Negative Equity - Affordable Housing

yaynay

Hi,

Apologies in advance if this has been asked already.

I moved into a 2 bed duplex apartment las May. I got this property under the Affordable housing scheme and purchased under the Shared Ownership Scheme (first mistake, I think ). Basically, I am hoping to sell this property in the new year and buy a house, as we have a 3 year old soon and feel bad that we can't buy him swings, etc. as we don't have a back garden.

The problem: NEGATIVE EQUITY!

We got the property for €215,000 (€107,500 mortgage, €107,500 rent from council). At the time they valued the property at €345,000, therefore we got a 38% off the market value. We have been onto a couple of estate agents and they claim the apartment in currently worth €310,000, however they may value it at €290,000 after Christmas.

Clawback: 38% of €290,000 = €110,200.
Rental half: €107,500.
Mortgage half: €100,000 (approx. having paid the mortgage for 16months)

So from the calculations above we would owe Dublin City Council approximately €317,700, therefore that would leave us with €27,700 negative equity.

So, what happens in a situation like this if we want to sell? Does the council absorb the cost or do they cancel the clawback? I assume at best we will break even on this property and won't make anything?

I appreciate any responses from others who have experienced this, are in the same position or have any advice.

Many thanks.

astrofool

afaik, the council's stake also suffers from negative equity, though someone here will know the exact workings of the AH scheme to help you.

It was not created however for people moving so soon (hence the long clawback period), but just givena quick glance at the figures, you shouldn't be in as bad a position as you believe you are.

Money Shot

I thought that you couldn't actually sell your property for a certain number of years - 8 or so.
I haven't looked it up, but I'm sure there would have been a mechanism in place so that people couldn't just profit take in rising markets. The market is different now obviously, but I'm sure the same rules still apply. Have you looked into that ?

yaynay

Money Shot wrote: »

I thought that you couldn't actually sell your property for a certain number of years - 8 or so.
I haven't looked it up, but I'm sure there would have been a mechanism in place so that people couldn't just profit take in rising markets. The market is different now obviously, but I'm sure the same rules still apply. Have you looked into that ?

Yes, you are permiited to sell the property after 1 year. TBH we didn't get a property through the Affordable Housing Scheme to profit and with a Clawback of 38% we knew that would never happen anyway.

yaynay

Anyone???

jdivision

Read up the clawback process again, reads like you don't understand how it works. Base your calculations on the formula laid out, taking into account the shared ownership formula. My guess is you'll owe about e17,500 because of the shared ownership thing

yaynay

I read somehwere that there's legislation protecting affordable home buyers from negative equity.

I can't remember where I read this, maybe somebody in a similar position can clarify?

jdivision

Will you please read the clawback info and formula, it explains that. You shouldn't be in negative equity based on your circumstances but because you used shared ownership you may have to pay something.

jackal

You only pay clawback on any profits you make up to the market price as it was valued when you bought it. You do not have to pay clawback.

I dont know about the other half though.

podge018

The Council absorbs any negative equity. You'll come out the way you came in.

yaynay

jackal wrote: »

You only pay clawback on any profits you make up to the market price as it was valued when you bought it. You do not have to pay clawback.

I dont know about the other half though.

Are you saying that because the property is now worth less than the market value at the time of purchase, I now don't pay a clawback

yaynay

podge018 wrote: »

The Council absorbs any negative equity. You'll come out the way you came in.

Cheers Podge,

That's basically the answer I was looking for. I remembered reading it somewhere... Although we would have liked to make a profit considering the amount of spondoolies we've ploughed into the place. Ah well, I suppose we're in the same boat as everyone else!!!

jackal

yaynay wrote: »

Are you saying that because the property is now worth less than the market value at the time of purchase, I now don't pay a clawback

Oh hang on I misread...

let me make this clear:

You are not in negative equity

You paid 215,000 and reckon you can sell for 310,000 or 290,000? How are you in negative equity?

You will be subject to clawback in this situation.

yaynay

jackal wrote: »

Oh hang on I misread...

let me make this clear:

You are not in negative equity

You paid 215,000 and reckon you can sell for 310,000 or 290,000? How are you in negative equity?

You will be subject to clawback in this situation.

Because I got the property for €215,000 which was 38% less than the €340,000 that the property was valued at when we signed. Therefore our clawback is 38% of the selling price. So if we sell for €290,000 our clawback will be €110,200. Add to this whatever payments are left on our mortgage and I assumed we'd be in negative equity. However, Podge has now cleared it up; the council absorbes the negative equity when we sell.

The_Conductor

With the Affordable Housing Scheme, the council simply sell you the property at a discounted price (as opposed to the Shared Ownership Scheme where the council continues to hold equity in the property).

If the sale price rises above the original stated market value, when you sell the council get the clawback percentage of the profits. However if the price falls and a clawback due on the sale of the property (excl. fees such as solicitors etc) would put the seller in a negative equity position- no clawback is due to the council. The seller simply gets the price paid by the new purchaser of the property, and nothing is owed to the council (but obviously the seller suffers a loss, being the difference between their original Affordable Price, and their new sale price). The seller is also responsible for any outstanding mortgages or liens which may be placed on the property.

The manner in which clawbacks are calculated is spelt out in Section 99 of the Planning & Development Act 2000 and the Housing (Miscellaneous) Provisions Act 2002, s.9.

Under control of sale of affordable homes, section 3, in relation to the clawback, it 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.

This means simply that the clawback cannot put you in negative equity- not that the council will give you an additional topup cheque to cover the difference between what you actually paid and the price you are now able to achieve.

This is spelt out here (specifically Clause 9 (3) (d))

As the property falls in value the clawback is eaten away, until you reach the price you actually paid- at which time you enter negative equity yourself.

This is one of the reasons we have been harping on at people to get accurate valuations put on AH properties before signing the paperwork..........

yaynay

Great response. Thanks.

DJDC

So let me get this straight, the taxpayer has to pay for the resulting negative equity on this guys home? People who bought into AH should have to accept the consquences of negative equity like anyone else, instead of this welfare free for all. Does anyone have the figures for the breakdown of budget spending by sector? I remember seeing more was spent on housing in 2007 than education. Thats an absolute disgrace!

jackal

Ok, so to summarise the scenarios and what they mean:

In a situation where you pay 200,000 for an affordable house with a market price of 300,000 and sell within 10 years of buying...

If you sell for more than 300,000

• The council keeps: 100,000
• You keep: any profits after the 100,000 is deducted and mortgage is cleared

If you sell for between 200,000 and 300,000

• The council keeps: the difference between what you paid and what you sell for
• You keep: nothing, but the mortgage is cleared and you are debt free.

If you sell for less than 200,000

• The council keeps: nothing
• You keep: you are in negative equity, and owe the bank which provided you the mortgage the difference. You cannot realistically sell in this position.

arctictree

Just an aside - Are we seeing the discounts available under the AH scheme getting smaller and smaller due to houses becoming more affordable due to the drop in prices? I would guess that at some stage if the crash continues, this scheme would no longer be required...

The_Conductor

DJDC wrote: »

So let me get this straight, the taxpayer has to pay for the resulting negative equity on this guys home? People who bought into AH should have to accept the consquences of negative equity like anyone else, instead of this welfare free for all. Does anyone have the figures for the breakdown of budget spending by sector? I remember seeing more was spent on housing in 2007 than education. Thats an absolute disgrace!

The taxpayer covers the negative equity- up to the point where the reduction in open market selling price falls below the price which the original purchaser actually paid- the original purchaser then simply gets whatever he/she can realise on the open market (and has to cover any outstanding loans/mortgages or other liens on the property).

I'm not aware of there being a breakdown on budget spending by sector (particularly in light of the obtuse nature of a lot of AH/SO property expenditure by the different councils (see Galway City Council for example)).

S.

yaynay

DJDC wrote: »

So let me get this straight, the taxpayer has to pay for the resulting negative equity on this guys home? People who bought into AH should have to accept the consquences of negative equity like anyone else, instead of this welfare free for all. Does anyone have the figures for the breakdown of budget spending by sector? I remember seeing more was spent on housing in 2007 than education. Thats an absolute disgrace!

The tax payer does not foot the bill. Why? i hear your ignorance ask. Because the council got the property of the developer for cost price i.e. approx €215,000 which is the price they sold it to us for. Therefore they do not lose anything.

gibo_ie

yaynay wrote: »

The tax payer does not foot the bill. Why? i hear your ignorance ask. Because the council got the property of the developer for cost price i.e. approx €215,000 which is the price they sold it to us for. Therefore they do not lose anything.

And the council gets the money from where then? Taxpayer!!
The only looser is the builder of the house who makes nothing on it.

jackal

yaynay wrote: »

The tax payer does not foot the bill. Why? i hear your ignorance ask. Because the council got the property of the developer for cost price i.e. approx €215,000 which is the price they sold it to us for. Therefore they do not lose anything.

This is incorrect:

A statement from the AHP on the affordablehome.ie forum said:

"Affordable homes are acquired through a number of different delivery mechanisms. That means the local authority can build homes on their own sites and sell them to affordable applicants at a discount because they don't have to factor in the cost of the land, only the cost of the construction and do not have to factor in a profit either, therefore they can be discounted in that way. Other affordable homes are acquired directly from the developer, where the local authority agree to a discounted price. Other affordable housing is provided to applicants where a direct subsidy is paid to the developer and the applicant pays a lower price as a result. Discounts are in the region of 20% to 40% off the market value."

In some cases they get it for cost price, in some cases taxpayers money goes directly to the developer to cover the difference.

yaynay

gibo_ie wrote: »

And the council gets the money from where then? Taxpayer!!
The only looser is the builder of the house who makes nothing on it.

In our case the council bought the property off the developer for €215,000 and the sold to me for €215,000 so if/when I sell the council gets their €215,000 back.

The builder didn't really loose either, because they wouldn't have got planning permission (so I'm told) unless they alocated a certain number of affordable homes in the development. The builders are McCabe's and to be honest I wouldn't lose sleep over them.

jackal

gibo_ie wrote: »

And the council gets the money from where then? Taxpayer!!
The only looser is the builder of the house who makes nothing on it.

You are confusing Social and Affordable housing.

Affordable housing means the people buying the house pay for it. They get it for a reduced price versus the market. The reduced price is acheived by either the council building, the council buying for cost price, or the council paying the difference between discount and market price.

The scheme should be abolished, houses are becoming affordable all by themselves.

However there will always be a need for social housing, and before you start ranting about people being handed social houses, it is common for every government to provide social housing, and of course the taxpayer foots the bill. Its a fact of life all across the world so just leave that little debate alone please.

The_Conductor

yaynay wrote: »

The tax payer does not foot the bill. Why? i hear your ignorance ask. Because the council got the property of the developer for cost price i.e. approx €215,000 which is the price they sold it to us for. Therefore they do not lose anything.

Its Affordable Housing- the Council pay the builder the difference between the Open Market Selling Price (OMSP) and the reduced price at which its offered under the Affordable Housing Scheme to qualifying purchasers. There is a set budget allocated to councils annually for funding the scheme (which has been massively bankrupted certain councils- notably Galway Co. Co.- who agreed to purchase large numbers of additional properties from developers to clear overhangs of property in their areas, in the assumption that central government would give them additional allocations under revised estimates to fund massive expansions of the scheme).

gibo_ie

yaynay wrote: »

In our case the council bought the property off the developer for €215,000 and the sold to me for €215,000 so if/when I sell the council gets their €215,000 back.

The builder didn't really loose either, because they wouldn't have got planning permission (so I'm told) unless they alocated a certain number of affordable homes in the development. The builders are McCabe's and to be honest I wouldn't lose sleep over them.

Well of course the builder lost, had he not to provide social and affordable homes he would have made 38% more on your house alone as you have already said.

Lets use the same theory elsewhere:

Should Tesco or your local corner family owned store be forced to offer cheaper food to people who cant afford it?? Its the same principal, make Joe's Store give food at cost price to lower income people and see how long he stays in business. Spuds cost €120 per tonne (roughly) from the farmer. Sold at Tesco today 5kg = 5.47 so 200 bags = 1 ton. This = €1094 for the store, a profit of over €900 (i know overheads etc but not this much). So lets force them to provide "social and affordable" food, hey how about clothes and cars too??

Yes builders were making money hand over fist for years, but you wernt forced to buy from them. Dont hate them because they are successful.

Let the govt use money to but houses at full cost and ensure people can not sell them for profit ever!! if you want to leave, govt buys back at original cost and then they can give to next person at current resonable pricing.

yaynay

gibo_ie wrote: »

Well of course the builder lost, had he not to provide social and affordable homes he would have made 38% more on your house alone as you have already said.

Lets use the same theory elsewhere:

Should Tesco or your local corner family owned store be forced to offer cheaper food to people who cant afford it?? Its the same principal, make Joe's Store give food at cost price to lower income people and see how long he stays in business. Spuds cost €120 per tonne (roughly) from the farmer. Sold at Tesco today 5kg = 5.47 so 200 bags = 1 ton. This = €1094 for the store, a profit of over €900 (i know overheads etc but not this much). So lets force them to provide "social and affordable" food, hey how about clothes and cars too??

Yes builders were making money hand over fist for years, but you wernt forced to buy from them. Dont hate them because they are successful.

Let the govt use money to but houses at full cost and ensure people can not sell them for profit ever!! if you want to leave, govt buys back at original cost and then they can give to next person at current resonable pricing.

When I sell the property I will end up paying more for the property than those who bough directly off the developer. Those people bought for €280,000. The only difference is that I didn't have to pay a huge deposit.

The Tesco theory you applied, is completely off the mark. In the housing market we're talking about 100's of thousands rather than 100's of euro.

Let me get this straight, this is not some sort of hand-out. We could have took easier options instead we saved hard to furnish our home and pay the deposit required by the council. And our mortgage is still well over 1k per month, I better mention before you pull that trick out of the bag.

yaynay

Some of the responses are a bit frustrating. It seems that people hear the words AFFORDABLE HOUSING and seem to think that it's some sort of free-for-all. It's absolutely not the case. We still pay our mortgage, extortinate management fees, and everything else that goes hand-in-hand being the owner of a property. Maybe it's the word 'affordable' that draws out the vain in people's forehead - i don't know.

If this is how people react to those who are trying to get a foot on the property ladder imagine what would happen if I mention... 'rent allowance'

*hides under the desk.

jackal

yaynay wrote: »

Some of the responses are a bit frustrating. It seems that people hear the words AFFORDABLE HOUSING and seem to think that it's some sort of free-for-all. It's absolutely not the case. We still pay our mortgage, extortinate management fees, and everything else that goes hand-in-hand being the owner of a property. Maybe it's the word 'affordable' that draws out the vain in people's forehead - i don't know.

If this is how people react to those who are trying to get a foot on the property ladder imagine what would happen if I mention... 'rent allowance'

*hides under the desk.

Yes unfortunately people confuse affordable with social housing.

gurramok

And anyone earning under €32,000 can apply for social housing in DCC. Thats how ludricous it has become.