25% shared ownership purely to get on the property ladder, am I mad?

[MrsTrustice]

I’m a single mum to an 11 month old. Ex contributes financially and practically. We were renting together but after the split I had to move back in with parents. Parents are brilliant and don’t ask for a penny but I give them half of my part-time job wage and the rest is on DS, my car and basic personal care stuff for myself. I want to get on the property ladder. I have bad memories of being moved from pillar to post as a child as my parents private rented (they now own after an inheritance). My parents have 2 extra rooms so not a cat in hell’s chance of a council property.

I have a few years worth of savings, £5k. Won’t get much of a mortgage at the moment but plan to go full-time soon and would be earning around £1100 a month. My wage along with money I get for DS (ex is great and pays a lot more maintenance than he has to) with outgoings calculated make me think I’ll get a £40-60k mortgage.

I’m trying to work out if I stand a hope in hell, even with shared ownership. I’m in the NW. The properties I’m looking at are something like this:

www.sharetobuy.com/properties/162696/

People have warned me about shared ownership but I keep thinking surely it’s better than 100% rent, hence why I’m asking. I know that realistically, I’m a single mum still living with my parents on a terrible hospitality wage and I should just accept that I’m not the type of person who gets to own in this country, but I have an urge to own my own place (even if just a %) and I feel like I have to do it.

Would I be getting myself into a world of shit or is it a good means to an end?

As long as your overall monthly cost with shared ownership is a decent bit less than rental on similar property than it's worth it. It seems like that may be the case here but I'm not sure what equivalent rent would be.

The equity is so low it's almost not worth considering with 25% shared ownership.. it's really just about having low rate of rent on the other 75% that's where the benefit is(if there is any).

That’s something that did bother me, the equity I’d have is so tiny.

It would be cheaper than renting 100% though. I’d get a nicer area, a new build rather than renting somewhere not very nice. I’d consider the mortgage as putting away the money for the future (would be praying I don’t end up in negative equity!). The mortgage would be my savings pot if that makes sense.

So when my financial situation hopefully improves, or I end up in a long-term relationship and come to want to move on, I’ll hopefully have at least some equity to put into a better place.

The alternative is rent 100%, and the higher rent along with all the other bills that come with leaving my parents putting me in a position where I’m not able to continue saving on top of the £5k I already have.

And for example if there was a rent property exactly the same as that link, with the same monthly cost, I feel like I’d still be better off having the 25% mortgage? Purely because (providing no housing crash/negative equity) that means once I’m ready to move on I get 25% of what I put into living there back. Otherwise I’d get bugger all. And there’s the security of knowing there isn’t a landlord to sell up and turf me out.

Well it says total monthly cost is around 475. (Keep in mind this doesn't include any internal property maintenance costs that would be included in rent but should be minimal for new build)

So what would comparable rent for? If it's 750+ then obviously do the shared ownership...

Is the property leasehold or freehold as some new build houses are leasehold and there may be service charges on top of the rent and mortgage.

If you do decide you want it I would recommend you buy the biggest percent of the freehand you could afford and the if the mortgage plus rent is still cheaper than renting privately, overpay your mortgage with the difference.

Do you have the ability to buy more if the property if you get in a position to do so ie increase from 25% to 40%? What happens when you want to sell? You'll need to be clear on how it all works before making a decision.

It sounds like a good option to me if private rent is same or more. The value of where I live has gone up 70% from when I bought 10yrs ago. It's not shared ownership, but still, if the property value increases, you're getting more bang for your buck if you own part of it and not just paying rent.

OP, I did shared ownership for my first property - that was about 25 years or so ago now. I also only owned 25%.

I absolutely recommend it if the figures stack up for the property you're looking at. Don't forget your share will increase if the property value increases - you will own 25% of the property value so if you think the property value will increase it's actually a good investment.

Also, even though your equity will be small, a quarter of your monthly payments will be going to your investment, not 100% in a landlord's pocket. I think that's better that nothing and it's a great first step. When I had my shared ownership flat, I could decorate it how I wanted, no landlord visits etc - it felt exactly like owning my own property.

As long as it's not more expensive than renting, I would say go for it. For me, the hike in property prices meant I left with enough money to get a full mortgage and property when I moved. Good luck!

@ExhaustedFlamingo.

Exactly. I get to keep 25% of my rent and invest it in to the property. So it’s not just about it being cheaper month to month than private renting. I don’t plan on having any more children while living there or anything like that, so my financial situation will only improve as well as I find a better job, DS goes to school and I don’t need as much childcare etc. Even if small, the 25% would surely help when I want to move on.

I know the area and think it is going to be gentrified further.

The other option is open market with Help to buy where the government loans you the deposit, its interest free for 5 years.

My FIL is in a low wage job but bought his house through shared ownership in 2007. He's frugal so he'll have it paid off completely within the next 2 years. He couldn't have done that without shared ownership, in my eyes its much better than renting! Worlds apart!

Also, once I’m ready to move on I’d probably go for an older house so wouldn’t have the new-build premium to pay either, so it’d be easier to ‘move up’ so to speak. If I could use buying schemes on an older property I deffo would.

@MistySkiesAfterRain.

Yeah, I’m in the very early stages of researching that. I also wondered about Help To Buy Shared ownership and getting a larger share of a property but I think that may be too much to commit to. So it’ll be one or the other likely.

Who pays if the property needs any repairs? Just you or is that shared too? That is a big advantage of renting.

OP definitely have a long hard look at the figures.

Exactly. I get to keep 25% of my rent and invest it in to the property. So it’s not just about it being cheaper month to month

A LOT of your mortgage payments towards the start of your mortgage are actually paying the interest. It might only be half of your mortgage payment that is going off against your balance

Also with shared ownership you are liable for the full cost of any repairs. If the roof needs redoing you could have a massive bill.

Could you stay with your parents for a while longer and really try and save every penny?

I don't mean to be discouraging, I have a friend who bought shared ownership and the figures don't particularly stack up for her.

I’d get yourself on a register for social housing. I see couples get it where I live.

As for shared ownership: it’s a scheme that has run its race. 25:75 sounds shit, and no way it’s going lower than 25%, people aren’t that stupid. Plus the govt is starting a new scheme where you can get a 50% discount on a property if FTB. As I see it this is shared ownership without the rent, which will leave a pretty sour taste in the mouths of those who are in shared ownership, even if the availability is rubbish.

I think shared ownership properties are potential harder to sell. I would only move there if you are likely to want to stay there for a long time.

@Worstnight21

OP definitely have a long hard look at the figures.

Exactly. I get to keep 25% of my rent and invest it in to the property. So it’s not just about it being cheaper month to month

A LOT of your mortgage payments towards the start of your mortgage are actually paying the interest. It might only be half of your mortgage payment that is going off against your balance

Also with shared ownership you are liable for the full cost of any repairs. If the roof needs redoing you could have a massive bill.

Could you stay with your parents for a while longer and really try and save every penny?

I don't mean to be discouraging, I have a friend who bought shared ownership and the figures don't particularly stack up for her.

Where are you going to rent brand new 2 bed for 475?.. it's brand new property won't need a new roof for a couple decades at least... The biggest benefit of shared ownership is the rent on the other 75% is waaaaaaay below market rent. That's like 90% of the benefit. Lower cost than renting.. like I said in my first post forget about the equity portion and just evaluate the total cost compared to renting.. if it's significantly cheaper than go ahead. Forget about the equity until it's time to move on and if you get some money back that's a bonus.

You could think of the shared ownership as being like a long term rental where the landlord can't kick you out.

@parietal

You could think of the shared ownership as being like a long term rental where the landlord can't kick you out.

Yes exactly with below market rent.

@parietal

You could think of the shared ownership as being like a long term rental where the landlord can't kick you out.

Absolutely. Buying a property isn't just about potential long term increases in value. These are not guaranteed. It's also about having a secure home base where you can't be given 3 months notice to quit. That happened to a friend of mine recently. She was in her 60s and had rented the same lovely 3 bed semi for 16 years. The landlord wanted his daughter to have the house (which is fair enough) and my friend and her husband ended up homeless and spending Christmas sleeping on a bed in their daughters living room.

My shared ownership has a scheme where you can buy an extra 1% a year for 15 years at a fixed cost based on the original price, irrespective of how much it goes up, with no fees.

The main pains are service charge costs, can be high on new build flats, but mine includes the boiler and I never have to spend time on repairs.

Also everytime you want to buy an extra 10% you have to pay solicitor fees, and go through all the admin, its like the gift that keeps on giving.

You can get a nicer property than 9n the open market, that's a big consideration, but look carefully at build quality. NBs come with 10 (soon to be 15) year building warranty for defects.

Interest rates are very low atm so its a good time to buy whatever you decide.

Hope it works out for you, OP, but are you sure you’d qualify for it financially? Don’t want to discourage you, but in the S/O where I live (South East so eye watering expensive for most types of property tbf), I would be expected to earn as a (newly!) single person a minimum of £31,000 for the smallest flat.

I did this. I have bought 50% and now have enough to buy another home in the next year or so. I wouldn't have been able to afford a home of my own any other way.

Like a previous poster says, it's about long term security too.

It works out about £150 a month cheaper than renting in our area, but beware of service charge - mine is a house so is quite cheap, but if you're in a flat you might find this increasing.

I'd rather save for my own property tbh, I know it's hard, but 25% is not on the property ladder as you only have 25% of the property.

It's absolutely worth it. I've done it, and or was great. A new build lovely property for less than half market rent, even including mortgage payments and service charge.

It's often a stepping stone, so you could buy another property outright later on, or staircase up your ownership percentage.

The security, and cheaper monthly costs, sounds like it would work well for you.

Shared ownership often gets a hard ride on here. I bought my first property in my 20s in London. It was 50% shared ownership and after a few years I owned the full 100%. It allowed me to later jump up the property ladder with massive equity. If it's the only ownership option you could afford I'd go for it with the aim to staircase up to full ownership as soon as possible.