Is shared ownership a safe way to get on the ladder, or a risky pitfall?

[GhoulsFold]

We're due to receive a sizable lump sum of money (approx £40k) which we intend to use for a deposit on a home. We've rented for too long now, suffered bad landlord after bad landlord, and this is our chance to FINALLY get on the property ladder.

We live in an area where the cheapest 3-bed family home (what we will require) is around £250k. Properties at this price will usually need a fair amount of updating and work doing to it, or it will be very small. A property that's considered 'ready to move in to' or decently sized is moving towards the £300 - £350k range.

We'd struggle to maintain a comfortable standard of living if we bought a house at the £300 - £350k end. But we don't have any other back up savings set aside to renovate and update an older property at the £200 - £250k end.

So we've been considering shared-ownership / part rent part buy schemes. But having read up on these options I've discovered some concerning reviews from other shared-ownership buyers who say they wish they'd never bought via this scheme, that its all a big con etc etc.

Are there any other shared ownership buyers here, or mortgage advisers, who can give me some honest opinions / advice before we throw thousands at something we could possibly regret. The money is inheritance, we'd be devastated if we wasted this money on a silly scheme.

[Whitney168]

Don''t know your set up, but could you not look at buying a property with at least one additional bedroom and having a lodger for a while to make the mortgage more comfortable (assuming you can get the mortgage you need).

I would rather be in this position and be in charge of my own destiny than be restricted by shared ownership (although no direct experience, I think most of the issues come when selling on again?).

[BubblesBuddy]

I am really interested in this topic too for DD.

[Whitney168]

Think my reply may be useless LOL, managed to miss the bit that you need a 3-bed.

[ColdFeetWarmHeart]

I bought a 1 bed shared ownership flat when I was 21. It was the best thing for me to do at the time. This was in early 2008 before the crash so I managed to get a 100% mortgage as well as having monthly repayments less than renting would be, and my total bills weren't vastly more than when I house shared.

However in your situation, with 40k deposit, I would do everything possible to buy a house on the open market.

1. You'll have a much bigger choice on houses and areas
   
2. New builds are not without their issues. Small things house builders should deal with within the defects period but anything outside of that will be up to you. I had to replace boiler after less than 5 years as the cheapest available had been installed by house builder
   
3. Rent will go up with inflation, even if the value of the property decreases (which a new build probably will)
   
4. You'll have access to a larger range of mortgages if buying on open market. When going for shared ownership the housing association will more than likely push you to use a certain mortgage lender / mortgage advisor.
   

I would take a serious look on rightmove to see what you can buy for 250k in your chosen area (and maybe a little outside of it) to see what you can afford, how much work needs to be done etc. Some houses may just need cosmetic work that you can tackle yourself bit by bit, or renovations that can be done in a few years time.

[GhoulsFold]

@Whitney168 unfortunately its a 'no' to lodgers. We are a family of four - 2 adults with 2 kids. We may have more children in the future. Both DH and I, before meeting each other, experienced letting rooms to lodgers, only to get burnt (non payment of rent / abusing the home / disagreements etc). Its not something we'd ever consider now.

[GhoulsFold]

@ColdFeetWarmHeart
"3. Rent will go up with inflation, even if the value of the property decreases (which a new build probably will)"

Oh wow, that's seriously food for thought. Thank you. I hadn't realised new builds would ever DECREASE in value.

Why would a new build decrease in value though?

[blue25]

If it means buying a new build, then I'd avoid it. New builds decrease in value as soon as you move in, because you're paying a premium for buying 'new.'

[ColdFeetWarmHeart]

I think in general all new builds decrease in value initially. You're kind of forced to pay a set price that is fixed by the builders, rather than putting in offers etc. Also with a new build you tend to pay a bit of a premium for it all being brand new etc.
If you take a look at rightmove for local developments you might see what I mean. There is one that is about 20 minutes from me. It's a very large development that it is phase 6 or something now. The new houses for sale in the newer phases are quite a bit more than the resales from phase 1 and 2, even when the size of the property is the same or similar.

[GhoulsFold]

@blue25 "because you're paying a premium for buying 'new.'"

Ah, I see. I didn't know buyers paid a premium for new. Hmmm?
Definitely re-thinking this now...

[trixymalixy]

I was listening to a radio program about shared ownership and I wouldn't touch it with a bargepole. Rents on the shared part had increased much more than inflation and were becoming unaffordable.

With your deposit I would want to own outright.

[Hsmumma]

We have just bought a new build property, we have been ok but a number of other people on the estate have had loads of problems.
We aren't shared ownership but did look at one when we were deciding what we wanted, in my opinion it didn't work out any cheaper as the rent was that much on top of the mortgage it would of cost us more and we'd have nothing to show for it.

[silkybear]

I wouldn't do it because I think new build are shit, poor build quality, tiny rooms, no way to add value. Can you increase your search area and consider moving slightly further out? Also register with lots of agents and go and look at lots of properties. Agents often line up stuff for clients already on their books before they even get posted online, so you get ahead of the game if you are registered with them and they know you have deposit ready.

[Magstermay]

Can you not use some of the 40K for renovations? Even keeping 5K aside can be very useful especially if you're prepared to fo much of the work yourself. Depending on the property not everything has to be done straight away.

[TheCelestialFox]

I've got a few friends who have bought shared ownership. The main problems they had were:

-unable to sell after house prices dropped.

• unable to rent it out (it's considered subletting) so they couldn't move, one friend was stuck in tiny apartment with 2 kids for ages, other had to move for work and ended up paying for old house for a few years even though she wasn't living there any more.
  

-housing association kept putting the service charge up, without being able to account for the extra cost. One friend and her neighbours ended up taking HA to court over this.

[RedBlu]

We purchased our shared ownership house about three years ago now. For us it was the best way to get onto the housing market and unlike what some people have said on here the value of our house has actually gone up, it's now worth roughly £15-£20,000 more than what we paid for it, but that is mostly due to its location and the fact it's a small development.

We bought the maximum amount of shares and the rent combined with our mortgage is actually less than has we got a full mortgage.

So long as you are aware you cannot rent the property out, have to pay for all repairs and when buying more shares/the rest you have to pay the HA's fees, etc - I don't see the issue. It seems most of the people who say it's a con are the ones who didn't realise the "rules".

I would check though if you have £40k in savings, you might not be "allowed" to purchase SO as they have savings limits - so if you can afford to buy on open market, you don't get priority

[guilty100]

I would go for a well-chosen property at the lower end of the spectrum and do the work gradually if necessary. Save some money back to get the major stuff done right at the start (electrics, central heating) and then do the cosmetic work at your own pace, as and when you can afford it. There are worse things than living with crappy carpets for a bit!

Another thing to consider is whether you could buy a cheaper 2 bed and then do an attic conversion. In some areas this can work out better financially, but you have to be very clear about the costs. Don't underestimate the roominess of some terraces, either. In many, you get more space than a semi.

[Nowifi]

We bought a shared ownership as it was literally the only way we'd ever have a house. I agree with PP the price of our house has risen already.

The drawback is the rent side as they have put this up already and we've only been there a year, but like I said it was the only way for us and still better than renting privately, we feel more secure now.

[hubbahun]

I have a new build shared ownership flat and it's lovely. The view that new build are small and noisy is so outdated - mine is massive and so quiet and warm, and economical. Very modern.

The choice for me was to move either far away and buy a run down one bed I'd have to spend a fortune on (and I would have zero funds post purchase to do so).

Or to buy a new two bed near my friends and near my work in London near a cross rail station.

I value my life more than property investment so chose the latter, and I have equity and security to boot.

I also have a brand new boiler, and appliances. Anything gets fixed under snagging and stuff is guaranteed. This was a massive advantage to me as again, post purchase had no money to buy or fix anything.

£30k got me a 15% deposit and the fees and expenses to move.

I can't see re selling being too awful as it's a popular location, but I guess I'll find out. There are no guarantees with anything

[TollgateDebs]

Don't go down the shared ownership route. I bought a shared ownership flat, at height of market, in my early 20's. The rent was nearly as much as the mortgage, it was a nightmare getting maintenance on shared areas / landscaping and as for insurance! The value of the flat went down (luckily, so I could sell) and I would never have been able to afford to buy the HA out, as the value of the half they owned would soon have outstripped my ability to buy it. Also had a great many weird and onerous terms and conditions, which led to a great deal of conflict between us sharers and the HA.

[hubbahun]

ps there were no savings 'limits' for the property I bought or any that I looked at

There were minimum and maximum salary limits

They want people with the biggest salary and biggest deposit to ensure you can afford it! It is not social housing for the poor

[JoJoSM2]

In my opinion, shared ownership is better than renting. However, owning outright is even better. Shared ownership can be a bit of pain to sell and there are many restrictions imposed. The mortgage interest on those properties is higher and you still have to pay rent on some of it.

I know you have 2 children and would like a 3-bed house but I would consider other options to help you get on the ladder. For example, perhaps a two-bed house would suffice or you could buy a 3-bed garden flat on a budget? That way, at least you'll be on the ladder. Your monthly outgoing are likely to increase (with mortgage payments a fair but lower than rent) so you would be able to save more. You would also pay the mortgage down. In 5 years, with more equity in your house + additional savings, you could be in a position to move to a 3 or even a 4 bed. I think I'd do it that way- one step at a time.

And yes, there's a premium for having everything new and shiny with a 10 NHBC warranty. The day you move in, you often lose 10% or more.

[JoJoSM2]

• monthly outgoings are likely to decrease

[scaredofthecity]

My cousin bought a SO flat about 10 years ago, just before the crash and paid well over the odds for it. They tried to sell it for 2 years and eventually made quite a significant loss. They're now living in rented and probably can't afford to buy again. This is in the SE but not that close to London.
I wouldn't do it unless you had no other choice, and especially be wary of new builds. They are definately not guaranteed to increase in value.

[GhoulsFold]

Some very interesting and thought provoking advice from both sides of the coin. Thank you, I'm glad I asked.

I think, as the majority have said, that as we will have a decent sized deposit maybe we should just look to buy at the lower end of the market and do it up over time... this, however is where it will get difficult for me trying to convince DH. He has a list of 'musts' that our next home should have (big enough kitchen or a dining room for a table, garage, decent sized garden, off-road or non-permit parking) and its unlikely we'll get that at the lower end. A lot of compromises and sacrifices are going to have to be made.

[scaredofthecity]

we bought last year and had to make a huge amount of compromises, I found the whole thing very disheartening. But it doesn't really matter now as we're got our house. It isn't quite where we wanted, but we have settled now and have met many others in similar circumstances, and made friends fairly easily.
The only thing I wouldn't compromise on was having room for a dining table, no way was I eating tv diners on the sofa!