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VacantPossession

Housing Association Misvaluations

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...or an olive branch to FTB's?

I've recently researched housing association property in Surrey. Briefly the idea behind these shemes is that flats and small houses, which form 30% of the total of a new development, are hived off to housing associations which then sell typically 50% of the value to the FTB and charge an under market rent for the residue.

The principle behind this is that by partially buying such a place, the FTB gets an interest in the property and is not "left behind" in the market. When the time comes to move on he or she retains that part of the value already paid off and the property reverts to the association, or the FTB eventually buys the place outright.

Where it appears to go wrong is in the crucial area of valuation. I have just seen the specs for several association flats and houses in the Surrey area. The scheme on each one is utterly reliant on what is described as "market value". In every single example I have seen the "market value" is way above the real market value.

A comparison is easily made by looking at similar sized and condition properties currently advertised on property websites and at agents. In all the compared properties on the market, housing association asking price was consistently and markedly above that of the open market value.

In some examples the housing association "Market Value" is given as approaching 33% over the comparable offer prices currently advertised for similar properties at almost all agents. In one case the market value of an association property was more than £50,000 for exactly the same specs.

Even keeping in mind that much association housing is newly built, this is offset by the fact that even the much cheaper advertised prices of open market flats and houses is still the offer price, not the sale completion prices.

In almost all cases the valuations were either current or up to May 2005. The common element in all the association houses I looked at was that RICS were the valuers. RICS, according to many associations, are "independent" valuers.

The vast differences between the associations' values and actual values do a rather important thing. They almost completely obliterate the advantages offered by the scheme, since it is extremely likely that unless short term values increase, let alone stabilise, a typical FTB would be even worse off than if he or she purchased the property in the conventional way,

So is association housing a bit of a con? Has it become a circuitous route by which developers can still sell well above market prices, whilst appearing to follow the current requirement to provide a proportion of "social" housing.

If my research in Surrey is true for the whole country, I would, so far, conclude that Housing Association "Shared Ownership" is not worth the paper it is written on at best, and at worst is a licence to rip people off.

I hope someone can prove me wrong.

Any comments?

VP

Edited by VacantPossession

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Someone correct me if I am wrong, but:

With shared ownership the equity held by the assosiation is either the percentage agreed or the intial value, which ever is higher.

So, if you bought a £100k house at 50% equity, costing you £50k and the house doubled in value, the association would still own 50%, ie. £100k. But, if the house halved in value, you would still owe them £50k. Leaving you with no equity at all.

In either case of house rises or falls, the FTBer would be worse off. If the house goes up in value, the jump to another property would be that much greater. If the house fell in value, you would own more than your initial stake!

I have heard many romours about this... is this correct or not?

Edited by Jason

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Anecdotal to this.

A couple I've heard of got one of these HA buy part rent part apartments. They split and he left. She could not afford the place on her own so contacted the HA to let them know she was taking a lodger. They weren't having that. She can only sell it to someone else with thier agreement, nightmare. Now she's going bust while not being able to offload the place.

Imagine the advert.

For Sale: Second hand part buy part let apartment for sale. Valuation to be done by HA and is not negotiable. Only suitable tenants of HA's criteria need apply.

Restrictions: No pets

No Lodgers

No Party's

Also. If you meet a new partner the HA must be consulted before cohabiting with them. The HA may need to make further enquiries about new partner to see if suitable to all involved party's. :lol:

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So, if you bought a £100k house at 50% equity, costing you £50k and the house doubled in value, the association would still own 50%, ie. £100k.  But, if the house halved in value, you would still own them £50k. Leaving you with no equity at all.

In either case of house rises or falls, the FTBer would be worse off.  If the house goes up in value, the jump to another property would be that much greater.  If the house fell in value, you would own more than your initial stake!

I have heard many romours about this... is this correct or not?

Indeed... you will always be chasing your own tail, even if there is a perpetual property boom :lol:

Not forgetting you're also paying rent on the HA share, obviously this is a way of keeping the rents up.

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I stand corrected on the residual value. But the main point I was making is that the mortgage payments, whatever slice of the selling price they are based on, are directly related to the VALUATION at the time. If, as I suspect, the valuations are far in excess of the actual value, subscribers to this scheme are paying way over that which is reasonable.

Furthermore they are also paying a substantial rent for the unmortgaged part of the property, though somewhat under market rent.

And if you add up all the figures, I see no advantage over buying a "full" priced place. In other words, you would be better of mortgaging yourself to the hilt and buying the whole shebang. This of course defeats the whole purpose of the scheme.

The principle of there being no free lunch holds. It appears that developers, in league with councils and associations, are hoodwinking, by ommission or by design, the very people they are purporting to assist.

VP

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Jason your response makes no sense at all - read it through and have a repost.

Ok, I changed one word as it was spelt incorrectly. Other than that, it makes sense!

What I am basic saying (or asking), is when you buy a house under the shared ownwership agreement, if the house were to sell at a lower price in the future would you still owe the association 50% of the current (lower) value? OR 50% of the initial valuation (at which YOU originally bought it at).

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The principle of there being no free lunch holds. It appears that developers, in league with councils and associations, are hoodwinking, by ommission or by design, the very people they are purporting to assist.

Basically nobody wants to be held responsible, all concerned want to shift liability onto each other so in the end it lands in the lap of the poor sap who falls for this.

No wonder lenders have backed away from these schemes much to the government's dissapointment, there has been much talk of problems in setting up backend systems for the new 'Homes For All' initiative, this is clearly just bull.

These schemes have misselling and high-risk written all over them, and the banks know that when something goes awry the FSA will have a field day that makes endowments and split-caps look like toys, you can see the TV programmes now of full of young and naive people all down hearted when they found out the government and the banks aren't actually there to help them at all. They also know they'd be unable to get possession of the property in case of default.

They're basically scraping the barrel for new punters, the market is so beyond FTB's they just don't care or are happy renting, those who lied-to-buy are already in the market and are having to grapple with the end of their interest rate fix or interest only instrument.

The BTL'ers are either bailing if they have an sense or the daft one's are already re-mortgaged up to the hilt.

You have those on the sidelines who have the money or leverage but lack the inclination to buy into what they perceive to be a stagnant or falling market.

Where is the new batch of money coming from? All pyramid schemes require fresh liquidity to keep the good times rolling, the FTB'er are either priced out or disinterested, BTL isn't showing any capital gain, sales are falling through preventing people mortgaging up the chain, the banks or HA don't want to risk any of their money and the government doesn't do housing.

The VI's are already spinning for SIPP's and further rate cuts... what else can prop it up? It can only be overt government money or further increasing the money supply, but even that will not counter poor sentiment.

Edited by BuyingBear

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Ok, I changed one word as it was spelt incorrectly.  Other than that, it makes sense!

What I am basic saying (or asking), is when you buy a house under the shared ownwership agreement, if the house were to sell at a lower price in the future would you still owe the association 50% of the current (lower) value? OR 50% of the initial valuation (at which YOU originally bought it at).

My understanding is that you owe the Mortgaged value which of course is the original value at the beginning of the agreement, just like you do with a normal house. However I am not clear what happens if the value rises, and whether you are able to benefit from the difference between the new value and the mortgaged value.

VP

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Anecdotal to this.

A couple I've heard of got one of these HA buy part rent part apartments.  They split and he left.  She could not afford the place on her own so contacted the HA to let them know she was taking a lodger.  They weren't having that.  She can only sell it to someone else with thier agreement, nightmare.  Now she's going bust while not being able to offload the place.

Imagine the advert.

For Sale:  Second hand part buy part let apartment for sale.  Valuation to be done by HA and is not negotiable.  Only suitable tenants of HA's criteria need apply.

Restrictions:  No pets

                    No Lodgers

                    No Party's

Also.  If you meet a new partner the HA must be consulted before cohabiting with them.  The HA may need to make further enquiries about new partner to see if suitable to all involved party's. :lol:

Is that all in the contract? It is the tenancy rather than the ownership that creates the rules of what she can or cannot do. If its not there they have no rights whatsoever. That goes for dogs, lodgers, lovers and polar bears (so long as they are neither a protected or restricted species and don't constitute a H&S or environmental risk - you might loose out on that with the polar bear!)

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excellent topic

sounds like there basically squeezing all the profit possible from whoever they can.

the thing is, if you can get a mortgage for one of these at 30% of the value, and on top of that pay the rent, then why buy one in the first place?

if the banks wont lend you more than 30% of the value then they see it as a bad risk, so there obviously gonna see it as a bad risk if not only are you paying a mortgage but rent off the same wages as well.No wonder they dropped it.

And if a buyer can get a mortgae of 30% of one of these places then becuase they are so high priced in the first place then surely the best going down market and getting a full mortgage on a cheaper property in a cheaper area and leaving the new house premium and rip of price behind.

I just cant figure who a house like this would appeal too.

I dont wanna hear any more ******** schemes or government quango shit, what about instead of demolishing all they houses in the north they just give them to the people, how about they give free plots of land on brownfield sites for the peopel to build there own, hoiw about they build some real social housing not 200k housing that people cant afford.

but then there all screwing us big time and thats a sure fact.Im realy begining to think some hidden agenda is in place to royally screw people.

they even brought in sipps to help the already home owning wealthy to screw us all even more

TIME FOR THE FUCL1NG REVOLUTION IM SICK OF ALL THESE PR1CKS

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excellent topic

sounds like there basically squeezing all the profit possible from whoever they can.

the thing is, if you can get a mortgage for one of these at 30% of the value, and on top of that pay the rent, then why buy one in the first place?

if the banks wont lend you more than 30% of the value then they see it as a bad risk, so there obviously gonna see it as a bad risk if not only are you paying a mortgage but rent off the same wages as well.No wonder they dropped it.

And if a buyer can get a mortgae of 30% of one of these places then becuase they are so high priced in the first place then surely the best going down market and getting a full mortgage on a cheaper property in a cheaper area and leaving the new house premium and rip of price behind.

I just cant figure who a house like this would appeal too.

I dont wanna hear any more ******** schemes or government quango shit, what about instead of demolishing all they houses in the north they just give them to the people, how about they give free plots of land on brownfield sites for the peopel to build there own, hoiw about they build some real social housing not 200k housing that people cant afford.

but then there all screwing us big time and thats a sure fact.Im realy begining to think some hidden agenda is in place to royally screw people.

they even brought in sipps to help the already home owning wealthy to screw us all even more

TIME FOR THE FUCL1NG REVOLUTION IM SICK OF ALL THESE PR1CKS

I don't think it is such a bad idea in the current environment. If you have to pay rent, why not pay a bit of a social rent (as opposed to all of a private rent) and buy a bit of the building? You can keep buying bits at that year's market valuation until you own it outright, but the good news is that the HA carries most of the risk for a fall in the market! ie. I buy 25% for 50K and then if the market halves I loose 25K. In the meantime, I have paid 220 quid a month for rent instead of 750 so I have saved about 13K. Maybe I will loose a bit (about 12K), but its better than buying the lot and loosing 100K... hmmm... Wait for the crash. It still makes more sense!

Edited by Elizabeth

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I don't think it is such a bad idea in the current environment.  If you have to pay rent, why not pay a bit of a social rent (as opposed to all of a private rent) and buy a bit of the building?

Because it creates a state of dependency where a person is seemingly tied to a property forever more with little ability to move forward, doesn't seem like these public bodies really care for their much vaunted 'social mobility'.

No pubic officials choose to live this way, I doubt they would let their children either.

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I've looked at some of the part buy schemes available and was shocked at the prices. As has been pointed out these schemes seem to have an inflated value. I had naively assumed that as these schemes were run by housing association the rent would be below market value this does not appear to be the case. The total cost of a part buy flat would be equal to the rent I am presently paying and thats at todays interest rates. Furthermore many of these flats are in less desirable area and are often attached to large estates. At the very least you could end up struggling to pay a large mortgage when your neighbour is sitting in an identical flat being paid for by housing benefit. At the worse you could own 50% of a flat on the worse estate in town.

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These part ownership schemes are a bloody disgrace.

I don't need to know the details - I can smell the mark of a house builder's lobbyist from here. Subsidising their business, and distorting the market. :angry:

:rolleyes:

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You are so spot on,noticed the same scam in here in Cornwall,even spoke to the local council and a housing association about it,the most vunerable are being completely conned,have to get to work now but there is much more I can say about this.

It damned well annoys me!

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I think the council staff are sincere in their belief that they are "helping" people in these schemes. But there seems to be the same naivity going on in Council offices as there is with the general public.

Having done detailed sums on a typical association 50-50 deal, it is absolutely clear that it just does not make sense, especially in an either stable or falling market.

The principle objections are these:

1). Having seen samples of around 20 properties like this on offer, every single one is vastly over-valued compared with current offer prices on the open market, not even allowing for sale completion prices being lower still.

2). The rental, unsold part of the house, together with management and other charges, pushes the monthly payments up way beyond current market rents for similar properties and only slightly lower than if you had simply purchased the whole house on one 80% mortgage.

3) In a falling market you still have to continue paying both mortgage and rent installments at the agreed value established at the beginning of the arangement.

4) If you wish to opt out at any time you can only do so buy selling your mortgaged interest in the value. In a falling market you will be in negative equity very quickly. In such a market it might be extremely difficult to offload.

5). The rental part of the agreement deems the whole arrangement to be subject to the normal restrictions AS THOUGH you were solely renting. You need permission to do ANYTHING and do not have commensurate rights or controls as you would when buying a non-association property.

6). The requirements and qualifications for eligibility is absolutely tied to the same requirements as applied when seeking any social housing, even though you are entering into a commercial agreement.

7). The scheme is inflexible and does not give sufficient safeguards to the dweller. All the safeguards are on the side of the developer, who is guaranteed a set income from the moment the agreement begins.

8). The ADVERTISING from all shared housing institutions is grossly misleading and there is insufficient information given about possible pitfalls as highlighted above. Nearly every HA website I visited bullet-lists all the advantages and none of the risks, except the statutory one of "your home is at risk if you do not keep up mortgage payments".

9). The entire scheme is in most cases a complete distortion of the original intention which was to provide affordable housing. If you analyse the figures in today's market it is crystal clear that there is no financial advantage whatsoever to the buyer, and renting is by far the cheaper option.

VP

Edited by VacantPossession

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These part ownership schemes are a bloody disgrace.

I don't need to know the details - I can smell the mark of a house builder's lobbyist from here. Subsidising their business, and distorting the market. :angry:

:rolleyes:

I am not an opponent of share ownership at all - I know people who have ended up with a house all of their own this way, BUT... please check this out if you can multiply by 10 :lol::o:lol:) ...

http://www.rightmove.co.uk/viewdetails-893...pa_n=3&tr_t=buy

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Guest magnoliawalls

VP,

This is shocking - have you considered informing Shelter or any other charities in this area?

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I am not an opponent of share ownership at all - I know people who have ended up with a house all of their own this way, BUT... please check this out if you can multiply by 10 :lol:  :o  :lol:) ...

http://www.rightmove.co.uk/viewdetails-893...pa_n=3&tr_t=buy

Actually you have picked up on a good point to shared ownership and sales via housing associations - they are not available to BTLers.

In the Chapeltown area of Leeds the Housing Associations are reclaiming the large victorian properties which have been converted into flats - small time landlord fodder - and reconverting them into houses. They are selling them off cheap (30% below market value) with a restrictive covenant requiring the purchaser to occupy the property as a residence. Shared ownership is not obviously available but it does point towards a scheme which is enabling families to purchase properties rather than BTL scum.

Long live Housing Associations and may they bloom, I say.

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VP,

This is shocking - have you considered informing Shelter or any other charities in this area?

Assuming your question is well-meant, I have discussed this at length with the Housing Corporation which oversees the Housing Association industry, and the Audit Commision which audits councils and some associations.

They both agree that there are instances of over-valuation but the gist of what I got from them is that it is up to the applicant to highlight this, and there are no apparent safeguards intrinsic to the schemes.

To be fair to the councils involved, there appears to be a cycle of six monthly valuations and that means that many currently "valid" valuations are well out of date (in a falling market). The Housing Corporation encourages applicants to vigorously research and challenge valuations. But that is not quite the same thing as disallowing them in the first place.

We must remember that an awful lot of people have jobs in all these agencies and to some extent their jobs must rely on not rocking the boat. However on balance I would say that there is not nearly enough care taken to protect the vlunerable and the naive.

It is also possible that challenging any association which has a history of over-valuation could make it difficult to proceed, on the basis that the challenger is seen as an "awkward" client, but I am assuming this and have no concrete examples to illustrate. The reason being that no association, council or other interest organisation has to my knowledge ever published feedback from its clients. I think it would be a positive thing to do though.

VP

Edited by VacantPossession

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Guest magnoliawalls

My question was sincere - I think there may be a story in this for an investigative journalist.

There probably are some vulnerable people who have plainly lost out and who could be profiled.

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Is that all in the contract?  It is the tenancy rather than the ownership that creates the rules of what she can or cannot do.  If its not there they have no rights whatsoever. That goes for dogs, lodgers, lovers and polar bears (so long as they are neither a protected or restricted species and don't constitute a H&S or environmental risk - you might loose out on that with the polar bear!)

The last bit I wrote is probably not in the contract. What I'm really saying is that in part buy, part rent, the HA seems to have all the power.

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