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Has anyone bought a house using the Government-backed shared equity scheme? I'm thinking mainly of Open Market HomeBuy. Keen to hear what people think

by Linz4291 03 April 2009 |

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I'm a first-time buyer with no hope of getting on the property ladder otherwise. We could afford a reasonable mortgage but I only earn £25k and my partner has an IVA so no lender would touch him. We have two young kids so a 1-bed flat is not much good to us! Open Market Homebuy sounds great, but I'm well aware that if it sounds too good to be true, it usually is...

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MikeGG1 posted
The best way to look at this scheme is to think that you are getting a bigger place than you can afford without paying for all of it. You are getting the extra rent-free.
The only problem is that as you don't own all of it, any increase in value on the other portion goes to the government.
You can, at some later date, buy out the other portion but you would have to pay the then current rate on their portion.
Good luck
Mike
Posted on 03 April 2009 | Love 0 loves Report
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petefromearth posted
we looked into this scheme and decided it wasn't for us, although the fact you can get a bigger/nicer house with the same budget is attractive
there's a lot of criteria you have to meet however (such as number of bedrooms). also we found that there is a secret 'minimum' property price that you have to get, which in our area would likely be a place that's already been 'showhomed' and in which case there isn't as much potential to add value
the minimum property price is because:
you have to take a minimum mortgage based on your earnings
the minimum homebuy share is 20% of the total loan amount
the cooperative need a minimum 15% deposit
if your income will support a mortgage of £150k, then you can't buy a property less than £220k. crazy really!
Posted on 06 April 2009 | Love 0 loves Report
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mrtumnus posted
I delved into Open Market Homebuy myself. And there is certainly some 'alchemy' surrounding the total purchase price of the property you are 'allowed' to purchase. I am not sure of their formula, but happy to give you my own illustration:
With a deposit of 20k, and earnings of 30k, my calculation was as follows:
Total max purchase price (but could be less): £225k - which would be paid for as follows:
Mortgage of 113k (this can not be smaller or larger, and MUST be a repayment mortgage, so make sure you factor that into your own affordability calculations)
Deposit: 20k (plus I had to have evidence of a further 5k to cover fees/stamp duty and mortgage arrangement fee - because you cant roll mortgage fees into the mortgage)
Equity Loan - of the remainder, up to £102k (so up to 45% of the property value). If the property I found was cheaper than 225k, then the only element that would shrink would be the equity loan - my deposit and mortgage were fixed.
If property prices go up, so would the value of the equity loan, whenever you came to sell it would be recalculated. Although, if property prices go down, so would the equity loan. These calculations are made whenever you either sell the property (because you cant usually transfer the equity loan to another property) or when you want to 'buy back' some/all of the equity loan.
My first thought was that I would save up and buy back chunks of the equity loan each year, but I was advised by their broker that there are revaluation costs involved each time some equity is repurchased and that it would be better to overpay my mortgage for free if I ever had spare cash.
Further word of warning - the pockets of cash allocated for various key worker sectors and FTBs is fixed. So if you are a fireman, and all the fireman allocation is spent, you won't be able to use the scheme. Similarly for the FTB 'pot'. In my area the FTB money was spent first and I heard of people losing out to the scheme (despite being approved, making offers, going through survey etc) because they couldnt complete before someone else on the scheme, thus leaving no money. It's a complete lottery.
Posted on 24 May 2009 | Love 0 loves Report

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