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

Shared ownership is most suitable as a last resort for people who otherwise would have no way of getting onto the property ladder. There are lots of disadvantages to it and new build houses are the ones most likely to fall in value.
It doesn’t sound like you need a 3 bed yet. So I would buy a cheaper 2 bed that is not shared ownership, preferably not a new build so it holds its value better for when you come to sell.

I wouldn’t do it. At your age you are still very young to buy a house compared with average so you have plenty of time to save and buy a whole house yourself.

The cons of shared ownership are:

• responsible for all the maintenance on a property you only own a portion of
• “Staircasing” is rarely a reality for most people owing to the fees involved and the fact that you have to buy the next %age at current market value.
• your rent can go up at the will of the landlord in the same way as renting. If you default on your rent you can still be evicted even though you own some of the property.
• Even if you did manage to staircase to 100%, the property would still be leasehold which means you always need to pay ground rent and, like all leaseholds, you don’t really own it properly.
• They are incredibly difficult to sell on as you have to agree the selling price with the housing association who owns the remainder of the property. They often want to price it higher than is appropriate.

Honestly it’s a good option for security for people in more precarious situations eg. Late 30s/early 40s and still not on property ladder, low income and kids but at your age you should just wait a bit longer and buy a whole house

@CateringPanic the rent cannot go up at the will of the landlord. Rent increases are capped and this is specified in the lease. There is no way you could compare this with the conditions of the rental market, which is indeed through the roof. Also, you pay reduced market rent on the share you don't own. For my friends property this would be 1,100 for the whole flat compared with 1,900 in the open market.

It probably depends on where you are as well. I wouldn't buy a SO house in London but I would buy a SO apartment there. It would be no trouble to sell. If somewhere quite remote I'd probably reconsider and avoid SO altogether.

It may not be the best idea for you now but for those warning against it, sometimes “look cheaper and smaller” just isn’t an option. It really is the only way to get on the property ladder and it offers more security than renting forever.
I have a couple of single friends (professionals - think teaching or nursing) They can’t go smaller than a one bed flat and they’re tied into the area for various reasons. In these situations, shared ownership is the only option. It can work.

I also owned one, started at 25% and staircased to full 100% in 5 years. Sold on open market, was snapped up and made 70k equity.

Even if I'd remained at 25% I still would have walked away with some cash.

Totally recommend it.

It’s a scam in the main, giving the illusion that everyone can afford a property. Agree with @SerenChocolateMuncher Avoid at all costs!

And before Id bought 100% I was able to get a new bathroom suite via the HA as they covered the building contents insurance and the damaged sink fell under their responsibility.
Rent increases were low, not sure if this due to the HA being charity/socially responsible as they truly did what was best for tenants rather than using them as a profit stream.

Is it possible to but it outright after 1/2/3 years etc if so do it and you won’t regret it. If you can’t buy it outright think long about it as if you resell as shared ownership the buyers need to meet area criteria etc so it’s not ‘on the open market’. Good luck!

I have a shared ownership and was able to staircase to 100% only with family help and improved salary.
Pros- no risk of landlord kicking me out, have been able to decorate as I please, I could rent out my spare room (covered over 70% of costs)
Con- I almost got stuck at 80% when mortgages stopped covering houses with cladding- 80% would be impossible to sell no one would want shared ownership if they could afford 80%, was so lucky that I managed to get to 100% so can now sell on the open market if I want to. Read the terms and conditions very carefully- basically all the risk and cost is with you, not the HA.

Sounds fab

Read up on the new model of Shared ownership. its removed most of the issues anyone has mentioned on here.

If it’s the only option other than renting, then I agree it can work ( better than renting).
However, this is not OPs situation - they are looking to buy a 3 bed SO as their first home, which makes no financial sense in my opinion.

I am in shared ownership and it worked out OK for me. I could never have afforded to buy otherwise. The rent and mortgage combined is still half what I would pay for a private rental. Ignore the post about some of your payments going to rent and only a little bit to the mortgage repayment, they are totally separate. I have my mortgage on 50%, and I pay rent and service charges on the other 50%
I am very lucky in the house I have, it's lovely.

If I was still renting I would not have the security of a long term home.

Drawbacks:
I cannot sublet (but I can have a lodger).
If I wanted to go elsewhere for a couple of years I would be very unlikely to be allowed to (and cannot rent my house out while I'm away).
I have to fund improvements and repairs myself, but if they lead to any increase in value the housing association benefits from 50% of that when I finally sell.

Unless I buy the house outright I will be paying rent on retirement. Note that some housing associations have a clause that you can never buy outright, only a max 90%.
If I want to get any significant work done eg an extension or solar panels, I need the housing associations permission. They have been known to not agree to owners borrowing money to improve the home - eg they might give permission for a mortgage increase for a new boiler but not to renovate a bathroom.

If it's for a few years to get you on the ladder it's a good idea.

All the shared ownership homes where I live sell very quickly, they are snapped up.

It can be helpful, but it can also have pitfalls. There is a price premium when they are new, so look to buy one that isn't new to avoid that. Some things to check:

1. Local authority text on reclaiming the property for non payment; you need them to commit to telling your lender so that you get your deposit back of the property is taken for non payment of rent: https://gatehouselaw.co.uk/protection-for-lenders-under-shared-ownership-leases/. Related - pay rent before mortgage if there's any issue.
2. % you can buy and staircasing: work out total costs to buy and look at common local area sales; you might struggle more to sell 75% than 25%, because people decide to just get a smaller full home.
3. Sales; check number of sales, time on the market for anything still on and sale prices in the area carefully, to ensure it's not too hard to sell on when you've saved money and want to buy somewhere outright instead of buying the proportion.
4. Other tenants; visit all days and times of day, plus speak to neighbour. You don't know what noise issues there might be if you don't check.

We lived in our flat for 8 years at a 45% share. We had our ups and downs but it was a lovely flat and repairs were all covered, as it was a new build. We took care of it, built up equity and were able to buy a house at the end.

Our only frustration was that the HA had lots of requirements for buyers when we came to sell, however we eventually found one.

Thank you this is very useful!

It looks like the worst of both worlds to me.

Also, the property won't increase in value like other ones might as anyone looking at it will think "It's surrounded by other part buy/part rent houses" - ie people on special schemes/at the lower end of the earnings ladder.

Oh I agree with you in the OP’s case.

It’s the blanket “oh it’s the worst” when some people have only the option of renting or shared ownership. I know which one I would choose!

I also love that on these threads the negative comments generally come from people who've not actually used the scheme and have a limited (often incorrect) understanding on how SO works. Each scheme is very different and the OP needs to research and go in with eyes open.

I'm assuming their income allows the choice to buy outright. Bully for them, but not helpful when for some, it's the only option available to buy.

It doesn’t really sound like you’re in the “squeezed middle” bracket to be honest as shared ownership is aimed at lower earners. Do you think you’ll be able to afford to buy a full property in the future? You’re only young so if so I’d suggest waiting and saving up a bit more and buying your own place outright, which will give you more freedom. It’s very hard to say without knowing you income/deposit/average prices in your area.

We had a shared ownership on a lovely estate. We had it for 3 years and made £19,000 on the property value (pre covid)

We were allowed to do anything we wanted to the property despite it being leasehold. We had to ask permission first. They even allowed a conservatory but we decided to move instead.

The best thing was that when we came to sell up - there was a queue of people wanting it and we could sell privately without estate agents. And to a FTB. So we saved thousands in estate agency costs!

They'll always be in demand!

Like you, we were wary of them before buying. But it was the best decision we ever made as the equity we made and the profit allowed us to buy the most beautiful home :)

I don't think Shared Ownership is for low earners. You still have to pass affordability checks, be mortgageable and have good credit scores (the Housing Association still have their own affordability checks and an interest rate stress test)

Mine was £300k ish full value and my neighbours was £600k full value.

I think the bad reputation seems to come from people who remember shared ownership plans from the 90s.

I had a SO flat for about 6 years. The rent and service charge went up every year, from about £500/month to about £900/month, so bear that in mind.

I did sell it quickly, though, and made around £60k equity, so worth it in that respect. Selling does depend on the person being accepted for SO by the scheme owner, though, which could delay things or make it difficult to sell.

It’s not for the “squeezed midddle”. It’s usually those who want the luxury of a newer home but can’t afford a new home.

personally I’d buy something I can afford

Just to add another perspective. I work in architecture and the construction of shared ownership properties in recent years has been getting better and better with new building regs.

Just a decade ago, shared ownerships had poor building materials and silly layouts. They were often very different compared to the 100% private houses on the same estate. More likely to hear next door, smaller bedrooms, poor quality turf and kitchens etc

These days they are in such demand that the quality of each build is much better than ever before and building material quality has improved too so better sound and heat insulation!