That's fair enough. We could go around in circles with this forever. Though you still haven't given full figures when using someone buying shared ownership over five years as a comparison to your rent-to-buy 'wait' scenario. That's the point of contention. You don't include the fact that over the five years the rent-to-buy person is just chucking away their rent costs every month against the shared ownership buyer who's paid off five years worth of their mortgage over that time, and you're also not saying exactly why shared ownership is FULL of risk. Rent to buy is the 'soft' option- it's the no risk option before you finally commit- but it doesn't take into account that for those same five years you're not paying off your mortgage and overall debt in order to do it. Like everything in life, if you chose one option you can also loose in other ways. Both of these options have potential down sides and up sides. To be honest I just think it's all down to individual circumstances and finding what is right for you in your own given situation. I didn't want to have to wait for five years before I could buy, all while I was throwing away vast amounts of money in rent every month- and it just happened to be that when I decided to buy over a year ago I took a guesstimate that the 60 per cent value of my property (that I don't own) probably would devalue over the next two years- which gives me the oppurtunity to buy it at a cheaper rate- whilst paying off a mortgage on the bit I own every month. That was my circumstance- and I'm glad I did it. However, if you're very young, maybe in your early twenties, and you are prepared to rent the same property for the next five years and don't want to commit- then the rent-to-buy option is probably better for you.

To Letty Lo La


1) Can I pay this off and then just rent the property at the same renting price? (say £300 per month)
No. At least not technically and legally. With shared ownership you can’t rent the property to another person until you have purchased the whole of it- and don’t have a rented lease on the rest of it..... otherwise it would be defeating the point of having shared ownership deals. The idea is to help first time buyers on the ladder, not create cheap rental oppurtunities for potential landlords! However, whether they would ever check up on you doing something like this is another question…..

Just a side point. I'm not sure if you meant you then wanted to rent the property out to another person. If that's the case then technically and legally the answer is no as I stated. If you just want to pay off your twenty five per cent of the mortgage, and then just pay the rent every month on the rest then the answer is- yes you can. Basically you are also a tenant with the other percentage you don't own and you have the right to lease the property as long as you want by paying rent.

BG: I think your missing my point somewhere....

I'm not missing your point, I just don't understand your logic and think I've now probably contributed all I can to this particular thread as I don't want to keep going over old ground. Your 'staircase' scenario is full of risk and the figures used are purely speculative. In stark contrast an 'option' is entirely that - an option. All figures are known from day1 and is it works for the incumbant financially then when the time suits them they go for it, if not they don't, dead simple.

Let's leave it there. Good luck

BG:

However, the problem with that argument is that you have to stay in that property for five years to qualify to buy it at that rate- and if your spending say £1100 pm on rent in that property over the five years you'll also thrown away £660,000 in rent over that five year period.

Apologies- typo! I just read my post back. I meant £66,000 in rent over that period.

Sorry, I haven’t had time to get back to this. Busy month- and my internet also very annoyingly went down for about a week after my last post.

In answer to the posts made:

To Pretty:

The specialist mortgage company I used (which I said I would dig out for you) is called SPF Sherwins. I found them very easy to deal with and the broker I dealt with understood the Shared Ownership scheme/ market very well. I got my mortgage approved very quickly and very easily with the right lender (which was the Woolwich). HOWEVER that was in October 2007! So things might have changed since then. But they are worth giving a try if you haven’t already.

Re your last question- on increasing your mortgage with a shared ownership deal by ‘staircasing’ up to buy more of it later on. From what I understand you normally have to wait for a year after the initial purchase, at which point afterwards you can buy as many more shares in the property, at it’s then current valued value. Normally I would assume you would do that by going back to your mortgage lender and asking to re mortgage- ie borrow more money (or switching to another lender for your mortgage). I don’t know whether you can take out separate mortgages with different lenders on the same property (probably not)- but you’d have to ask a mortgage expert about that. To be honest its also purely speculation as to whether house prices will keep dropping for the next year (or two etc), therefore when going into something like this you have to initially decide that if you can’t afford to get a whole mortgage on an entire property (ie not shared ownership) in the next year- if it’s then worthwhile part buying something. If part ownership is all you can afford, and you know your going to be living in the property for the next three years or more, and you want to buy right now- then I would suggest it’s potentially worth it. If the market goes down over those three years, you can then increase your shares in the property at the decreased rate as they go down. If the market recovers very quickly in the next few months then obviously you will also gain on the shares you own when you initially buy as the properties value goes up. But there is no hard and fast answer. You have to make a judgement at the time. Repo Stopper does also have a point- you could wait for five years if you get a deal where you can ‘rent to buy’ and the value is fixed at the time you buy for the five year term. However, the problem with that argument is that you have to stay in that property for five years to qualify to buy it at that rate- and if your spending say £1100 pm on rent in that property over the five years you'll also thrown away £660,000 in rent over that five year period. Whereas if you’ve actually been paying off a mortgage (even if it’s only on twenty five percent of the property) you’ve still been paying off your partial asset over that time- also with the possibility that the property may go down in value over the next year or so- which means you can buy more of the remainder of the property you haven’t purchased at a cheaper price than initially.

To Repo Stopper.

I think your missing my point somewhere....

I’m not saying either method is better. It’s more down to what is best for an individual given their circumstances. However, if you live in London you will find renting is extraordinarily expensive. Someone getting a ‘rent-to-buy’ mortgage, and having to wait five years before they can own it, might also find that for a good proportion of that time they can’t save much before they can actually buy- all whilst paying a thousand or so in rent per month. Whereas what ‘shared ownership’ allows is for you to be paying off a percentage of your mortgage on what you own every month, whilst renting the rest at a very reduced rate. For example I pay £550 per month on my mortgage on my fourty per cent of the property, and I pay £330 per month in rent on the proportion I don’t own (including £80 p/m ground rates on the building- which is not rent). That all totals at £880 per month. If I rented a property like this (in London) I’d probably be paying at least a thousand pounds per month in rent, or more. What you’re not building into your calculations is the fact that over five years I will have paid off £33000 of my total mortgage on the fourty per cent I own, whilst a renter (renting a property on say £1000.00 per month- and I’m being conservative here) will have lost £60000 in rent over that period and not have paid off anything). And on top of that- as a disparity on the rental side between both- there is the extra £120 per month I save in rent (as a difference between the two rents- ie fully renting a property at £1000.00 p/m- against my part ownership where I’m paying £550 of my monthy figure back on my mortgage + £330 in rent and ground rent which= £880 p/m totakl as opposed to £1000 p/m (in rent) total = a saving of £120 per month in terms of the rental saide. If you add on the saved £120 p/m with shared ownership against fully renting, over five years- that’s a further £7200 you’ve saved on top of paying off your mortagage over that time. £7200 + £33000= £40200 over five years.

You’re suggesting that a person rents for five years to gain £16000 worth of equity on the day they buy- but also still has to make extra five years worth of payments on their mortage at some proportionate level. I’m suggesting that after part owning for five years you’ve actually paid back £33000 of your mortgage over that time, and saved £7200 on rent, and you can also buy more of that property at a lower value if the price of it goes down over a period during that time- This is the issue I think you may not be fully understanding. I own fourty per cent of the property I bought in Dec 2007- which was valued at £204,000 at that time. If it goes down in value for a period (say over the next few years)- I can buy the other sixty per cent at that lower value. In fact it has already gone down in value since I bought it- it’s now worth about £185,000- £190,000 currently which means that if I want to buy the remaining shares I can buy the 60 per cent I don’t own at the now current value, instead of the 60 per cent at the value it was when I bought it back in Dec 2007- which was 60 per cent of 204,000. Do you see my point? It is speculative of course- because property prices might recover very quickly.

I don’t think there is one simple solution for first time buyers- but one thing I do know is that if you’re a first time buyer in London and earn under about 35-40K, and with the rental market being as pricey as it is in this region.... a year ago- it was almost impossible to get on the ladder for a lot of people.


To Letty Lo La


1) Can I pay this off and then just rent the property at the same renting price? (say £300 per month)

No. At least not technically and legally. With shared ownership you can’t rent the property to another person until you have purchased the whole of it- and don’t have a rented lease on the rest of it..... otherwise it would be defeating the point of having shared ownership deals. The idea is to help first time buyers on the ladder, not create cheap rental oppurtunities for potential landlords! However, whether they would ever check up on you doing something like this is another question…..

2) If the rent increases over time, can it only increase to a certain amount each year?

Yes. I think it’s limited to very small incremental amounts every year- as it is for anyone whose signed a rental lease on a property over time. They can’t suddenly whack you with a big rent increase at their discretion once you've signed into a lease.

3) Once I have paid off the 25% and am now ONLY renting, if my partner and I happen to fall out of work or split etc, is it exactly the same as private renting or living in a council property in terms of if you fall out of work the government/council pay the rent on your behalf (basically can you end up on benefits and still live in the property as long as the whole 25% of the mortgage has been paid?)

Technically yes. The rent proportion you pay is still considered as rent by the council. However, they work out what types of benefits they give you on case to case scenarios. It’s not guaranteed you’ll get the money back in benefits if you loose your job- but the councils do treat the rent side as 'rent' when you apply.

4) When we decide to move out of the property could we then sell our chunk and use the money to pay off another chunk of a shared ownership property and do exactly the same thing with that one and so on?

Don’t know, but I think you’d then be in competition with first time buyers. The idea is to help get first time buyers onto the ladder, so I assume they will preference them over you first- as you already have purchased a property. However, if they can’t sell their properties then they may adjust that. This whole part buy/ part rent thing actually started out purely as a thing for key workers only- but that's changed over time. I'm not a key worker and I bought one very easily. I assume If they can't sell a flat to a first time buyer at a certain time, then they'll look further a field. But you shouldn't assume that you'll be automatically entitled to do that after you've done your first purchase.

Pretty, I can't advise you whether you should buy or not, neither can anyone else, it's down to you to do your research, make your comparisons and decide what's best for you. I can give an opinion that's all. None of us has a crystal ball but I can say with some degree of confidence that the days of property prices doubling every 7 or 8 years are gone and they ain't coming back any time soon!

Anyone buying a property, particularly for the first time must accept that the property thereafter is a liability and not an asset, as each month it takes money out of your pocket. If a property rises in value then any equity is pretty useless until such time as you come to sell it. If you step up to a more expensive property then you take the profit and simply hand it over to another lender, then "hey presto" you've got a bigger liability than before!

If on the other hand property values fall, then it shouldn't make any difference either, until such time you come to sell. The exceptions (and dangers) to both these statements are if remortgaging as (a) in a rising market, if you remortgage to a higher LTV (effectively "cash-in" some of your equity) then you're throwing away any safety net and increasing your liability further, or (b) in a falling market, you may be exposed to negative equity and not even be able to sustain your current liability.

That describes in simple terms (I hope) the basic mechanics. Forget "investment" or watching "property ladder" as unless you understand the very basics then there's no point getting involved outside your comfort zone. I would ask yourself "why?" do you want to buy at this time. If you're spending £1100 on rent then you have a job. What happens if you buy 25% of something for £700 and in two years you don't have a job? - as I say, only you can answer that.

+ + + + +

Letty, your questions will hopefully be answered by someone who knows the mechanics of shared ownership well. An opinion from me though would be to at least try renting somewhere together first. You say you're living together but with your parents so it could be there's some financial incentive in doing that. Maybe you could make the break and test the water before making such a big commitment? Sorry if that sounds like preaching it's not meant to! -

Good luck anyway, whatever you decide.

Hi All,

I would just like to ask a few questions about only ever buying the first offered chunk of the mortgage (say 25% of £200,000 = £50,000). Please base this on only ever owning 25% and never planning to buy the rest.

1) Can I pay this off and then just rent the property at the same renting price? (say £300 per month)

2) If the rent increases over time, can it only increase to a certain amount each year?

3) Once I have paid off the 25% and am now ONLY renting, if my partner and I happen to fall out of work or split etc, is it exactly the same as private renting or living in a council property in terms of if you fall out of work the government/council pay the rent on your behalf (basically can you end up on benefits and still live in the property as long as the whole 25% of the mortgage has been paid?)

4) When we decide to move out of the property could we then sell our chunk and use the money to pay off another chunk of a shared ownership property and do exactly the same thing with that one and so on?

5) My partner and I are currently living with my parents while we save up for a place and wanted as much info as we could get that will lead us towards going in for a shared ownership property (what are the next steps, who should we go to for assistance, mortgage advice, what would be the best mortgage to take out etc)

6) If there are any catches, please let me know.

My partner and I are very interested in Shared Ownership as it is impossible for us to go out on the open market and see this as our only other option (apart from renting which is much more expensive and a waste of money). We are only looking to go for a 2 bed as we plan to settle down and have children soon after moving in.

Could somebody please come back to me on this asap and let me know if this sounds like a good idea?

I think it would be easier to copy/paste my questions with the answers below when responding to me.

Many thanks

Letty

To BG & Repo-Stopper

On conclusions, can you both elaborate on my situation, is it really worth in current market scenario to go for part-buy-part-rent? as this long fight is ending me up quite undecisive!!

I can manage some 10K savings as deposit (current market, I will hardly get mortgage at 10% deposit if I go for open market buy)

Partbuy is being on offer at 195000 where I should be sharing only 25% currently and would be paying some 350 as rent to HA.

At present, I am paying 1100 monthly as rent.

If my projected saving is 1500 a month and market crashes another 15% in next 2 yrs, I could build up a huge savings which can get me a mortgage to buy remaining 75% at new crashed price (approx 175000) after 2 years.

Am I am predicting correctly and am I missing any other big upfront cost to be considered?

Can you both guide on my decision? is it correct to go for this property considering 195000 is definately 10K higher than open market price in that area.

Thanks & regards

BG, you and Pretty are doing just fine and I don't want to spoil this thread by going too much off topic. 'Rent to Own' (or any other form of it) is a subject by itself and in terms of house buying it's purely just another angle, nothing more nothing less. I raised it as it's often (too often) stated that there's no other way for someone in the "typical" shared-ownership bracket.

Your financial logic confuses me and you seem to have convinced yourself that buying 40% of something knowing the market was about to fall was some sort of master stroke as you can clean up through buying the rest if the market gets worse?

In a nutshell, if you can afford a buy a percentage of something today and your plan is to buy the rest at a later date, then a properly thought through 'option' deal could be the way to go (assuming you can find a seller to agree terms with).

If you are happy to own just a part of something knowing you'll never be able to buy it all, then an 'option' deal is no real use to you.

In your case (only figure I saw was £204k), if you bought at £204k via a 95% (£193,800), 25 year repayment mortgage at say 5%, then after 5 years you'd still owe £171,669,meaning if prices dropped 16% over the same period then every penny you'd paid would be wiped out. The only thing you can be sure of in 5 years is that you'll still be liable for £171k regardless of what happens with the market.

In contrast, a typical 'rent to own' scenario would probably have given you the 'option' (but not the obligation) to buy at £204k in Dec 2012, meaning you'd have still been living there now but paying rent instead of mortgage. Come 2012 if the place was worth say £220k then you'd exercise your option to buy and jump into £16k of instant equity on day1. On the other hand if it's only worth £172k you'd say "no thanks" and walk away thinking maybe that 5 years renting wasn't such a waste after all..

To, BG

OK, that seems a great help, I think you have guessed a correct area I was referring to, its Isleworth and not exactly Hounslow which is definately better & more expensive area. Pricewise it seems bit higher but it is advantageous in longer term when 100% is owned. I will check for Car park first and then pay the deposit.

I haven't check though personally with HSBC yet, but they would surely ask for bigger deposit (25%).

I have one doubt, suppose after expected 10%-15% downfall within next year or so, if I have saved sufficient amount as deposit to go for a mortgage to buy remaining 75%, can we do it by taking out saperate mortgage or we can only extend the current one?

Sorry for being too curious!

Thanks

To Repo Stopper.

I can see where you're coming from, and personally I'd rather not be in shared ownership- but you are missing a couple of points which are salient to individual cases.

A year ago it was practically impossible to get on the ladder as a first time buyer in London unless you were earning as an individual, or a combined salary, of over £45,000 pa (or you got one of those insane sub prime mortgage deals which were completely out of proportion to your salary- and have now disappeared for obvious reasons!). And we're talking about buying one bed flats here as your first property! That is unless you were prepared to front up a very big deposit- which is a problem in London because the rents are so high. Therefore unless you are earning a lot of money it's very hard to save for a deposit.

The other issue is that for someone like me, over five years (and hypothetically based on my current fixed two year rate) I will have paid off £33,000 of my overall repayment mortgage on the fourty per cent I own. However if I had to wait for another five years I'd have lost about a thousand pounds per month in rent and that's not even taking into account how rents go up over time. Whereas at least now I've been paying off a years worth of interest and repayment- instead of putting that towards rent, and in four years will have cleared one fifth of my current mortgage. And who is to say that in five years time properties wont be worth more. We don't know how this current situation is going to pan out, but if properties are higher than they were at the peak of the market in 2007 in five years time, a person then has to pay more money to buy (therefore likely higher mortgage repayments over 25 not 20 years) and also needs a bigger deposit and hasn't cleared a fifth of the interest or repayments as they would have- all whilst loosing about grand a month (or more) in rent over that time = £60000! Also you have to take into account how interest changes over time and what kind of mortgage deal you have- all of which effects how much you pay back per month.

Lastly, there's the issue that people like myself, and I can see on here that posters like Pretty have cottoned onto, when looking at these schemes. In this current situation it's likely that your property may devalue which also means you can 'staircase' up and buy more of it at a cheaper rate than what it was originally going for. Admittedly that costs you extra fees every time you do that and you have to live with some negative equity for a while on the proportion you own, but you'll make back what you've lost very quickly if you buy more shares at a cheaper rate when the market picks up.

Given the rental costs of London for many people earning £35,000- or under per year (who don't have massive amounts of equity), schemes like this were or are the only option if you want to get on the ladder. Of course, there could be a complete collapse in the market over the next two/ three years and properties may devalue 40 per cent from their peak. If that happens then I'd say your option is the better one!

Hi Pretty.

I can see your dilemma about the parking- you're concerned you may not be able to park near there in the future. Just out of curiosity, have you checked around the local area to see if there is any free on street parking on any of the nearby roads? Sometimes you get that the further you go out of central London. I have free parking on some of the streets near me (ie you don't need a permit- anyone can park there for free). It's not the ideal to do that, and it makes your car insurance more expensive, but sometimes you have to do that. A lot of the shared ownership schemes on large London flat/buildings seem to lack a good parking option within the building, and quite often there are issues with local councils with new build properties over whether they allow on street parking permits for permit/metered roads or not.

Re your mortgage issues. I'll see if I can dig out the details of my broker for you this week. They may be able to help you find another mortgage option if you contact them. Though, right now it is very hard to get a mortgage in general. It may be the same deal with all brokers who do shared ownership mortgages as you've already been given. I did have a couple of thoughts though. If you're on a restricted visa right now- does that mean you're on a time limit for residency here at the moment. The reason why I mentioned that is that I have a feeling prices might keep falling this year- and they may not recover for a while. If you bought a place right now you could find yourself in negative equity for a while if prices keep dropping further after you buy. If you're on a time limit for how long you can work here that might be a problem for you if you leave and have to sell before there's a recovery. The other thought is that if prices do keep dropping it might be better to wait for a while to get something at a better price- and there may also be better mortgage options in the near future once the banks start to get themselves out of the mess they're in right now. You might find by the summer, or later, there is an easing on mortgage deals. That may not be good advice for your particular situation, and no one can predict the future! But it's something worth taking into consideration if you haven't already.

I googled the area you are looking at with a2 Dominion, and if it's the place I think it is the prices are in current line with the area- but maybe slightly over average partly because it's a new build but also because private individual sellers are sometimes dropping their prices further than what they actually qoute just to sell- whereas I think these companies like Dominion are less likely to negotiate and very slightly over price- though it's worth a try if you can get a mortgage. Having said that they probably would have been 5-15 per cent higher a year ago. Which brings me back to my last point. You may find yourself getting into a bit of negative equity for a while even though it's only on your 25 per cent you want to buy. I've now got a bit of negative equity on the 40 per cent I bought on my property a year ago because prices have dropped since then. If you're going to be there for several years that's ok though obviously because it will recover eventually. Question is- we don't know when! Could be a year, could be five years.

On the upside, in terms of being in a good area for property it's a good place to buy because of the proximity to Heathrow- as you probably very well know! Apart being easy to get to the airport, Heathrow generates a lot of business for the area so you probably wont have a problem selling it or even renting it (if you own it outright) in the future (when the economy recovers!).

Keep an eye on this thread and I'll post those details for you, or I can email them to you if you want (not sure if the forum allows that though).

B

To, BG on shared ownership

Thanks BG again, well the area I am looking with A2Dominion is in Hounslow (quite near to you) and now the issue is they have limited off-street parking and no allocated parking which can be really a risk in longer term!! (neither safe), I asked for the cost as they might be providing at something additional but they don't do. I phoned up council and they say they don't give parking permit to any of these big constructions as they might not have taken any prior approval for parking space.

This really brings me worries as I am little reluctant to pay the deposit being not sure will there be any complications on later stage as they have always mentioned there is limited off-street parking!! this term is quite confusing and if they demand lumsum money after sometime or council obejcts and that limited space is barred then?

I approached their mortgage advisor and their designated bank can not lend me money based on (1) very few banks lend to part buy part rent properties (2) fewer banks lend to new constructions (3) very few banks lend to restricted visa status holder (like me) so that leaves me to only one option which can be HSBC and they might provide my 25% part mortgage only on 25% deposit!!!

I think things are never so easy as it might be for any open selling property.

Yourr views please!!

Regards

Mr XXX, couple of general points before I address the points you make.

1. Looking back at some of your posts your general advice seems to be good but I saw one post from December where you dismissed someone elses proposition on a property sale with 75% up front and 25% shared equity arrangement payable within 10 years. Please appreciate that just because something is creative and perhaps unknown to you it doesn't necessarily mean its dodgy in some way. Also, I'd have to say I know "half decent solicitors" who won't touch anything out of the ordinary, not because its dodgy but because they're not familiar with it. Thankfully there are also solicitors who are more experienced and can customise a bespoke agreement instead of churning out standard conveyancer bumpf time after time. Guess which type still has a secure job in these tough times?

2. I've yet to see a shared ownership deal that is truly pro-rata risk to investment, hence that's what brought me to this thread, and time after time the reason is given as "there was no other way we could get on property ladder" etc etc, hence I mentioned 'rent to own' and explained it further when asked by 2 posters. I also stressed that I wasn't trying to sell it to anyone which I'm most certainly not. I also stated the figures were slightly out of date now, so if you consider no-one will get a mortgage without minimum 10% deposit and throw in say a 2% product fee then the figures look a lot worse/better depending which side of the fence you're on.

So keep up the good work but give those calculator buttons a clean up..

Mr XXX: These figures in your example are way out as they do not take into account what capital the couple who buy the property straight away will have paid off their mortgage and will only have 20 years left to run by the time the 2nd couple take out their mortgage

£55,034 - £39,600 = £15,434 + £9,000 = £24,434

True, over the same 5 year period the couple with mortgage would have cleared approx £16k capital, but if the value of their house were to drop by say 13.4% then every penny of this "equity" would be eroded, hardly likely but still possible. As I say the figures are what's spent regardless of what it's spent on.

Mr XXX: Also the fees and deposit have to be paid by both couples

No they don't. The 'rent to buy' couple might not want to exercise their option to buy or they may choose to take out a further option for a further term (to defer taking a mortgage until the time suits their circumstances).

Mr XXX: The 2nd couple will not be £20,834 better off

Mr XXX: Their are also many other risks in your "rent to own" scenerio that any half decent solicitor would point out to a prospective buyer.

I refer back to point 1.

To Pretty,

Yes, parking- that was something I forgot to mention! They don't provide parking here either (although there is a space in the building grounds that could be used for parking- if it wasn't an HA project they'd have used that area as a residential car park). I'm in west London as well (Borough of Ealing) and fortunately, where I am, you can park on some of the nearby streets for free- but it's still annoying, especially when you're moving in.

I had a look at a a2Dominion place, but in Stratford, in 2007 when I was looking to buy. They seem pretty good as a company, maybe better than SBHA. I just didn't want to live in Stratford.

Feel free to ask any more questions if you need to, and good luck with your purchase if you go for it!

Repo-stopper

These figures in your example are way out as they do not take into account what capital the couple who buy the property straight away will have paid off their mortgage and will only have 20 years left to run by the time the 2nd couple take out their mortgage. Also the fees and deposit have to be paid by both couples whether it is now or in 5 years time. The 2nd couple will not be £20,834 better off if they walk away because they still do not own a home and the 1st couple will have paid 5 years off their mortgage so will have a chunk of equity in their property. Their are also many other risks in your "rent to own" scenerio that any half decent solicitor would point out to a prospective buyer.