Affordable Housing Clawback

warrenaldo

Hi folks, just wondering if anybody knows anything about this. With all the talk in other threads of an iminent crash. and house prices dropping.
How does the clawback work in this case?

Lets say you purchase a property for 200k - its actual value is 400k. prices fall and your property is only worth 300k now. reduction of 25%.

If i sell the place for 300k - how much clawback do i pay. is it still 50%?

SkepticOne

Yes, 50%.

I think if there was a major crash the rules might be changed though.

randomer

When you sell an affordable house you are supposed to pay back the full clawback amount. However if there is a crash and the price of the house falls this may not be the case.

As long as the proceeds of the sale of the house cover the mortgage, you will not be left with negative equity.

For example, you purchase a house for €200k, with a market value of €400. You have received a 50% discount and when you sell the house are liable to pay back 50% of the sale price.

If there is a major crash and you sell the house for €200k, you should be liable to pay back €100k (clawback) and also the amount outstanding on the mortgage.

If there is €190k outstanding on the mortgage, they you would have to pay back the mortgage amount €190k and the remaining proceeds €10k and you could walk away.

The purpose of the clawback is to try to stop people trying to make a quick buck by buying an affordable home and selling it on at a massive profit quickly after. It is not there to penalise home buyers.

warrenaldo

randomer wrote:

For example, you purchase a house for €200k, with a market value of €400. You have received a 50% discount and when you sell the house are liable to pay back 50% of the sale price.

If there is a major crash and you sell the house for €200k, you should be liable to pay back €100k (clawback) and also the amount outstanding on the mortgage.

If there is €190k outstanding on the mortgage, they you would have to pay back the mortgage amount €190k and the remaining proceeds €10k and you could walk away.

So if i had paid off 50k ie - 150k outstanding on the mortgage. then the remaining proceeds 50k would go to government.

That means that there is no benefit to paying off your mortgage early.

that does not sound right to me.

CherieAmour

This is my understanding of it....

Lets say clawback is 50%. You buy the house for 200k, you sell it for 300k. The difference is 100k therefore you owe them 50% of this, i.e 50k. You pay this back to the council along with whatever is outstanding on the mortgage.

If the sale of the house ends up costing you money, then the council takes this into account. If you bought it for 200k and sold it for 200k there would be no clawback to be paid, just what is outstanding on the mortgage.

warrenaldo

ye thats what i was thinking happened. was just looking for clarification really.

anon 4000

-

Philbert

I spoke with the SDCC about this today and they have confirmed that its the clawback % regardless of whether the house price goes up or down.

So if the house is bought with a market value of €300,000 & 50% clawback, you pay €150,000. 5 years later the market value is €250,000 you must give the council 50% of this which is €125,000. Therefore both parties loose out on €25,000.

So CherieAmour I dont quite understand what you mean by "If the sale of the house ends up costing you money, then the council takes this into account."

Can you please clarify?

And SkecpticOne, what makes you think it might change?

Thanks..:)

CherieAmour

You must pay the % clawback on the difference between what you bought it for and what you sell it for, not 50% of the market value.

If clawback is as clean cut a figure as 50% then a good example would be as follows:

-You buy for 150,000 you sell it for 450,000 you owe 150,000 (50% of the difference) less what you have paid back in mortgage.

-You buy for 150,000 you sell it for 200,000 you owe 25,000 less what you paid on the mortgage.

As far as I know there are provisions where if you are selling at a loss, the council take this into account, but I don't know in what sense. I only heard that this is in the contract on another thread that's going here.

Philbert

I think you are all over complicating things! Taking mortgages out of the equation, I believe it is a clean cut case of the Clawback % of the market value as per my example. Whatever amount you have paid off your mortgage is your own business and doesnt have any relevance other than to you.

Here is a cut & paste from the Affordable Housing FAQ:

An Example of How the Clawback Process Works

• Let’s say you purchase a new apartment (which has a market value of €200,000) for €100,000. We have therefore provided you with a discount of 50%.

• Let’s say that you then sell this property, within 10 years, for €300,000. SDCC will be due 50% of €300,000 (which is €150,000). It is as simple as that!

• After 10 years, there is a sliding scale which reduces the amount of clawback due to the Council. After 20 years, you do not have to repay any clawback to the Council.

jobless

Philbert wrote:

I spoke with the SDCC about this today and they have confirmed that its the clawback % regardless of whether the house price goes up or down.

So if the house is bought with a market value of €300,000 & 50% clawback, you pay €150,000. 5 years later the market value is €250,000 you must give the council 50% of this which is €125,000. Therefore both parties loose out on €25,000.
QUOTE]

so if the house was worth 300,000 to them but then the market value falls to 150,000....does this mean if you sell you have to give them 75k? if u paid 150 for it?......that doesnt seem right

CherieAmour

Ok. I'm totally confused now. I had a look at that site Philbert, and got this from it:

John and Mary buy a home for €196,000 with a clawback of 30%. If they sold their affordable home for €330,000 after five years, the clawback would be €99,000 (30% of €330,000). They would have to pay back €99,000 to the local authority.

They would also have to repay any money owed to the mortgage lender to clear their mortgage.

So, John and Mary give the council 99k. That leaves them with €231,000, but they have to pay the council the amount outstanding on the mortgage they have with them. If their mortgage was 95% of the house price, €186,200, and they only paid 5 years worth off it, they wouldn't be left with much out of the sale would they??

You say Philbert that "Whatever amount you have paid off your mortgage is your own business and doesnt have any relevance other than to you." but clearly it does have relevance if it impacts on the amount you must pay back resulting from the sale of your house.

Incidentally, this wouldnt really stop me buying one, I wouldnt be considering it as an investment property, but rather a home to make a life in and therefore wouldnt be planning on moving out within a few years.

The_Conductor

CherieAmour wrote:

Ok. I'm totally confused now. I had a look at that site Philbert, and got this from it:

John and Mary buy a home for €196,000 with a clawback of 30%. If they sold their affordable home for €330,000 after five years, the clawback would be €99,000 (30% of €330,000). They would have to pay back €99,000 to the local authority.

They would also have to repay any money owed to the mortgage lender to clear their mortgage.

So, John and Mary give the council 99k. That leaves them with €231,000, but they have to pay the council the amount outstanding on the mortgage they have with them. If their mortgage was 95% of the house price, €186,200, and they only paid 5 years worth off it, they wouldn't be left with much out of the sale would they??

You say Philbert that "Whatever amount you have paid off your mortgage is your own business and doesnt have any relevance other than to you." but clearly it does have relevance if it impacts on the amount you must pay back resulting from the sale of your house.

Incidentally, this wouldnt really stop me buying one, I wouldnt be considering it as an investment property, but rather a home to make a life in and therefore wouldnt be planning on moving out within a few years.

CherieAmour-Its not that difficult......

I'll rephrase what you were quoting from.

Tom buys a house through the Affordable Housing Scheme for 200k. It has an open market value of 400k. After 3 years he sells it for 300k (a reduction of 100k on its original open market value, but still 100k more than he originally paid for it).

The clawback due to the council was agreed at 50% originally.

Tom now has to pay back to the Council 50% of the sale price of the house (i.e. 50% of 300k = 150k) and still owes whatever is outstanding on his mortgage (possibly 180k for arguments sake).

Tom has effectively lost 30k through this transaction (and the council have lost 50k, the other 20k difference being what was paid off on the mortgage).

The affordable housing scheme was never intended as a manner of helping people profit in the housing market- its sole intention was/is to house people, that is to put a roof over their heads. Certainly people's circumstances change- they may have children or whatever, but they should have factored this in when purchasing the property initially- not at a later date suddenly decide that their house is no longer suitable for them.

Its difficult for anyone to pay their mortgage- the affordable housing scheme helps with a lower cost price house. In a falling market that asset which is being purchased is loosing value. That loss in value is being split between both the council and the original purchaser- often, as in the case above, the council may be accepting a larger portion of the loss than the purchaser. Thats life. My house has fallen 80k in value since last summer. If I go to sell it, I accept that loss in value (it will still be worth a little more than I paid for it, by virtue of when in the cycle I purchased- but not an awful lot more).

The affordable housing scheme *does not* insulate people from the vagaries of the property market- it simply assists them in purchasing their property. After that- its a market economy, prices may rise or fall. Its a risk that you have to accept. If you are not willing to accept that risk- do not buy a house full stop, either on the open market or on the affordable housing scheme.

In the above example Tom lost 30k. However he had a roof over his head for 3 years, and no-one put a gun to his head and said that he had to choose that particular house over another one that would better suit his circumstances a few years down the road. He took a risk, he rolled a dice, he gambled and he lost. Buying property is a gamble. Hell living is a gamble- every time I open the door I could get mown down by a bus. You calculate the odds of things happening- and then you *plan ahead*.

If you are buying a house- is it likely to be suitable in 3 years time. No? Then don't buy it- regardless of the price, rent. If you are only buying it because of the price- then you are taking an irrational gamble that may or may not come to pass. Unfortunately humans are not very rational creatures.

Philbert

CherieAmour wrote:

You say Philbert that "Whatever amount you have paid off your mortgage is your own business and doesnt have any relevance other than to you." but clearly it does have relevance if it impacts on the amount you must pay back resulting from the sale of your house.

Hi Cherie,

Actually I realise now where we were getting our wires crossed. I am on the affordable housing initiative and my mortgage is not with the council, it is with a bank. So thats why I made the above statement, because in my case its really not relevant to the way the clawback works.

We are both right, just looking at it from a different angle. smccarrick's post sums it up perfectly.

CherieAmour

It is all becoming clear now

SMcCarrick, as I said in my post: "this wouldnt really stop me buying one, I wouldnt be considering it as an investment property, but rather a home to make a life in and therefore wouldnt be planning on moving out within a few years."

From your post it appears that you think I am complaining - I'm not. In fact, I feel very strongly about those looking at aff housing as an 'investment'. I see it as a way to give people a 'home' not a 'property' and anyone who views it otherwise is not entering into the spirit of the scheme.

The_Conductor

CherieAmour wrote:

From your post it appears that you think I am complaining - I'm not. In fact, I feel very strongly about those looking at aff housing as an 'investment'. I see it as a way to give people a 'home' not a 'property' and anyone who views it otherwise is not entering into the spirit of the scheme.

Sorry, if I came across as narking......
You are perfectly correct- the scheme is intended as a way to give people a home, and those who view it as anything else are not entering into the spirit of it. A lot of people see a home these days as a passing purchase that they will change a few years down the road- that they are "getting their foot on the property ladder and will move when they get the chance". They simply do not factor in that the subsequent move may not that easy a thing to do (particularly in a falling property market). It is very important to choose a property very carefully before buying- its not something to take lightly......

warrenaldo

CherieAmour wrote:

This is my understanding of it....

Lets say clawback is 50%. You buy the house for 200k, you sell it for 300k. The difference is 100k therefore you owe them 50% of this, i.e 50k. You pay this back to the council along with whatever is outstanding on the mortgage.

If the sale of the house ends up costing you money, then the council takes this into account. If you bought it for 200k and sold it for 200k there would be no clawback to be paid, just what is outstanding on the mortgage.

CherieAmour - you are giving conflicting views in this. from this quote - earlier in the thread you mentioned that a house valued at 400k - i buy at 200k. house price drops by 200k. then i dont lose out if i wanted to sell for 200k. the council does not take any clawback.
maybe i am misinterpreting - but i dont think so. how come your view changed. did you read up or ???

CherieAmour

warrenaldo wrote:

CherieAmour - you are giving conflicting views in this. from this quote - earlier in the thread you mentioned that a house valued at 400k - i buy at 200k. house price drops by 200k. then i dont lose out if i wanted to sell for 200k. the council does not take any clawback.
maybe i am misinterpreting - but i dont think so. how come your view changed. did you read up or ???

It's all in the thread!!

....Philbert directed us to Affordable Housing FAQ and when I went on the website I realised where I was going wrong. I then published what I found there headed by a statement that I was totally confused. Then I said I would still buy regardless which in my book is an acknowledgement of the fact that I was now citing the correct information but it would not affect my decision to purchase.

I can't really see the confusion, I think the thread reads well

CherieAmour

smccarrick wrote:

Sorry, if I came across as narking......
You are perfectly correct- the scheme is intended as a way to give people a home, and those who view it as anything else are not entering into the spirit of it. A lot of people see a home these days as a passing purchase that they will change a few years down the road- that they are "getting their foot on the property ladder and will move when they get the chance". They simply do not factor in that the subsequent move may not that easy a thing to do (particularly in a falling property market). It is very important to choose a property very carefully before buying- its not something to take lightly......

No problem! Agreed.

I wouldn't want anyone to think I was one of those investor types viewing it as a get rich scheme (:D ) and depriving families, who want to use it for the purpose it is intended, of the opportunity of having their own home.

warrenaldo

searching the web for info on this i came across another thread discussing the exact same thing. makes intresting reading. still not sure the situation tho.

http://www.askaboutmoney.com/showthread.php?p=401195