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Nasty New Build Trap

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It took me a while to get my head around what this effectively meant, and what the possible consequences might be:

1) They can't get enough people to buy at the 100% price as it's too expensive so provide the ability to "get on the ladder" at a slightly more reasonable price + a fee payable over 10 years. It's essentially house selling by DFS, buy now pay later. The most important aspect of this is it is a blatant admission that they are charging too much, but still desperately want to claw on to any fibre of hope that they don't actually have to lower the price.

2) ...Well that's it actually, GOTO 1)

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Yes it has been marketed before. But not very often.

One tiny detail that eludes everyone is.... even if the house drops to 50% of its price you still have to pay 25% of its original purchase price. So its kind of a double whammy in terms of negative equity....

Orginal purchase £200k

Discounted to buyer by £50k

So you take out a £150k mortgage.

For 5 years you enjoy a dicounted rate and then try to remortgage having paid off £25k of the capital.

But low and behold the market is at rock bottom, and its now worth £150k at full value.

You owe in mortgage terms £125k and owe the builders £50k on top of that.

Sell the house now at £150k and you will have to give all the £25k in equity to the builders and take out a £25k loan to pay off the builders (add on top selling costs).

On the plus side in a stagnating or rising market its 25% at 0% for 10 years. Expect more desperate bids by housebuilders over the coming months.

There a shortage of housing don't you know :P If that were the case why are the housebuilders getting desperate already?

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god who would want to buy a flat anyway. You'd have to pay me to live in a flat again ;)!

These sort of deals appeared in the late 80s.

I wonder what happened next?

House prices rocketed and the purchasers prob sold on their flats 15 years later for massive profits. hmmm - i'll take 2!

Edited by Orbital

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They are getting desparate:

http://media.rightmove.co.uk/17k/16563/165...DOC_00_0000.pdf

Offering £10k discount for moving in quickly. But if won't show up on the asking price stats or propertysnake etc.

Do they really think that someone showing up a few weeks late will pay the full asking? More likely to ask for more that £10k off as it is still for sale.

There are 6 other flats for sale in the development (which is pretty small) and 2 more for rent that have not had occupency since completion.

Admittedly though, Inverkeithing is an armpit.

Edited by CynicAl

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Shared ownership schemes such as this proliferated in the late 80s to boost sales in a stretched market. As already highlighted, the sting comes in the wake of a crash when negative equity ensures the buyer is effectively held hostage. If history is anything to go by, the previous bust/recovery cycle took approximately 7 years so today's buyer better make sure he/she likes the gaff.

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god who would want to buy a flat anyway. You'd have to pay me to live in a flat again ;)!

House prices rocketed and the purchasers prob sold on their flats 15 years later for massive profits. hmmm - i'll take 2!

Conveniently forgetting the crash in between.

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These sort of deals appeared in the late 80s.

I wonder what happened next?

I reckon the prices contiued to boom for ever and ever and ever...

Sorry what's that you're saying?...

No, sorry, can't hear you LALALALALALALALLALAALLAAAAAAA, fingers in ears, LALALALALAALALA

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