Wednesday, May 25, 2005

Shared Equity

So, the government has started their third term with a couple of controversial ideas; ID cards and Shared Equity Schemes.

I don't think I've talked about ID cards before but I have to say I wouldn't mind having to carry one. I don't accept the argument that it will tackle terrorism but I can see that it would help to stop benefit fraud and the like. Having said that, I would not be happy about being forced into paying the best part of a hundred quid for one. You shouldn't have to pay for something you have no choice over, in my view.

Anyway, what I really want to write about is the announcement by the Chancellor that the government will be setting up Shared Equity Schemes to help first time buyers get onto the property ladder. On the face of it, it's a really good idea, taking some of the burden of debt away from homeowners, but when you get down to it the scheme doesn't look as fair as it should.

The key is that the government or mortgage lender who takes on a proportion of the debt then owns that proportion of the house and accordingly gets that share of the property value when you sell on, regardless of whether the price has gone up. That may not seem quite right but if you shared the cost with a friend that is exactly what would happen. But that is where it starts to get unfair.

Say you're in a shared equity scheme and that the government has a 50% stake in the property. When you move in, the kitchen is in real need of refurbishment and the garden needs some work. You spend a total of £3000 over a couple of years getting it done and that adds £5000 to the value of the house, on top of any increase due to the market. When you sell on, you realise only £2500 of that increase in value, a net loss of £500 on what you put into it. The government has made money from your hard work and spending. The same occurs when you're talking about necessary repairs, such as a leaking roof. You end up spending more money on the property than the other party and yet they still get half the resale value.

I'd love to see someone trying to explain how that can be fair.

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