Affordable housing and negative equity

C

Cheeus

Registered User
Messages
428
I have searched through various threads and while I found this mentioned in one I did not see a definitive answer.

Does anyone know if you can get in to negative equity with affordable housing? If a property increases in value or stays the same you are liable to pay clawback to the council.

However, if the property falls well below the market value is it true that you would be liable for the remainder of your mortgage only and not the clawback? For example:
- you buy a property at a third of its market value (200k instead of 300k)
- if you go to sell after 5 years you would normally be liable for 33.3% clawback here.
- there is a price crash after 5 years - the market value falls to 200k
- you can sell the property, repay your mortgage and not have to repay the clawback?

Is this safety net really in place with affordable housing? Seems too good to be true?

Any info or referrals to official docs would be very welcome.
 
I bought under the affordable housing in 2002. In the contract there is a section which explains the clawback and provides for situations which would avoid the situation of negative equity. It is not explicit as to the exact method for calculation, it seems that it would be looked at on a case by case basis.

D
 
I am in the process of buying an apartment from Cork city council. I asked them what would happen if the vaue of the property fell below their valuation price and they said that they would take the loss.
 
Thanks for the replies. It has been difficult to get a straight response from the council. I guess admin staff don't know all the legal issues. Another reason to get a good solicitor.
 
I would have guessed the corporation owns the same percentage of the house, whether it has gone up or down in value?
 
You may be getting this confused with the Shared Ownership Scheme, with affordable housing the corporation don't own any percentage of your home they simply sell you the home at a discounted price.
 
The council wiil still get their % clawback regardless of how much the property is sold for... (assuming it is sold within 20 years, % clawback reducing by 10 % for each year after year 10)...

Property bought for 200,000 Euro
Market value is 400,000 Euro
% clawback is 50%

9 years later...mortgage completely paid off

Property sold for 200,000 Euro
Clawback to council is 50% OF 200,000 = 100,000 Euro
Loss = 100,000 Euro
 
Last edited:
Don't you mean a loss of 100k? I don't think this could happen.
However, it highlights the confusion around clawback. A lot of people are buying without fully investigating the implications.
 
Buying on the shared ownership scheme doesn't protect you against the market going down and isn't meant to. It is meant to get you into the property market in the first place.

You can't do any worse on it than if you had bought at market price, because you have not invested the full market price into it. In the below scenario you are losing 100k (affordable housing) rather than 200k (normal market sale). Still 50% of what you paid but the CC also loses 50% of what they put in.

Property bought for 200,000 Euro
Market value is 400,000 Euro
% clawback is 50%

Property sold for 200,000 Euro
Clawback to council is 50% OF 200,000 = 100,000 Euro
Profit = 100,000 Euro
 
Cheeus said:
I have searched through various threads and while I found this mentioned in one I did not see a definitive answer.

Does anyone know if you can get in to negative equity with affordable housing? If a property increases in value or stays the same you are liable to pay clawback to the council.

However, if the property falls well below the market value is it true that you would be liable for the remainder of your mortgage only and not the clawback? For example:
- you buy a property at a third of its market value (200k instead of 300k)
- if you go to sell after 5 years you would normally be liable for 33.3% clawback here.
- there is a price crash after 5 years - the market value falls to 200k
- you can sell the property, repay your mortgage and not have to repay the clawback?

Is this safety net really in place with affordable housing? Seems too good to be true?

Any info or referrals to official docs would be very welcome.
Click to expand...

This subject matter is likely to become ever more relevant if property prices continue to fall and also if examples quoted by the councils for repayment of the clawback are based only on a rising market.

1. <the position in relation to the Clawback is set out in legislation and particularly in Section 99 of the Planning & DevelopmentAct 2000. It is not something the County Council have any control over> (Meath CoCo).

2. <all local authorities use the same formula to calculate the clawback> [email protected]

Re 1. http://www.environ.ie/ (www.environ.ie) >publications>housing>scroll to affordable housing. There are links there to correspondance which should be received by a prospective buyer when offered an affordable home. I think they are worth having a look at, even if it is just to know what to expect should you “win”.

The Provisional offer letter refers to the legislation i.e. the Planning and Development Act 2000, s.99 and the Housing (Miscellaneous) Provisions Act 2002, s.9. The control of sale of affordable homes, section 3, in relation to the clawback, states< Where the amount payable under paragraph (a) would reduce the proceeds of the sale (disregarding solicitor and estate agent's costs and fees) below the price actually paid, the amount payable shall be reduced to the extent necessary to avoid that result>.

So, it seems to me that the clawback itself cannot put one into negative equity, but perhaps there may be a different interpretation of this act. Rosie
 
passat01 said:
The council wiil still get their % clawback regardless of how much the property is sold for... (assuming it is sold within 20 years, % clawback reducing by 10 % for each year after year 10)...

Property bought for 200,000 Euro
Market value is 400,000 Euro
% clawback is 50%

9 years later...mortgage completely paid off

Property sold for 200,000 Euro
Clawback to council is 50% OF 200,000 = 100,000 Euro
Loss = 100,000 Euro
Click to expand...

This is not the case. The legislation behind affordable housing specifically states that if the remaining funds after the clawback has been taken are less than the original price paid to the council, then the purchaser will receive back the original price.

You cannot go into negative equity with affordable housing, whther you purchase by shared ownership or not.

Also, if you buy a house through shared ownership only, you also cannot go into negative equity. This is all in the legislation.


[broken link removed]
(c) Where the amount payable under paragraph (a) would reduce the proceeds of the sale (disregarding solicitor and estate agent's fees and costs) below the price actually paid, the amount payable shall be reduced to the extent necessary to avoid that result.
Click to expand...

Post crossed with Rosiecheckin
 
I talked to my solicitor about this today and he laughed at me. he said house prices/apartments won't come down to the price that were paid for them under the affordable housing scheme. If the price is just slightly over what was paid for it then a certain formula/algorithm will probably be worked out by the council. And they will probably get all profit as they are still making a loss.

if the selling price is more than what the council bought it for then the full clawback percentage algorithm will probably be applied.

that was his thinking anyway. he didn't receive any documents based on this.
 
i was interested in this issue also. I have applied for affordable housing with a number of councils and they seem to have different answers to this question. I e-mailed affordablehome.ie and was told that the clawback applies no matter what price the house is sold for, therefore if the price of the property falls at all, the owner is in negative equity. However, a few councils do state that if the price of the house falls below what was paid for it (affordable housing price), the clawback will not apply.

A1
 
Are we any closer to understanding as to whether there is a chance of negative equity on an affordable home?

My take on things is this:

Buy apartment for 200k with affordable housing
Market value day 1 = 300k
Clawback = 33%

Market value some time in the future = 190k
Clawback 0%
Total losses incurred by purchaser = 10k.

Basically, as the market value of the apartment falls, so does the clawback until it hits 0%.
 
colsku said:
Are we any closer to understanding as to whether there is a chance of negative equity on an affordable home?

My take on things is this:

Buy apartment for 200k with affordable housing
Market value day 1 = 300k
Clawback = 33%

Market value some time in the future = 190k
Clawback 0%
Total losses incurred by purchaser = 10k.

Basically, as the market value of the apartment falls, so does the clawback until it hits 0%.
Click to expand...

Nope thats totally wrong. If the market value falls they will simply take the claw back from the price the property is worth at the time of sale. claw back of 190k if it fell to that of 33% is 62.700 so you would add that to 190k and that is what you would need to pay the council back - grand total = 252,700.
 
Thats incorrect I refer to my example given in the DLRDCOCO post:

Original price = €600K, Your cost €300K - discount 50%

If the price increases - say €700K when you sell you owe the council €350K thats 50% of 700K.
However if the price decreases say to €400K since your €300K is protected, the council is owed €100K. This means as prices drop the clawback is eaten away. If property prices continue to fall to €320K you can get out with just €20K. But if they fall past the clawback mark you'd be into negative equity. It would take a significant fall for this to occur.

The statute I refer to is here:
http://www.irishstatutebook.ie/2002/...ml#partii-sec9
Clause 9-3-d


In an increasing price situation the smaller the clawback the better it is for you and it maybe worth pointing out to the council that the BSQ are overvalued currently to try to lower the clawback rate, the problem being that they might not except this and keep the figure provided by the developer many months ago.

In your example above where the price dropped to 190K you owe no clawback, just the 200K on your mortgage.
 
Guys

section 3, in relation to the clawback, states< Where the amount payable under paragraph (a) would reduce the proceeds of the sale (disregarding solicitor and estate agent's costs and fees) below the price actually paid, the amount payable shall be reduced to the extent necessary to avoid that result>.

That would suggest NO negative equity to me?

S
 
Except of course if the property value drops to less than what you are paying for it!
So in the above example 10K negative equity but in most cases it would be a large drop since most AH discounts are usually 25-50%
 
also, there is also a snag with buying out AH or SO and that is something i found out after trying to buy them out (i suceeded, however it was hard) - and that is, that DCC will not let you buy them out until the property is land registered, which at this moment in time can take anything between 1-3 years. If Northside, If southside it may take longer as there is a freeze on all southside land registerary since October of 2007 due to them passing it all over to Digital Land Registrary. Now with alot of push and shove it can be done before this 1-3 years time frame, but be aware it is in place.
 
Sammie said:
I talked to my solicitor about this today and he laughed at me. he said house prices/apartments won't come down to the price that were paid for them under the affordable housing scheme. If the price is just slightly over what was paid for it then a certain formula/algorithm will probably be worked out by the council. And they will probably get all profit as they are still making a loss.
Click to expand...

with all due respect this is his personal opinion really and not based on any expertise (even though obviously he has in legal matters of course). Besides there is really no such thing as an expert in the property market it is pot luck investing in property anywhere especially in a volatile market such as Ireland! :D
 
You must log in or register to reply here.
Back
Top