Can affordable house protect against negative equity?

Z

z101

Guest
A friend of mine has been offered an affordable house in Ringsend. It seems like a good deal to me, but am interested to confirm some of the things he says are the case

1. Under the affordable house scheme the council underwrites the value of the apartment, so if it drops by a 150K and plunges into negative equity, the council will cover him for this loss. Surely this cant be true??

2. He wants to rent out a room under the rent a room scheme and at some point in the future rent out the whole place. Is he allowed to do either of these??

3 He tells me is only allowed to use certain mortgage providers and not others. Surely he would be allowed to find the best deal out there, why would the council restrict him like this??

4. What exactly is clawback? and its relevence in rising and falling price markets
 
Hi,

1. If the property drops to below what your friend paid for the property then the clawback is cancelled out. The whole idea behind the clawback is that you are not allowed to make a profit on the property.

2. He is allowed to rent out a room but not the whole property. He must live in the property.

3. He can contact the following or he can go through a broker and they will contact them on his behalf and organise everything for him:

Bank of Ireland
EBS
IIB
First Active
Haven Mortages

4. The clawback is the different between the price of the property on the open market and the price that he will pay. If the property is lived in for 20 years then there is no clawback. If the property is sold before the 20 years then you have to pay back the different to the County Council. After 10 years it then reduces to I think 10% every year. Please also remember that the County Concils always over value their properties so that there is a bigger clawback when the property is sold. You must get the property valued yourself and send that to the County Council and hope they will reduce their valuation.

Hope this all helps
 
Thanks Delphi.
So with regards to point 1. is he correct or incorrect when he says that the council cover him against negative equity by underwriting the value of the property??
 
If the property value drops below what he paid for it and his mortgage is higher than the selling price, he will still be in negative equity. He is more protected than somebody buying on the open market in that the council share the drop with him. It was previously unheard of for a property value to drop as low as what somebody would pay for it under the affordable housing scheme but it appears to be becoming more of a reality now.
 
Delphi said:
2. He is allowed to rent out a room but not the whole property. He must live in the property.
Click to expand...
There are several existing threads on renting out affordable properties in part (owner occupier rent a room scheme) or full (presumably triggering a clawback if done within 10 (?) years) that might be worth reading.
 
MissG said:
He is more protected than somebody buying on the open market in that the council share the drop with him.
Click to expand...

What do you mean by the council sharing the drop??. From what I see the only protection is the fact that it's less negative equity than if it's bought on the open market valuation. In the event of having to sell for less than the purchase price would you still have to pay clawback??
 
Selling above purchase price but way below valuation & enhancing an AH?

Hi - I'm interesed in the in-between scenario.

Orig valuation by council - €325K
Reduced valuation (by council and bank - 3 months ago) to €300K
Purchase price €220K

A nice 2 bed AH ground floor apartment to live in for maybe 10 years but probably not for life - a few security issues in the area (negative) - residents have active management company when you look on neighbours.ie (positive). Location for work and social life good, no need for car etc. but car parking space provided. (positive)

When compared with the quality of rental properties it looks like a good idea ~ €1200 per month in same area. Quality of rental accomodation available would be substantially poorer in terms of decor and furniture that what you would put in yourself. Also renting for 10 years is not preferable.

Lets say you floor and tile the place for €5K.

What happens when the apartment falls in value, let's say to €240K. Above negative equity but substantially less then the current valuation. Is there clawback still at 25% or is your liability for €220K only. Takes about 3 months for Dublin City Council to go through a revaluation cycle - and during this time the value falls further.

In this scenario any value you put into the apartment (€5K) is completely lost, not the end of the world - can't have it all ways. But let's say you do more work to enhance the place - how does clawback work in this scenario - in positive and negative equity scenarios? Let's say you buy a 2 bed house and put on a conservatory and attic conversion to increase space - but you have another child or two and outgrow the house.

So, if buying an AH that you plan to live in for 10 years or less - what quality of finish would you give it in today's market?
 
Re: Selling above purchase price but way below valuation & enhancing an AH?

The quality that you are happy with. You're the one living there so its up to yourself. I got an affordable apt last year and have pumped in excess of €20K into it. Its all about what you are comfortable with.

If you put an attic conversion and a conservatory then the value will obviously go up but you still have to pay the clawback as far as I am aware.
 
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