Shared ownership as an option for the ‘squeezed middle’

[lousong]

We’re in our 20s trying to start out
For some reason shared ownership works out as cheaper than buying on the open market but we’ve been warned against it because of the fact you’d be buying a leasehold property
Our wages are likely to go up in the future but not anytime soon. Some lovely shared ownership 3 bedroom houses have come up locally. The area is convenient, family orientated and safe, and house prices are rising in this area quite fast (so would likely gain equity). We are going to struggle to purchase outright - we would meet repayments but it would be very tight and to the limit of the stress test. We would be paying about 500-550 mortgage a month and 250 rent. Could it be worth it to gain equity? It’s unlikely to be a house we could stay in forever, but a place for the next 5-10 years. We have secure employment but I am trying to think for the future in terms of taking maternity leave possibly in the future and dealing with reduced income, we wouldn’t be able to pause an 100% mortgage but we could potentially get help with the rent element of a shared ownership.

YABU - avoid
YANBU - worth it

We live in a shared ownership house in a lovely village we couldn't afford otherwise. Been here over 10 years. The rent side has gone up a fair bit but with our mortgage is still far cheaper than renting on the open market and we've built up a decent equity in the house. It's worked really well for us.

That’s so great, are you planning to stay there forever?

Not forever, I don't want to be paying rent on a house when we are retired (quite a long way off still!) but it's been great for bringing up DC and getting on the property ladder in some way.

If it works it works! So nice you’ve been able to buy in a nice village too

I used to work for a housing association that built homes for shared ownership. Things might have changed since I gave up work, but if they haven't, I would not recommend this type of tenure for anyone unless they had no other options.

This is how it was then (and might still be):

Shared owners enjoy none of the benefits of home-ownership while shouldering all the disadvantages.

1. You are still a tenant, but
2. You pay full market rent on the portion of the property you don't own and
3. You are responsible for paying the full service charges, including on the portion if the property you don't own.
4. You are entirely responsible for short-term, long-term repairs and improvements. Including on the portion of the property you don't own.
5. You are likely to be limited in any changes you want to make to your home while it is part-owned by the housing organisation.

You also have none of the benefits of being a tenant such as responsive and maintenance repairs and general improvements carried out without any additional cost to you. Nevertheless, you will be expected to carry out and pay for anything that needs doing in a timely manner. The housing organisation will take swift enforcement action against you if you allow upkeep to slide (for example, if you don't have enough money to pay for work).

If at some stage your financial status improves, you can buy more of the property. However, don't expect to buy it all at once. Many (if not most) housing organisations only allow you to buy in bits. They call it staircasing. You will probably be limited to buying in several stages (25% of the value at a time, for example). Each step is a long and costly process and you will have to pay the housing organisation's legal costs as well as your own at every step. You will then have to wait a set period of time before you can buy another "step".

This means, if the housing organisation uses 25% per step staircasing and you buy 50% of the house at the start followed by two staircasing "steps", you will go through three purchasing stages and have to pay six lots of legal fees (yours and theirs) before you become homeowners.

At each step of the staircase you will have to share any increase in equity with the housing organisation, so you would pay 25% of the market value at the time you "staircase". If the value of the property goes down you will still have to pay 25% of the original purchase price for each step so the housing organisation doesn't lose out.

I would definitely suggest you look at other options (cheaper area, smaller house) if you can. This is a very expensive way of buying a house.

Excellent post from SerenChocolateMuncher, remember also that you cannot sublet part of, or rent out a shared ownership property. They really offer very few of the genuine advantages of home ownership

I think it's better than renting, despite all the above very good points. But it's unfortunate that of the elements you pay each month, most of it goes on service charge, rent, then mortgage interest with only a small amount towards equity. You'd need to stay there quite a while.

Be aware that if the HA rules you could buy on the open market you may fail assessment.

My colleague had a shared ownership house, took him 4 years to sell. It was a lovely house but it did put people off buying.

@SerenChocolateMuncher some of the things you say from your experience are the same eg paying for repairs etc although there haven't been many! We did have an issue in the first few years of a leaking ceiling but this also happened in 2 other houses and as it was a new build it was sorted out well by the HA and everything was paid for as well as a free redecoration.

I had a shared ownership flat prior to this house and was able to buy the whole thing outright in one go rather than staircasing in the way you suggest... in chunks. For this one we don't need to only buy 25% at a time either.

We've never been told to do any upkeep etc, no one comes around to check, in fact the HA are very hands off and we never hear from them apart from the account letters we get sometimes.

I'm sure there are some HA where they are more difficult but we haven't had any issues at all.

I am in a shared ownership flat as I literally could not get on the housing ladder without it.. It’s fine and more stable than renting BUT if you can buy outright I would do that instead. My rent and service charge are eye watering!

SO is a good option as long as your salary is likely to increase and you'll have a chance to buy the rest. I know someone who bought 35pc and has paid off the mortgage for that after a few years. They are now just paying rent and service charge and are able to save quite a bit of money every month to either to buy another share outright or go to 100pc with a new mortgage. It's a nice position to be in during a cost of living crisis. FYI they pay around £400 per month rent and an identical apartment has just been rented out for £1,900. It's crazy.

I'd actually suggest that it's worth selling rather than owning more than 50% of a SO property. There's a much larger resale market for a 40% share than say 75%.

@AndIKnewYouMeantIt it depends what someone values. You can sell and go back to renting or sell and take out a crazy mortgage. Or you could stay put and enjoy a period of relatively low housing costs whilst deciding what to do and perhaps enjoy the lack of any financial pressure for a while. Save for a nice deposit and/or buy another share outright whilst house values aren't going up but interest rates do.

We did it for 5 years. Made quite a lot of equity and then bought on the open market in a cheaper area. However we sold about 7 years ago when things weren't so dire. I'm not up to speed with the market so not sure whether this is still am achievable possibility, aside from paying down the mortgage.

I was agreeing with you. It makes more sense to pay off the smaller percentage mortgage then save, rather than staircasing, just like your friend has done.

Most people think it's advisable to own a large majority share. I would only staircase if it was to own 100% of the property.

I know a woman who cannot sell hers after moving out to be with her DH 15 years ago.

Wouldn't touch with a barge pole myself.

We've advised our dc against. Around here they are crappy new builds that are on the market for far too much when you factor in the cost of buying 100% it's far more than the equivalent cost of other houses.

It's also a piss take that the monthly cost of mortgage plus rent is considered affordable, but the equivalent amount, just for a mortgage isn't. Someone is making a lot of money out of this and it isn't the homebuyers.

Thankyou

I know someone who is looking to sell their shared ownership flat purchased 7 years ago as a new build (zone 2 London). After getting a valuation, it seems it has not increased in value but the rent they pay has increased notably in that time.

True, but many people buy shared ownership because they can save 10% of 30% of a £270k house, but not £27k.

We had an utter nightmare selling our SO home after the council tenants in the next road were awful (drugs, late night screaming, one even had a petrol bomb put though their letter box) and the Housing association didn't want to know. No I'm not a snob but you cannot control who is housed near you in other affordable housing. This was also a lovely family friendly estate in a quiet town btw.
We also missed out on the 50% equity for the half we didn't own. The rent was a waste of money.
I bought it as it seemed more affordable at the time, before I met DH. This was 14 years ago and I'm older and wiser now, no way would I do this if there was anyway I could afford not to.

I sold a shared ownership flat last year and made a lot of equity. Selling is more complicated than with outright ownership. But lots of my friends have done shared ownership and only one has had a horror show selling, many had potential buyers biting their hands off (especially as second hand SO is normally better value than a new build).

Unless you need flexibility I think it’s nearly always better than renting. The question is whether you could buy outright with a few compromises. Personally I decided that living in zone 2 by myself was a hundred times better than renting a flat share or buying something crappy in zone 6.

I had one as my first house. Had it 5 years. Took no time to sell. 4 viewings 2 offers. Made a 30% profit on my portion when it sold too. I think it's a great idea for those starting out

This is good to know

I have a shared ownership house, there's no way I could have afforded to get on the housing ladder otherwise.

For me the pros outweigh the cons, the rent and mortgage combined are around £500 a month which is a lot less than it would cost to privately rent. The house is new and made to be economical for example it has solar panels and it's well insulated.

It is annoying that I'm responsible for all the repairs etc but given it's a new house <touch wood> that's not been an issue so far, bar a few minor things.

I'm in a good area and it meant my dd went to a decent school.

I've been here 7 years and I think in that time I've made around 50 k in equity. My plan is to eventually use that as a deposit on my own home.

My neighbours have all managed to use their homes as a starter home and use the equity to buy their own home so it can definitely work.