Share to buy houses?

[NewMum2021x]

Can anyone give me some info on share to buy houses? Where we can put down for example £4K for 40% share? It seems appealing but also too good to be true? Can anyone give me an honest opinion and also just state the pros and cons? As seems a good way to get onto the property ladder? Thanks :)

Shared ownership has a lot of negatives. As well as the mortgage payments you also have to pay rent each month for the bit you don't own. Worth considering maintenance etc too.

It can work for you, but there are pitfalls.

How much is 100% of the property worth? Compare it to similar properties not in the scheme in the local area - I am sure it will be sold at a premium. You would have to weigh up whether that will be worth it for you, comparing the amount of time you expect to stay there etc.

Additionally, the cost of a mortgage (especially if you've only put down 5%), plus rent on the 60%, plus maintenance (not unusual to be £200+ a month) could be prohibitive. It would inevitably be much more expensive than just the cost of a mortgage on an older property.

There can also be restrictions or difficulties in selling. I can't speak to those as my friends who have sold have all had good experiences. I am aware others have had poor experiences though.

4K for 40%! Where do you live?

They can be a good option if you can't get a full mortgage.

Shared ownership is becoming more popular, it's. Even around for years but really taking off now. It means you can get a larger house for your money.

4K for 40%! Where do you live?

@Fiddie Presumably that is a 5% deposit on the 40% mortgage, which would mean that the property was worth £200k in total. (Assuming the total mortgaged is £80k, then there's £120k rented. I hope my mental maths is right).

It does seem cheap, but that will depend on where you are and what the property is.

I did shared ownership and it worked for me for a first home. We bought 50%. We were in a position where our circumstances were going to change enough to buy out the 100% within 5 years. We wanted a house that could work for changing circumstances, better or worse. Net cost of mortgage + rent + service charge was £150 less than private renting the same size property. Until you own 100% you're paying for an assured tenancy with all the maintenance costs of home ownership. Not too bad if you are buying a new build as then you have developer warranties to fall back on.

We were planning on buying 100% at the 3 year mark. Because of the stamp duty holiday we fast tracked a house move and upgraded property instead of buying the other half.

It certainly has it's place, but be aware of what you can afford. It does tempt people into properties they can never afford 100% of. There is a new model coming out soon that may change things.

They can be hard to sell if your Housing Association enforces certain restrictions. We were lucky and they didn't, so our sale was easy and flexible.

Make sure it is possible to buy 100% and freehold of a house.

Be very wary of flats and their service charges.

@Fiddie I'm in the East Midlands. It's only a two bed home. But the total cost is £147,000 (I think!) rent £350 and mortgage £200 equals about £550 which is the same as renting a 1 bedroom flat in my area so I am just debating it at the moment

@ClaudiaWankleman so it's a two bed house which costs £147,000. £4K is for 25% share but we would maybe eventually just buy the rest of it when we have the money, I'm just debating it at the moment as the repayments of rent/mortgage together is £550 which is the same as a one bedroom flat where I live

@MyDucksArentInARow thanks for your reply! The total cost of the house is £147,000 and the £3k/4K deposit is for 25%. When you say freehold... what did you mean by this? I'm useless with this type of stuff but the repayments would me the same cost of a one bedroom flat in my area so seems tempting and a good way to get onto the property ladder. In regards to getting all the info I need to make sure nothing will go wrong is there a specific type of person I could speak to before going forward with anything?

Not sure who would be right for thorough advice, perhaps an independent financial advisor who has experience with Shared Ownership.

Freehold means that you own the land and building of the house. It's in contrast to Leasehold. Leasehold means you lease the right to the land for the duration of the lease. Whilst a SO property is below 100% they are leasehold. Depending on the contract, depends on if you will be given the freehold at 100%. You want to be given the freehold. If you're not, then you may have to pay extra to buy it, or be unable to obtain it.
If you're unable to obtain it then you may struggle to sell if the lease is below 80 years, be subject to ground rent/service charge, and have to request permission to make structural alterations.
Being leasehold in the first place isn't a huge red flag for shared ownership because they all are. But the red flag is there if you're not automatically given the freehold at 100%.

If you're going to buy 25% with a 3k deposit, and a 32k mortgage. How do you intend to buy the other 75% later?

When you're working out if it is better than renting, don't just factor in the monthly costs. You also need to factor in costs like mortgage product fees, advisor fees, solicitor fees etc. If you plan to Staircase (buy more shares) you have to pay for a valuation, your legal fees and the fees of the housing association. So it can cost a few 1000 each time. So you don't want to do it in small chucks (might be different under the proposed new model that will come out in the near future).
So if you could buy a house without SO in the next 5 years, it may be better to wait.

Please also be aware that the rents increase. Some contracts will put it as high as 5% per year, so if you don't have much room in your income to accommodate this, it could become an issue.