"Should I buy out the Council's share of a Shared Ownership?"

Brendan Burgess

Brendan Burgess

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I have seen a few people arguing that they want to buy out the Council's share so that they can avoid the "extortionate" rent increases. I have argued this in the How Shared Ownership Works thread

"Should I transfer the rental bit to a council mortgage?"

Probably not.

The interest rate is the same on both the rental loan and the mortgage, assuming you have your mortgage with the Council. So I don't see that transferring it makes any difference?

If the Council keeps some of this notional "ownership" you don't have to pay the Household Charge. This could be very significant if the Charge rises to €1,000 as it's forecast to do. Make sure that they keep 1% ownership just in case.

You may qualify for TRS on your share, but not on the council's share.

A bigger issue is the legal status of the Council's share

Let me explain by way of example.

|Total|tenant's mortgage|council's share
Mortgage/Rental|150|50|100
Property value|100|50|50
Negative equity|50|0|50
Who is responsible for the council's share of the negative equity? I don't know the answer to this legal question.

But I do know that if you buy out the council's share for €100k , you will then be responsible for the €50k negative equity.

Under the current arrangement, you may not be responsible for the council's share.

I certainly would not move the council's share to a council mortgage until this is clarified.

If, by any chance, the Council is responsible for its own negative equity, you could seek to sell your property now and be free of it.

Brendan
 
Brendan,

what you says here makas sens, but it is better to consider percentage proportion, for example:

initial value 100%:
- tenant's 40%
- council's 60%

after the price drop the proportion is still 40% to 60%, but now the shares are worth less, so both parties are responsible for the negative equity, i.e. when you sell the house on the open market for the lower price, you should get 40% of the money and council 60%. But what happens when you transfer to full mortgage with council... ?

Skier
 
Hi Skier

My first draft had that type of example, then I amended it to show that in this unusual case, someone with no negative equity, could buy "negative equity" through tranferring the "rental bit" to a mortgage.

Most people have paid off some of their mortgage and some of their rental equity. If the tenant is not responsible for the "rental" negative equity, they should stop making "rent" payments as they are only paying off the Council's negative equity.

Brendan
 
I apologize in advance for what might be a stupid unresearched anecdotal question but I remember reading somewhere that the Council will always buy your property back from you at the same price you paid for it therefore you cannot lose out on negative equity. Is this true about negative equity or is it a myth that should be dispelled ?
 
bullworth said:
I remember reading somewhere that the Council will always buy your property back from you at the same price you paid for it
Click to expand...

Hi bullworth

The scheme is a real mystery. I have not seen that anywhere, but nothing would surprise me. I really doubt it that the council gave customers a one way bet on house prices.

Brendan
 
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