years though. I would want to concentrate on getting our finances back on track first with a decent emergency fund in place.

Then I am not sure if you are better to overpay the mortgage or to purchase further shares?

Thanks
Lizzy

[Stonge]

How likely is it that the house will increase in value?

[lizzydripin]

Hi Stonge,

To be honest I have no idea the value in the location seems to have had a steady rise over the years but I have no idea if that would continue.

I will say I am not doing this to make money I just want a home.

Thanks
Lizzy

[Alaric]

Then I am not sure if you are better to overpay the mortgage or to purchase further shares?

Overpaying the mortgage reduces your outgoings on the mortgage. Purchasing further shares increases the proceeds from the house if you eventually sell. It's a jam now or jam tomorrow type of decision.

[lizzydripin]

Hi Aleric,

Overpaying the mortgage reduces your outgoings on the mortgage. Purchasing further shares increases the proceeds from the house if you eventually sell. It's a jam now or jam tomorrow type of decision.

That is really helpful because as I said I want a home so from what you said I am better off overpaying the mortgage as I am hoping to live there a long time, I am really not into moving house often, I am looking for a forever home.

[Clitheroekid]

It has been suggested by my mortgage advisor that I might be better of to get a loan in order to be able to increase the deposit I put down for the mortgage from 5% to 10%

I have to say that this seems bizarre advice. The lender has required a 10% deposit (1) to ensure that you have a significant financial stake in the property, and are therefore more likely to keep on paying your mortgage if times get tough to avoid losing that investment; and (2) that you have demonstrated your ability to save a significant amount.

If you are simply borrowing half the deposit then that rather defeats the object.

Also, the financial fact find that was done to enable the lender to decide how much to lend would have taken into account the costs of any loan commitments you have. By definition, it can't have taken into account any loan of the 5%, so I would have thought you'd have to make a fresh application if you were to borrow that money.

It's also often the case that the solicitor acting for the mortgage lender (usually your own solicitor) is asked by the lender to certify that the deposit is being provided entirely out of the client's own resources, i.e. savings. If, as they should, they disclose that you've actually borrowed half the deposit the mortgage offer may well be pulled.

In my experience mortgage brokers are like most other people involved in consumer finance, only interested in making their commission. They may well be hoping that you will not disclose to the lender that you're borrowing the 5% and that you will also lie about it if your solicitor asks the question. However, that's obviously dishonest conduct, and if you do deliberately mislead the lender it could backfire on you.

You therefore need to discuss this with your broker and make sure that borrowing the 5% won't adversely affect your mortgage offer before you start looking for a loan.

[lizzydripin]

Hi All

My mortgage advisor has been back intouch to say he cannot find anyone to lend on the property because of the £18,000 payment to the vendor.

Does anyone know of a mortgage lender that might lend in these circumstances?

Is there any scope on seeing if the Housing association would buy the £30,000.00 improvements from the vendor and then we could buy 40% off the total and rent 60% of the total.

At the moment I can't see away round this, it is not us we have now been offered a mortgage by the Nationwide for up to £250,000.00 we only want £100,000 for this property.

Many thanks
Lizzy

[Alaric]

My mortgage advisor has been back intouch to say he cannot find anyone to lend on the property because of the £18,000 payment to the vendor.

If that's the case, it would seem to make the property unsellable to anyone other than a cash buyer and it's not obvious, why if you had the money, you would want to share ownership rather than take a mortgage for the balance.

[lizzydripin]

He is still looking but we have had three refusals and I believe there are limited lenders for shared ownership.

Do you think it is worth me talking to the housing association?

Thanks
Lizzy

[Alaric]

Do you think it is worth me talking to the housing association?

It's presumably not unknown for one of their shared ownership properties to be improved by the part owner and then subsequently sold to a purchaser needing a mortgage. They may have past experience to offer at the very least.

[johnhemming]

On the assumption that you intend to live there for a number of years you should first assess the property on the basis of what you end up paying compared to buying a 100% ownership property (including any payments to the Housing Association).

I personally am not a fan of shared ownership schemes because they are messy as to who is responsible for what. They have only worked with a substantial subsidy from the state.

They are also difficult to sell because of all of the paperwork issues. I have dealt with people who had problems with selling shared ownership properties.

In the end, however, you need somewhere to live and you need to compare this as a place to live to other places on the basis of what you end up paying on a revenue basis rather than capital. I would not assume you can make a profit from it (or at least not as big a profit as a smaller house which you own 100% of - but better not to assume you can make a profit).

[lizzydripin]

Hi All

Just to say everything has now changed with this house and we have now been offered the chance to buy it outright as it can not be sold as originally thought.

My mortgage advisor tells me we can afford it but I would really like the boards thoughts so I am posting an soa based on this house, I am worried I may have forgotten things so would really value your thoughts

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of children in household......... 1
Number of cars owned.................... 2

Monthly Income Details
Monthly income after tax................ 2321.9
Partners monthly income after tax....... 1536.98
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 3858.88

Monthly Expense Details
Mortgage................................ 1115
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 107
Electricity............................. 54
Gas..................................... 60
Oil..................................... 0
Water rates............................. 44
Telephone (land line)................... 0
Mobile phone............................ 77
TV Licence.............................. 0
Satellite/Cable TV...................... 0
Internet Services....................... 35.5
Groceries etc. ......................... 600
Clothing................................ 150
Petrol/diesel........................... 60
Road tax................................ 26
Car Insurance........................... 70
Car maintenance (including MOT)......... 80
Car parking............................. 0
Other travel............................ 20
Childcare/nursery....................... 0
Other child related expenses............ 60
Medical (prescriptions, dentist etc).... 50
Pet insurance/vet bills................. 53
Buildings insurance..................... 0
Contents insurance...................... 14
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 65
Haircuts................................ 18
Entertainment........................... 80
Holiday................................. 75
Emergency fund.......................... 150<b>
Total monthly expenses.................. 3063.5</b>
<b>

Assets</b>
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 15000
Other assets............................ 500
Total Assets............................ 15500


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 250000...(1115).....2.9
Total secured & HP debts...... 250000....-.........-

<b>Unsecured Debts</b>
Description....................Debt......Monthly...APR
Total unsecured debts..........0.........0.........-

<b>
Monthly Budget Summary</b>
Total monthly income.................... 3,858.88
Expenses (including HP & secured debts). 3,063.5
Available for debt repayments........... 795.38
Monthly UNsecured debt repayments....... 0
Amount left after debt repayments....... 795.38

<b>Personal Balance Sheet Summary</b>
Total assets (things you own)........... 15,500
Total HP & Secured debt................. -250,000
Total Unsecured debt.................... -0
Net Assets.............................. -234,500

Created using the SOA calculator at http://www.stoozing.com.

Please let me know thoughts and if I have forgotten anything
As always all help is really appreciated
Lizzy