Affordable housing in the current climate

[Crunk]

Hi, I'm just curious as to people's general opinion on whether the affordable housing scheme makes sense in the current climate?

With market values dropping to very near the affordable housing prices are you shooting yourself in the foot by availing of the scheme and all the potential clawback complications?

Better off renting and seeing if the market continues to drop?

 

[AKA]

Reasons against:

1. AH are often the apartments and houses with the poorest aspects
2. Previously you could get 97% mortgage etc but as far as I'm aware banks aren't giving this ratio anymore.
3. Clawback
4. Land registry issue
5. Issue with changing lender
6. Can't rent out the apartment if your circumstances change and you want to leave the country for a short time
7. Can't rent out the apartment if you fall into negative equity and need to leave the property. You can't sell either without sustaining often a huge loss. Here I'm not referring to negative equity on the 'market value', rather negative equity on the AH sale price - this is becoming more common, even when people negotiatedthe 'market value' down a few months ago, they find themselves in negative equity on the actual sale price. Market values were and still are completely unrealistic - it takes 3 months to renegotiate the sale price and by that time the 'market price' has gone down further. The actual market price and AH price are now equal or in some cases, the market value lower. FTB who are anxious to enter their homes and don't really care about clawback as they are just moving in. AH in the current market is now hugely overpriced and the major issue is the possibility of negative equity.
8. DCC are going to sell some AH in Docklands without clawback [broken link removed]
9. Councils are having difficulty selling AH homes under AH scheme and are selling them on the open market. [broken link removed]

I was a huge supportor of AH until recently. The possiblity of negative equity in a place that you can't even rent out now makes AH a bad buy. Even if the current restrictions are lifted, the quality of accomodation that is often offered is at the lower end of what is on offer on the open market.

 

[Crunk]

Thanks for the links AKA and the answer, pretty comprehensive.

 

[Cheeus]

I disagree with your first point AKA. Affordable housing where I bought is south facing, many with double and triple aspects. Some fantastic penthouses. Actually much better aspects than many apartments around us and not as densely built and overlooked as properties that sold for double the price. AH properties in other areas seem to have a good mix of aspects and floors in the case of apts. You can be as well off as open market buyers, it depends on what you get offered.

I agree with your other points. As the market has changed it doesn't make sense to buy affordable unless the restrictions and clawback are lifted. I think this is what will happen. As for renting, if you can't sell and need to be away from your property or can't pay your mortgage, the council have no way forcing you not to rent. At worst they will extend your clawback period.

 

[AKA]

I disagree with your first point AKA. Affordable housing where I bought is south facing, many with double and triple aspects. Some fantastic penthouses. Actually much better aspects than many apartments around us and not as densely built and overlooked as properties that sold for double the price. AH properties in other areas seem to have a good mix of aspects and floors in the case of apts. You can be as well off as open market buyers, it depends on what you get offered.

I've seen a few very very poor examples so it's great to hear that some people did get good apartments.

I agree with your other points. As the market has changed it doesn't make sense to buy affordable unless the restrictions and clawback are lifted. I think this is what will happen.

Another option is if the AH value is discounted by the actual current market value. But in a falling market this will not counteract the issue as I've seen. The council buys the AH from the developer, but is obviously buying them at too high a price in this current market. Or was a fixed price agreed in the past - is that why the councils are disputing the current market value instead of working with the buyer?

As for renting, if you can't sell and need to be away from your property or can't pay your mortgage, the council have no way forcing you not to rent. At worst they will extend your clawback period.

It remains to be seen - I've seen first hand an example where the AH may never be resaleable due to vandalism. Extending the clawback will have no impact, as the value may never recover from negative equity to that of the paid price. Also, AH departments and required legislation moves so slow, existing issues, e.g. changing lender, as far as I'm aware have not been resolved, so I don't see this being resolved anytime soon.

A lot of AH are not suitable long term dwellings and are just a first purchase to get a step on the ladder. The aim is not to make a profit but that you are a reliable mortgage holder. Many single AH buyers don't see themselves, with a family, in a 1 or 2 bed apartment 20 years in the future.

I feel that many AH buyers are not aware of the current issues and implications of AH, and are easy prey for developers who are trying to sell off apartments in building sites.

Another issue, I left out, is the state of management companies in these unfinished buildings. If a person is buying an AH, they include many people who cannot afford the exorbitant management fees that are increasingly common. This occurs as the existing owners cover the cost of maintaining the developer's unoccupied units. There's no legislation in this area. It's worrying for the AH buyer as they are so tied in.

 

[crby]

The problem i would have being a single 25 year old man is that i would find it very hard to ever get the amount of money required for a deposit if i was to not go down the AH route...plus i need to get out of where i am as soon as possible and AH seems like the best option i have.

But like many others i have my reservations now with the current climate!

 

[AKA]

How much of a deposit do you need with AH at the moment? 8, 5 or 3% I know initially you pay a deposit to the council but the rest you pay to the bank, a few months later.

So the banks are still lending 92% for AH buyers, 92% plus, but not for private buyers where there was talk of a restriction of 80% borrowing on apartments? But the market value and purchase value of the apartment are in many cases equal.

I wonder if the bank has a guarantee for any negative equity or defaulters with the council?

 

[Cheeus]

Another option is if the AH value is discounted by the actual current market value. But in a falling market this will not counteract the issue as I've seen. The council buys the AH from the developer, but is obviously buying them at too high a price in this current market. Or was a fixed price agreed in the past - is that why the councils are disputing the current market value instead of working with the buyer?

Yes, I think this is the problem. The prices can only drop so far or the councils will make a huge loss. With councils reported in the papers as having to makeup big budget deficits this week they would never be forgiven for making further losses.

It remains to be seen - I've seen first hand an example where the AH may never be resaleable due to vandalism.

I think this is a general issue where someone buys in an area with a history of anti-social behaviour, or where there is a possibility that units will go unsold. People could also be in this situation if they bought on the open market. I turned down 4 affordable properties in different areas because I was wary of the areas or because I could see too much potential for negative equity. You have to use your head. I think too many people rushed into things and now blame the council. People who make poor decisions on the open market don't have anyone to blame.

I feel that many AH buyers are not aware of the current issues and implications of AH, and are easy prey for developers who are trying to sell off apartments in building sites.

I totally agree. On this one the councils have a lot to answer for. They are happy to sell AH properties to unsuspecting buyers for the same price as open market but with terms and conditions attached. Very unethical given the objective of affordable housing. Buyers beware, but again I'm amazed that people buy without doing their homework first.

Another issue, I left out, is the state of management companies in these unfinished buildings. If a person is buying an AH, they include many people who cannot afford the exorbitant management fees that are increasingly common. This occurs as the existing owners cover the cost of maintaining the developer's unoccupied units. There's no legislation in this area. It's worrying for the AH buyer as they are so tied in.

I think it's actually more worrying for those who have bought on the open market. Most people who have bought through AH in the last few years can sell because they're not in negative equity. Although there is the land registry delay which is pretty bad. Sounds like you can get around it by fastracking your property and still be in a position to have your place for sale within a few months.

I think a huge problem is that the council's themselves are not up to date on the issues. I have rung them so many times after reading a press release re affordable housing and they hadn't heard about it. They were also unaware that properties were selling privately at the same price while they were sitting around wondering why their AH units weren't shifting.

All of the councils have misinformed people over the phone on issues at one time or another, simply because they didn't know themselves. They thought it was all as simple as a one line clawback calculation.

I also think balance is needed though. A lot of AH buyers pin things on the council now, when the fact is that they themselves also contributed to their bad decision. There are also lots of very satisfied AH buyers out there too - I'm one of them, though I did have a few near misses.

 

[Teknon]

The problem i would have being a single 25 year old man is that i would find it very hard to ever get the amount of money required for a deposit if i was to not go down the AH route...plus i need to get out of where i am as soon as possible and AH seems like the best option i have.

But like many others i have my reservations now with the current climate!

Would you not be better off renting somewhere cheap and saving for your deposit ?

 

[Cheeus]

The problem i would have being a single 25 year old man is that i would find it very hard to ever get the amount of money required for a deposit if i was to not go down the AH route...plus i need to get out of where i am as soon as possible and AH seems like the best option i have.

But like many others i have my reservations now with the current climate!

I think the same rules should apply now as before regarding affordable housing - if you really like the area and you really are getting a substantial discount of the real current market value , then it may still be a good option. I suspect that not many people are getting real discounts at the moment.

At 25 though you are still young and have plenty of time to save if you rent sensibly now. There are also other options such as the new rent to buy schemes - just saw them advertised, can't advise on them one way or another.