How Shared Owndership works
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The basics of Shared Ownership:
Half Owner 1 = Council Buys half share. Collects rent on their investment
Half Owner 2 = Tennant Buys half share (mortgage with council). Pays rent Pays rent on the council’s share
Shared Ownership was designed for the short term to allow people on modest incomes to get on the property ladder. The intention was that the purchaser would buy the council’s half and transfer to a full mortgage as soon as they would be eligible. It worked in a rising market and would also have in a stable or stagnant market but the decline in property values means people can’t actually qualify for a full mortgage so they are stuck.
Two problems that are unique with Shared Ownership:
The first is that in addition to mortgage repayments, rent has to be paid for the duration of the loan agreement (25/ 30 yrs in most cases) and at the end of that period the borrower will still only own only half the property and be required to buy the other half off the council.
The second is that the negative equity on the council’s share of the property is the responsibility of the borrower, not the council who are apparently not liable for any loss!
It’s understandable that a property crash wasn’t factored in to the contracts but the unacceptable part is that five years after prices fell nothing has been done to correct this and many people are locked into it. It’s a hopeless and depressing situation which has to change.
Half Owner 1 = Council Buys half share. Collects rent on their investment
Half Owner 2 = Tennant Buys half share (mortgage with council). Pays rent Pays rent on the council’s share
Shared Ownership was designed for the short term to allow people on modest incomes to get on the property ladder. The intention was that the purchaser would buy the council’s half and transfer to a full mortgage as soon as they would be eligible. It worked in a rising market and would also have in a stable or stagnant market but the decline in property values means people can’t actually qualify for a full mortgage so they are stuck.
Two problems that are unique with Shared Ownership:
The first is that in addition to mortgage repayments, rent has to be paid for the duration of the loan agreement (25/ 30 yrs in most cases) and at the end of that period the borrower will still only own only half the property and be required to buy the other half off the council.
The second is that the negative equity on the council’s share of the property is the responsibility of the borrower, not the council who are apparently not liable for any loss!
It’s understandable that a property crash wasn’t factored in to the contracts but the unacceptable part is that five years after prices fell nothing has been done to correct this and many people are locked into it. It’s a hopeless and depressing situation which has to change.
... in addition to what bd1 described...
it is important to mention that the rent paid to council increases by 4.5 % in July every year and is calculated based on th einitial rental equity; for instance, if the initilal rental equity (i.e. council's share worth at the time of house purchase, is worth 150k, and the initial interest rate on rented equity set by council is 4.3%), then the monthly rent can be calculated as below, weher IRY1 is Interest Rate Year 1, IRY2 is Interest Year 2, etc....):
year 1: (IRY1 times 150k) by 12 = 537 euro
year 2: ((IRY1 + IR1 times 4.5%) times 150k) by 12 = 561 euro
year 3: (IRY2 + IRY2 times 4.5%) times 150k) by 12 = 586 euro
Year 4: (IRY3 + IRY3 times 4.5%) times 150k) by 12 = 613 euro
etc..., you can see that if there is no chance to remortgage (to pay off council) than the rent can increase to the creazy number over the 25 year period ..., note also that the rent is always calculated based on the initial rental equity, even though the value of the property has dropped by half,
skier
it is important to mention that the rent paid to council increases by 4.5 % in July every year and is calculated based on th einitial rental equity; for instance, if the initilal rental equity (i.e. council's share worth at the time of house purchase, is worth 150k, and the initial interest rate on rented equity set by council is 4.3%), then the monthly rent can be calculated as below, weher IRY1 is Interest Rate Year 1, IRY2 is Interest Year 2, etc....):
year 1: (IRY1 times 150k) by 12 = 537 euro
year 2: ((IRY1 + IR1 times 4.5%) times 150k) by 12 = 561 euro
year 3: (IRY2 + IRY2 times 4.5%) times 150k) by 12 = 586 euro
Year 4: (IRY3 + IRY3 times 4.5%) times 150k) by 12 = 613 euro
etc..., you can see that if there is no chance to remortgage (to pay off council) than the rent can increase to the creazy number over the 25 year period ..., note also that the rent is always calculated based on the initial rental equity, even though the value of the property has dropped by half,
skier
you can't rent out the house, so if you need to move with your family to another place, for instance
(1) due to new job, or
(2) current house or flat is too small because you got 2 kids
- you are stuck; you and your familly suffer and most likely in many cases the government has to pay benefits instead promoting job seeking activity,
It looks like there is nobody in the government willing to change the legislation to adapt it to current requirements, ...I am sure that most people with the shared ownership properties do not want their houses for free just need to feel that the rules are fair to all...(not only to council)
skier
(1) due to new job, or
(2) current house or flat is too small because you got 2 kids
- you are stuck; you and your familly suffer and most likely in many cases the government has to pay benefits instead promoting job seeking activity,
It looks like there is nobody in the government willing to change the legislation to adapt it to current requirements, ...I am sure that most people with the shared ownership properties do not want their houses for free just need to feel that the rules are fair to all...(not only to council)
skier
Brendan Burgess
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I have noticed the various threads claiming unfairness, and I would like to understand the issue a bit better. I have been unable to find any detailed guide to shared ownership other than the one from Citizens Information
A few questions
Where are the rules of Shared Ownership set out, so that I can read them for myself?
Do the rules differ for each local authority?
bd1 said the following
"Shared ownership" and "Affordable housing" seems to get mixed up. They are separate schemes as far as I can see? For the moment, keep this thread on Affordable Housing.
What restrictions are there on the owner/tenant of an affordable house in letting it out?
What restrictions are there on the owner/tenant on selling an affordable house? Citizens Information seems to suggest that there are no unusual restrictions?
"You can sell the house or apartment at any time. The local authority will, of course, be entitled to claim the value of the proportion it owns at the time of sale."
It does seem odd that the rent increases by 4.5% a year. But again, was this not clear from the initial documentation?
A few questions
Where are the rules of Shared Ownership set out, so that I can read them for myself?
Do the rules differ for each local authority?
bd1 said the following
I presume he means that the tenant is obliged to buy the other half of the house at some stage at a minimum of the original price? While this seems unfair, was this not clear at the time? Was it discussed at the time on Askaboutmoney or elsewhere?
"Shared ownership" and "Affordable housing" seems to get mixed up. They are separate schemes as far as I can see? For the moment, keep this thread on Affordable Housing.
What restrictions are there on the owner/tenant of an affordable house in letting it out?
What restrictions are there on the owner/tenant on selling an affordable house? Citizens Information seems to suggest that there are no unusual restrictions?
"You can sell the house or apartment at any time. The local authority will, of course, be entitled to claim the value of the proportion it owns at the time of sale."
It does seem odd that the rent increases by 4.5% a year. But again, was this not clear from the initial documentation?
Brendan Burgess
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I have found the Housing (Miscellaneous Provisions)Act, 2002
It is difficult to read, and it seems to confuse shared ownership with affordable housing. I assume that there must be some "Guide to your shared ownership lease"
It is difficult to read, and it seems to confuse shared ownership with affordable housing. I assume that there must be some "Guide to your shared ownership lease"
Brendan Burgess
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Brendan,
There could be the following options:
1. Shared Ownership (i.e. council buys half of the house and purchaser buys another half of the house by getting the mortgage for his half from the council). Purchaser is then obligated to pay mortgage for his half (at the variable rate very close to European rate) and rent for council's half (at the 4.3% that increases every year by 4.5%, as described in my post before). It is important to say that the house in this case is from the open market.
2. Affordable Housing: purchaser buys 100% of the house by getting mortgage from the private bank (or council). The house is provided by the council at the discount price (i.e. council pays builders to build the low cost houses).
3. Shared ownership joint with affordable housing: purchaser buys half of the house and the house is affordable (i.e. provided by the council at the discount proce).
Regarding the rent payable under the shared ownership scheme, in my understanding it is as you quoted and as I described in my post before, rent is payable on the share held by council ... updated annually in line with inflation only; this means that the current market value has nothing to do during the rent calculation, that is basically calculated based on the initial rental equity (i.e. share own by council). So if the initial share owned by council was 100k in 2008 (i.e. the total house price was 200k in 2008), now it is still 100k being taken to calculate the rent, even though the market value of the house has dropped by half.
skier
There could be the following options:
1. Shared Ownership (i.e. council buys half of the house and purchaser buys another half of the house by getting the mortgage for his half from the council). Purchaser is then obligated to pay mortgage for his half (at the variable rate very close to European rate) and rent for council's half (at the 4.3% that increases every year by 4.5%, as described in my post before). It is important to say that the house in this case is from the open market.
2. Affordable Housing: purchaser buys 100% of the house by getting mortgage from the private bank (or council). The house is provided by the council at the discount price (i.e. council pays builders to build the low cost houses).
3. Shared ownership joint with affordable housing: purchaser buys half of the house and the house is affordable (i.e. provided by the council at the discount proce).
Regarding the rent payable under the shared ownership scheme, in my understanding it is as you quoted and as I described in my post before, rent is payable on the share held by council ... updated annually in line with inflation only; this means that the current market value has nothing to do during the rent calculation, that is basically calculated based on the initial rental equity (i.e. share own by council). So if the initial share owned by council was 100k in 2008 (i.e. the total house price was 200k in 2008), now it is still 100k being taken to calculate the rent, even though the market value of the house has dropped by half.
skier
Brendan Burgess
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Thanks Skier
For the purposes of this thread, I am only interested in Shared Ownership. That is difficult enough to understand.
Are these two statements not in conflict with each other?
On the one hand you say that it increases by 4.5%; on the other you say that it changes in line with inflation?
Where are you getting this information? Do you have a guide or is it in your shared ownership agreement?
For the purposes of this thread, I am only interested in Shared Ownership. That is difficult enough to understand.
Are these two statements not in conflict with each other?
On the one hand you say that it increases by 4.5%; on the other you say that it changes in line with inflation?
Where are you getting this information? Do you have a guide or is it in your shared ownership agreement?
I do not fully understand what exactly they mean by ..."updated annually in line with inflation"...,
...but i know from my own monthly payments that the rent is calculated as I described in my post in this Thread (28-07-2012 02:42 PM), rent is calculated based on the initial interest rate (4.3%) that increases annually by 4.5%, and initial rented equity is considered each year during calculation), in my calculations I do not take any ..."updated in line with inflation"... but I am still getting the exact amount I pay.
Has anybody in this forum own calculations that could confirm that ?
skier
...but i know from my own monthly payments that the rent is calculated as I described in my post in this Thread (28-07-2012 02:42 PM), rent is calculated based on the initial interest rate (4.3%) that increases annually by 4.5%, and initial rented equity is considered each year during calculation), in my calculations I do not take any ..."updated in line with inflation"... but I am still getting the exact amount I pay.
Has anybody in this forum own calculations that could confirm that ?
skier
Brendan Burgess
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Amazing stuff.
I spoke to a guy in the Council but, to be honest, I just didn't understand his explanation of how the whole system works, so a lot of our conversation was at cross-purposes.
But he did say that the rent increases by 4.5% a year.
Brendan
I spoke to a guy in the Council but, to be honest, I just didn't understand his explanation of how the whole system works, so a lot of our conversation was at cross-purposes.
But he did say that the rent increases by 4.5% a year.
Brendan
Z
zen
Guest
BRENDAN
Shared Ownership and Annuity are two types of debentures offered by City Council's Affordable Housing Scheme. This is sheme is private housing and not to be mistaken with Social Housing (single parents, low income families etc..)
Shared Ownership
S.O. is not necessarily 50:50. You can buy a % portion and rent the remaining percentage but traditionally people went with the ratio of 50:50.
Annuity
This is a 100% variable mortgage loan. I took out an this type but you dont have the normal "rights" as a normal 100% mortgage.
Both applicants of this scheme have issues with Shared Ownership applicants bearing more heart ache than the Annuity folk.
Traditionally the issues are
Not being allowed to transfer your loan to a private lender, if this has changed then they are being less than unhelpful with the process.
Not being allowed to lease out your own Private home. (my pet hate)
Not being considered to be transferred if you have outgrown your place.
Not being allowed to take ownership of the SO portion to the current market value.
Upward only rent on SO %
Not being allowed to change your MPP (Mortgage Payment Protection) policy which is exceptoinally high. In fact no one has even got a copy of their policy,,,,CAN YOU BELIVE THAT. So people are paying a high premium but dont know their level of cover. This equate to a whopping 21,000€ over a 25 year mortage, think about that little 70eur every month....
Not being allowed to fix your interest rate from Variable in the case of annuity.
The council, who are landlords to a % of the property should technically pay for that percentage of the management fees. If I was SO I'd take legal action against this.
But.... apparantly we all knew this when we were signing our leases....
The main issue is that the council wont engage in any rapport with any of its clients and there is zero flexiblity for both Annuity and Shared Ownership. There is no communication channels open.
Without going too much off the topic..
As director of a large apartment complex we are chasing the council for management fees on units that have been abandoned by people renegading on their debenture due to the aforementioned and thus on their management fees simpley because there is no even communcation or flexiblity with the scheme. The council think they dont have to pay us for those units (they are gravely mistaken)! We wont release any of their units until that payment is made. And this is not just our complex either, their are complexes and housing estates all over Ireland with high percentage of A.H people
Domino Effect
People are thowing back the keys leaving the remaining resdients to pay increased management fees, the outcome will be inevitable if there is no intervention. Complexes will go into liquidation as 90 of our complex is AH...
Affordable Housing is not just affecting affordable housing, it needs to be raised in the Dail.
Shared Ownership and Annuity are two types of debentures offered by City Council's Affordable Housing Scheme. This is sheme is private housing and not to be mistaken with Social Housing (single parents, low income families etc..)
Shared Ownership
S.O. is not necessarily 50:50. You can buy a % portion and rent the remaining percentage but traditionally people went with the ratio of 50:50.
Annuity
This is a 100% variable mortgage loan. I took out an this type but you dont have the normal "rights" as a normal 100% mortgage.
Both applicants of this scheme have issues with Shared Ownership applicants bearing more heart ache than the Annuity folk.
Traditionally the issues are
Not being allowed to transfer your loan to a private lender, if this has changed then they are being less than unhelpful with the process.
Not being allowed to lease out your own Private home. (my pet hate)
Not being considered to be transferred if you have outgrown your place.
Not being allowed to take ownership of the SO portion to the current market value.
Upward only rent on SO %
Not being allowed to change your MPP (Mortgage Payment Protection) policy which is exceptoinally high. In fact no one has even got a copy of their policy,,,,CAN YOU BELIVE THAT. So people are paying a high premium but dont know their level of cover. This equate to a whopping 21,000€ over a 25 year mortage, think about that little 70eur every month....
Not being allowed to fix your interest rate from Variable in the case of annuity.
The council, who are landlords to a % of the property should technically pay for that percentage of the management fees. If I was SO I'd take legal action against this.
But.... apparantly we all knew this when we were signing our leases....
The main issue is that the council wont engage in any rapport with any of its clients and there is zero flexiblity for both Annuity and Shared Ownership. There is no communication channels open.
Without going too much off the topic..
As director of a large apartment complex we are chasing the council for management fees on units that have been abandoned by people renegading on their debenture due to the aforementioned and thus on their management fees simpley because there is no even communcation or flexiblity with the scheme. The council think they dont have to pay us for those units (they are gravely mistaken)! We wont release any of their units until that payment is made. And this is not just our complex either, their are complexes and housing estates all over Ireland with high percentage of A.H people
Domino Effect
People are thowing back the keys leaving the remaining resdients to pay increased management fees, the outcome will be inevitable if there is no intervention. Complexes will go into liquidation as 90 of our complex is AH...
Affordable Housing is not just affecting affordable housing, it needs to be raised in the Dail.
Brendan Burgess
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- 52,073
Hi Zen
That is helpful, but I would like a source for it.
Is there any official online guide to Shared Ownership? Of an offline guide which you could scan in.
Could someone email me a copy of the legal documentation which they signed?
Are the terms for the 100% annuity mortgage the same as the terms for the mortgage bit of the Shared Ownership ?
Are the interest rates on the Shared Ownership published anywhere?
Brendan
That is helpful, but I would like a source for it.
Is there any official online guide to Shared Ownership? Of an offline guide which you could scan in.
Could someone email me a copy of the legal documentation which they signed?
Are the terms for the 100% annuity mortgage the same as the terms for the mortgage bit of the Shared Ownership ?
Are the interest rates on the Shared Ownership published anywhere?
Brendan
Brendan Burgess
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The issue of expensive mortgage protection is dealt with in this thread.
As I recall, it's a sort of community rating. Everyone pays the same rate irrespective of actual risk.
As I recall, it's a sort of community rating. Everyone pays the same rate irrespective of actual risk.
Brendan Burgess
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I think that I am beginning to piece together how these work.
"Shared ownership" is a complete misnomer. The tenant owns 100% of the property.
Interest is charged on the "rental equity" at the local authority rate.
The "rent" is not rent at all. It is a monthly payment of interest and capital on the "rental equity"
So when the local authority puts up the "rent" by 4.5% each year, they are simply putting up the amount of the repayment. The additional amount goes towards reducing the capital.
Here is an answer from the responsible minister, Jan O'Sullivan
"Shared ownership" is a complete misnomer. The tenant owns 100% of the property.
Interest is charged on the "rental equity" at the local authority rate.
The "rent" is not rent at all. It is a monthly payment of interest and capital on the "rental equity"
So when the local authority puts up the "rent" by 4.5% each year, they are simply putting up the amount of the repayment. The additional amount goes towards reducing the capital.
Here is an answer from the responsible minister, Jan O'Sullivan
Minister of State at the Department of the Environment, Community and Local Government (Deputy Jan O’Sullivan):
... Any difference between the rent and prevailing interest rate is reflected in the capital outstanding on the property, i.e. if the rent charged in any period is greater than the prevailing mortgage interest due on the local authority’s share the purchase price of the outstanding equity will be reduced accordingly.
Local authority mortgage holders — including those who purchased under shared ownership — also benefit from extremely keenly priced interest rates which generally run at around 0.5% lower than the best rates available in the market and currently stand at around 1.5% below average variable rates available in the market. This is a very substantial differential.
Brendan Burgess
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Bingo!
I have found a worked example on the website of [broken link removed]which confirms my understanding of it. See Point 12.
This is just an ordinary mortgage with a very cheap interest rate and a funny way of calculating the repayments.
The market value of the property is irrelevant. The cost of "purchasing" the balance is determined by the initial price, the interest charged and the amount repaid by "rent".
If the "rent" is higher than the interest charged, the cost of "purchasing" will gradually go down which is the same as for any normal mortgage. The repayments are set a bit higher than the actual level of interest.
I have found a worked example on the website of [broken link removed]which confirms my understanding of it. See Point 12.
This is just an ordinary mortgage with a very cheap interest rate and a funny way of calculating the repayments.
The market value of the property is irrelevant. The cost of "purchasing" the balance is determined by the initial price, the interest charged and the amount repaid by "rent".
If the "rent" is higher than the interest charged, the cost of "purchasing" will gradually go down which is the same as for any normal mortgage. The repayments are set a bit higher than the actual level of interest.
Brendan Burgess
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And [broken link removed] adds some further light
Their Table 2 at the end of the document illustrates it very well. "Paid interest" though should be "interest charged"
Their Table 2 at the end of the document illustrates it very well. "Paid interest" though should be "interest charged"
Brendan Burgess
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I have started a new thread on this topic which gives a more systematic treatment.
Brendan
Brendan
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