Buy shared ownership?

[Potentiallyplausible]

My DD - 25 - lives at home with us -zone 2 London. She earns 33k. We don’t charge her any rent or board, because we’d rather she saves. She wants to buy a shared ownership resale flat, one bed, also in London. It’s about 78k for a 30% share, 109 years on the lease, so she’ll need to pay mortgage, rent, service charge, council tax, utilities, etc etc. She also has a car that she runs. She’s also doing a master’s degree part time. While I completely get that a young adult would like their own space that’s theirs, this seems madness to me. If it was a two-bed, then at least she could rent out the other bedroom. She doesn’t have a partner, so it’ll all be on her. I think she should stay at home - double bedroom, garden - for longer so she can save more money and at least get a two-bed in a year or so. She has history of making impulsive decisions that she doesn’t fully think through, and this would be an expensive one to get wrong. Any thoughts?

I don't think she'll have saved enough for a 2 bed in zone 2 in a year on 33k.
The traditional issue with shared ownership is difficulty selling them later down the line. However, shared ownership in London is different to the rest of the UK IME because they get snapped up really quickly when you come to sell them. She'll build up equity and make money on the increase in value, and learn to have her own space. As she pays it off she can usually staircase (buy additional % share in the property). I know someone who staircased all the way to 100% ownership in about 5 years but that was on two incomes.

The only thing to be wary of is whether it's a "fair rent" shared ownership or not (you'll only really know this by knowing the area and comparing the rent portion on the property to the rent on comparable properties). In theory the rent portion should be a bit lower than market value and affordable but I've seen some in the past couple of years where the rent portion was higher than it should cost to rent the whole thing! Also, when they do affordability checks they will check she can afford not just the mortgage repayments but also the rent portion which reduces drastically what she can borrow.

Thank you. She’s passed the affordability checks for a one-bed and is at the viewing stage. She’s looked at three so far, and more to come. It won’t be zone 2, I don’t think. More zone 3. She can do two beds now further out - think Croydon - but she’s not keen.

I agree with you - it’s madness. She’d expect to pay roughly £1K a month for the rent, mortgage and service charge. Add another £500 for council tax and utility bills, plus she’ll need a rainy day fund for when things like boiler pack up, and she’ll want to get some white goods. Her take home, assuming she makes at least minimal pension contributions, is a very average £2.1K per month. She would only have a few hundred pounds left as disposable income after all bills and food are paid for.

Why in earth is she running a car living in zone two?! Clearly she’s not great with money.

I agree it sounds like she would be financially stretched.

Also with 109 years on the lease she would probably want to pay to extend the lease at some point. A one bed shared ownership flat may gain less value than a two bed or non shared ownership flat.

Does she NEED a car? Even apart from the running costs, she will be losing money with depreciation. So many people living in Zone 2 don't have a car.

Long term will her salary increase?

She’s actually quite good with money. Apart from her car, she has no outgoings at all. And when she was a student living outside of London, she saved money. But yes, running a flat entirely on her own I think is a huge push. She’s trying for new jobs up to 40k right now, by hasn’t been successful so far.

We, her parents, don’t have a car in zone 2. Her car is an example of what I say is an impulse decision that I think foolish. But she can easily afford it. She would give it up if push came to shove. It only cost about 3K, but with residents parking and all the rest, that mounts up.

She can only afford it because she doesn’t pay you anything, so has a huge chunk of disposable income, which won’t be happening anymore should she go ahead with this shared ownership plan. She should have a big chunk of savings by now or is quickly on the way there. I just don’t understand why she can’t do the maths here or is she not bothered about only having a drastically reduced amount of disposable income if she goes ahead? I would encourage her to find a houseshare, like most people her age in London live in. She could still save at least £700 per month if she gets rid of the car and build her deposit up more.

When you say the car only cost £3k, that's the purchase price, right? What about insurance, road tax, petrol and servicing? I added up my car costs recently and it's about £130/month. (I don't use it much so petrol costs are low.)

I don’t know the ins and outs. It’s her car. I don’t think she should have got it, though.

The car seems like a luxury especially in inner London. If she wants to prioritise her independence maybe that is something to consider. However I suspect she will be locked into a finance agreement. I also fear she will tie herself into a situation with shared ownership which makes it tricky to move on.

Yes, I agree. Her savings are about 60k right now. She doesn’t go out clubbing and partying and drinking and buying clothes. I just think a one-bed is a very bad idea. And then there’s her student loan to think of… Some of the flats aren’t much bigger than her bedroom at home. But she has it all worked out with spreadsheets and financial calculations and says she can afford it.

No finance agreement on the car. It’s an ancient Nissan micra.

Why are so many people picking apart OP's daughter and making judgemental comments for the fact she owns a car?! Most people in Britain own a car FFS! She's young free and single, she should enjoy getting out and about and that doesn't make her bad with money. 🙄

To be fair, I’m judgmental over the car too. She doesn’t need it. We don’t have one either. But she would give up the car for a flat.

I'd suggest you persuade her to hold out for a 2 bed by explaining the wasted costs - survey, legal costs, stamp duty, and that in a years time she could afford a 2 bed with increased savings and salary , if she's sensible then she may just need help running the numbers, in her position I'd also wait as interest rates likely to fall

Fair enough 🤣
I had a £500 old banger of a Vauxhall Corsa as my first car and it cost barely anything to keep it on the road as I had a Haynes manual and did everything myself. I didn't go out clubbing or drinking, so the car was probably less than what my friends spent on getting smashed every weekend.

Because most people in inner London don't own a car, it's unnecessary.

It sounds like your DD would over extend herself unless she is expecting a good pay rise soon. The thing is she's an adult and if she won't take sensible advice to save and wait until she can buy a 2 bedroom where she could rent a room out to a friend, then she'll have to learn the hard way. All you can do is point the sense out to her and hope she listens and understands you are only trying to help her not hold her back. Has she got a LISA?

Yes, she has a LISA.

I can't comment on whether your daughter will be able to cover her outgoings etc.

However, I can share my experience re shared ownership.

We purchased a new build 3 bed house on 25% share in 2008, and sold in 2015. This was in the SE, prime commuterville (my DH worked in London at the time and was within walking distance to the station).

At the time we could have afforded a two bed flat outright but we had a young child, wanted another and had a dog- we therefore wanted more than a two bed flat with no garden.

The combined cost of rent and mortgage was about the same price, maybe £100 more than we would have spent renting the same thing - but obviously the plus side was it was ours, the landlord couldn't suddenly decide to sell/we could decorate how we wished etc, no issues re dog.

However, unlike a private property the value did not increase over the period we owned it at the same pace. When we bought it the total value was £315k. When we sold it it was valued at £400k.

You/estate agent don't value it. You have to pay a surveyor (was about £1k) and they set the price. That's it, no negotiating.

As a comparison, a friend bought a 3 bed first floor maisonette at more or less the same time, and sold it within 3 months of when we sold. It was about a 5/10 min drive away. They bought for £195k and sold for £400/415k (can't remember exactly which). It meant we had built very little equity for our next move (25% of the £85k increase). Our salary had increased over time and so we could make a small step up to a bigger 3 bed and a box room home, but we had nowhere near the equity built up that friends had who had bought privately, and hence had a much bigger mortgage on the next home (which was cheaper than others' next step).

One other thing was, our house was one of four on the estate that was SH (there were several flats). However, having spoken to the builders etc, the finish on the SH was way below the private sales (They had to do a lot of snagging issues in the first 12m).

We had no problem selling it, altho we did a lot of the legwork ourselves. Prospective purchasers had to go through the financial checks etc, but we had to do viewings, photographs etc, no one came out from the management co. Which then grieved me when they wanted their %. I felt we had to do more work than in a traditional sale with normal estate agent.

If I were to go back to 2008, knowing what I know now, would I do it again..... probably... we needed a HOME at the time... but was it financially the best move for us, no.

What I would worry for her is the financial consequences for a few years down the line. She will be spending a lot to keep the flat... but without it growing in value at the same pace that will enable her to make the next rung of the ladder. She may find herself stuck in that what she can take out is not enough to then buy conventionally later on. If she had no where else to go, then it might be worth it... but as she has a nice home at low cost with you I would have thought it not the best choice.

Good luck