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I am not sure that I want to buy yet (for all the obvious reasons) but leaving that Q aside, I'd be really grateful for your thoughts on what you would do in this slightly unusual situation.

I've got a new job that will be starting next year. The job is perfect and we are pretty sure that we are going to stay where we are for the long term. Job is pretty recession proof. In the past we only had short term contracts so wouldn't buy. Now we can. We are both nearly 30, have no kids but are planning them soon. We have built up a huge deposit meaning that with 2 1/2 times joint salaries plus deposit we can afford £300K. Unfortunately we live in an extremely expensive place so this sum only really stretches to a 2 bed flat in nice area or a 3 bed terrace in slightly grotty area. But....

New employer has equity scheme where they will buy with you. If we took about £150-200Kish from them we could afford 4 bed detached in nice area where we could stay for the long term. Scheme means that they part own the house and that they then receive that portion on sale. Alternatively we could buy them out in chunks at an agreed valuation. Would you take it?

There are some costs associated with it: I would take a small salary cut of about 2-3K, cheapest mortgages don't accept the scheme and we would have to pay all maintenance and council tax. Quality of life would be better though.

Any thoughts on this and how far the capital appreciation/risk varies between the two options?

I'm not sure that we will buy anything at this stage but I want to think about what we will do if we do.

Thanks in advance

Sarah

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I am not sure that I want to buy yet (for all the obvious reasons) but leaving that Q aside, I'd be really grateful for your thoughts on what you would do in this slightly unusual situation.

I've got a new job that will be starting next year. The job is perfect and we are pretty sure that we are going to stay where we are for the long term. Job is pretty recession proof. In the past we only had short term contracts so wouldn't buy. Now we can. We are both nearly 30, have no kids but are planning them soon. We have built up a huge deposit meaning that with 2 1/2 times joint salaries plus deposit we can afford £300K. Unfortunately we live in an extremely expensive place so this sum only really stretches to a 2 bed flat in nice area or a 3 bed terrace in slightly grotty area. But....

New employer has equity scheme where they will buy with you. If we took about £150-200Kish from them we could afford 4 bed detached in nice area where we could stay for the long term. Scheme means that they part own the house and that they then receive that portion on sale. Alternatively we could buy them out in chunks at an agreed valuation. Would you take it?

There are some costs associated with it: I would take a small salary cut of about 2-3K, cheapest mortgages don't accept the scheme and we would have to pay all maintenance and council tax. Quality of life would be better though.

Any thoughts on this and how far the capital appreciation/risk varies between the two options?

I'm not sure that we will buy anything at this stage but I want to think about what we will do if we do.

Thanks in advance

Sarah

If they own the house in part does that mean they (i) can veto/have to approve a sale proposed by you? (ii) can have a first right of refusal to buy from you? (iii) accept the risk of losing money if market tanks? (iv) take a charge over the property? (v) are only due their capital money back on sale and not interest or other return/uplift in value? (you mention they "receive that portion" - is that the money they provided initially or a pro rata amount of the then value?

If they are taking an equity position where they share uplift in value they should also accept the risk of falls without having recourse to you. If they just want their money back and can veto a sale if they would not get that, that could stiff you if you needed to sell for any reason or values tanked.

I would feel nervous having more than one creditor in relation to my house - particularly if any "equity" type stake is involved. You lose a huge amount of flexibility and control - and that only really matters when things go bad or you are forced to move/relocate (which is when you most need it!).

What if you leave the company (better offer in future, enforced lay offs for economic/merger/restructuring reasons etc)? Do they leave their funding in place!?

If it is almost "free" money and they cannot control your dealings in the house then it may be ok. If not, you are just effectively increasing your gearing and putting all your hard work in saving etc at more risk (because the same % fall in value (if that occurred) on a bigger property will hit your equity greater proportionately given the value of the bigger house). If they want upside uplift but no downside risk on values I think I would walk away.

Lots of questions - can you let us see the small print/conditions (for general edification) - and maybe you'll get a wider response.

I would probably say no on what I read because I would not want any control over my house residing anywhere but with me nor do I want to disturb the traditional risk/reward balance between my equity and the bank debt. But do try and let the board know more background.

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Hi there Tempest,

thanks for the reply. I've not got a copy of the small print yet as am just in the process of signing contracts etc (and would take the job without this scheme). My understanding is that we would be legal owners but that there would be a trust deed stating that they own x% of the house. This means that they do take the risk of drops as well as the benefits of rises (i.e. if they buy £100K of a £400K property then they receive £125K of the sale proceeds if we sell at £500K and £75K if we sell at £300K) so we would not have a higher gearing than we would if we bought alone.

The option to buy all or part of their share is at our discretion provided that we can agree a valuation. Don't know if they could prevent sale but they can't force sale unless I resign in which case there is a couple of yr window in which have to sell or buy their share. To be honest, I can't see me leaving unless it's for something that makes it incredibly financially worthwhile. This is pretty much the ideal job in my field and the employer is not going to go bust or suffer from economic downturn or merge (very well established, rich, educuational institution).

On the other hand, I do know that costs of maintenance would be ours and any capital improvements (e.g. conservatory) would have to be approved by them. If we make capital improvements then either we split costs along the lines of ownership or the enhanced value of the house is reflected in an increase in our share (i.e. a new trust deed).

Does that sound any more comforting or do you still think no? Obviously I would not enter into this until I had gone through the details with a fine toothcomb but I'm trying to think about whether it is even worth thinking about in principle (we would have to wait till Sep to buy under the scheme and if we're definitely not doing it then we MIGHT buy ourselves this winter when things are slow.

Thanks for your help

Sarah

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Hi there Tempest,

thanks for the reply. I've not got a copy of the small print yet as am just in the process of signing contracts etc (and would take the job without this scheme). My understanding is that we would be legal owners but that there would be a trust deed stating that they own x% of the house. This means that they do take the risk of drops as well as the benefits of rises (i.e. if they buy £100K of a £400K property then they receive £125K of the sale proceeds if we sell at £500K and £75K if we sell at £300K) so we would not have a higher gearing than we would if we bought alone.

The option to buy all or part of their share is at our discretion provided that we can agree a valuation. Don't know if they could prevent sale but they can't force sale unless I resign in which case there is a couple of yr window in which have to sell or buy their share. To be honest, I can't see me leaving unless it's for something that makes it incredibly financially worthwhile. This is pretty much the ideal job in my field and the employer is not going to go bust or suffer from economic downturn or merge (very well established, rich, educuational institution).

On the other hand, I do know that costs of maintenance would be ours and any capital improvements (e.g. conservatory) would have to be approved by them. If we make capital improvements then either we split costs along the lines of ownership or the enhanced value of the house is reflected in an increase in our share (i.e. a new trust deed).

Does that sound any more comforting or do you still think no? Obviously I would not enter into this until I had gone through the details with a fine toothcomb but I'm trying to think about whether it is even worth thinking about in principle (we would have to wait till Sep to buy under the scheme and if we're definitely not doing it then we MIGHT buy ourselves this winter when things are slow.

Thanks for your help

Sarah

Sounds a lot more comforting. One point I forgot though - what if you wnat to move up the ladder, expand your family etc? Because you will have a larger house than you could have afforded on your own, unless you get a similar deal on an upward move, when you sold you would not obtain all the benefit of the general upturn in prices for houses of that size and type and may find the differential to move slightly higher than if you had done it yourself (then again, you would have been in a smaller house if you'd done it yourself!). It sounds like a good way to bridge the gap but just be comfortable about the future!

Edited by Tempest

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This sounds like a symptom of the times to me. I'd rather they just gave me a payrise or a relocation package.

Personal views:

I wouldn't buy a house i can't afford.

Do you both suffer the full extent of losses in the event of falling prices - or is their risk limited?

The benefit of owning your own home seems to be lost. When I finally buy, I'd hate to have to ask big brother before improving MY home. It's not really my home then is it?

What happens if the company goes bankrupt however unlikely that may seem? Would the liquidator be able to force a sale?

Can you be sure your circumstances won't change? Would you be able to hang on (unable to change jobs) through say 10 years of negative equity?

This sounds like a trap to me. Employer's hold over you is too great. Then you don't get the payrise you expected....you're stuck.

Buy what is affordable and represents value. If nothing is affordable, then rent.

Of course, these are my views, if I was in your position. I'm not, so they may not apply to you.

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Thanks for the replies.

I've been wondering whether it is a 'sign of the times' too. I'm not sure whether this is something that will be used more frequently by employers. However, I'd be cautious about drawing too many conclusions. This is an extremely old (read hundreds of years) educational institution with an endowment of at least tens of millions (I think hundreds of millions) so plenty of money to invest and not too much worry over pumping a few hundred thousand here and there into an overheated housing market. They do seem to feel that they have to offer this option to attract decent staff and certainly pushed it when offering me the job. Having said that until about 20 yrs ago they used to buy a house for their staff (i.e. employer owned it for life and staff lived there till retirement). Interesting to see if hapens elsewhere...

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Thanks for the replies.

I've been wondering whether it is a 'sign of the times' too. I'm not sure whether this is something that will be used more frequently by employers. However, I'd be cautious about drawing too many conclusions. This is an extremely old (read hundreds of years) educational institution with an endowment of at least tens of millions (I think hundreds of millions) so plenty of money to invest and not too much worry over pumping a few hundred thousand here and there into an overheated housing market. They do seem to feel that they have to offer this option to attract decent staff and certainly pushed it when offering me the job. Having said that until about 20 yrs ago they used to buy a house for their staff (i.e. employer owned it for life and staff lived there till retirement). Interesting to see if hapens elsewhere...

hi,

In a global economy it is difficult to see how a company could absorb such costs. Alot like the pension scheme commitments that many firms used to provide in the past but then found out it was making them uncompetitive, so were dropped without warning. If that is your only way, consider it. You will definitely loose out mind on having control of your own tax affairs. most company benefits get taxed at income tax rates now. If this doesn't, then I'm guessing it is a loophole. Gordon has a track record of closing loopholes as soon as he sees them. The Inland Revenue really clamped down on 'income-in-kind' a while back. If you don't get hit for tax now, you will later on. It is better to get the ball back in your own court, get the money instead of the benefit and employ your own accountant to work out your own individual tax affairs. you will be alot better off in the long run. You know the saying, "the only things you can't avoid in life is death and taxes".

Boomer

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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