Warning to first-time buyers over shared equity schemes

Housing Association Notting Hill Housing offers first time buyers a warning over private sector shared equity schemes

Starved of sales, the dramatic downturn in the housing market is turning the property market into a perilous environment for first time buyers, as private developers offer shared-equity schemes that do not deliver the same level of protection to buyers available through genuine, government funded schemes.

Hot on the heels of news regarding the ‘sale and rent back’ loan sharks reportedly striking thousands of first time buyers, housing association Notting Hill Housing today warns unsuspecting buyers to be aware of suspect shared-ownership deals offered by private developers.

Many make alluring sounding offers, but in reality what lies beneath is murky fine print and deals that can leave buyers severely out of pocket once the initial deals have run their course.

Mark Vaughan, sales and marketing director at housing association Notting Hill Housing comments, "Shared ownership and shared equity schemes offered by private developers are designed to lure in the most vulnerable sector of the market.

“These incentives must be differentiated from those offered by housing associations, which are not offered as a knee-jerk reaction to the credit crunch, but debuted in the 1970s through an inherent desire to help low to mid income first time buyers who would otherwise struggle to afford a property on the open market.’’

Genuine shared ownership schemes such as NewBuild HomeBuy allow first time buyers to invest in a percentage share of a property and pay government subsidised rent on the remainder.

They obtain a mortgage in the usual way on the percentage they have bought - typically starting at 25%. The rent on the remainder is kept at a manageable level due to the government subsidy, something that is not available in the case of all shared ownership schemes offered by private developers.

Vaughan comments, "People may find these deals attractive but in the long term will be saddled with high rent and interest repayments, making repossession a very real threat.

"Notting Hill Housing however offers 'flexible tenure' on its developments, which means that buyers who find themselves in financial difficulty will have the option of selling their percentage back to the housing association and becoming a tenant, rather than going into negative equity and facing repossession. They will not get the same treatment from private developers."

"The bottom line is that private developers will recoup the financial outlay and interest lost through making these offers, and first time buyers will be forced to pay or face losing their new homes." added Vaughan.