This isn't great is it? Shared ownership...

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Hi all,

My brother and his girlfriend (mid-20s, stable jobs) are currently in the process of trying to buy a new-build shared ownership property. They're fed up with their rented flat, lots of neighbour issues and are determined to buy, but shared ownership is the only way they can get on the ladder.

Despite family members advising caution about the property market and difficulty of getting a mortgage etc, they've fallen in love with a 3 bed semi, have been through a 'financial assessment' with the developer who told them they would be a really good candidate for a mortgage (!), they did the initial paperwork and have paid a fee to reserve it.

They have only just started applying for mortages and are shocked to find no one will give them a 95% ltv except the developer's 'partner' bank who have offered them a 4 year fixed at a shockingly high rate of interest.

They've seen them coming, haven't they? Is this how these things work normally? I've tried to suggest going for a smaller 2-bed so a smaller mortgage and easier to staircase up, but they're insisting they want a 3 bed as they want to settle, start a family and not have to move again.

Of course they're adults, it's their decision and I totally understand why they want to buy. They are insisting they can afford the repayments it even it if is expensive, and it's worth it to get on the ladder. They've made it clear they're planning to proceed whether they get any other offers or not, so I don't think there's any point starting an argument trying to persuade them out of it - I will be supportive and help them in any way I can.

I'd just be interested in anyone else's experiences of shared ownership companies or opinions on the above...any advice I can give them?

Did they speak to a mortgage broker or just banks?

@curlyrebel they've done an online form with L&C but no-one's got back to them yet. I'm crossing my fingers they'll get a better offer from elsewhere!

Wait, so it's a 5% deposit and that's on not even buying the house outright?

Sounds like a recipe for being ripped off, and they're letting their heart rule their head.

But then I don't think much of "shared ownership" anyway. You get the drawbacks of both renting and buying and the advantages of neither.

It's been widely reported that high street banks are pulling their 90% mortgages, or at least putting very restrictive hoops in place in order to get one - and that's for regular purchases are not shared ownership. 95% mortgages are scarce (I didn't think they were still available TBH) and therefore expensive.

Have they spoken to an independent mortgage broker?

My concern would be what happens in 4 years at the end of this deal. They are likely to be seriously limited in the range of products available to them.

What is their timescale for starting a family? Can they afford the mortgage alongside a reduction in salary for maternity / paternity leave and childcare costs?

If they are happy they can afford it, you can't stop them going ahead.

@safariboot yes, it's 5% for a 40% share of the house and then they would pay rent on the remainder. They have the option to buy more 'shares' in the house until they own it £100.

That should be 100%

Could they buy a smaller share? Would a 10% deposit on a 20% share work better, then staircase up?

@JamMakingWannaBe, yes we spoke about the mortgage market - I was surprised the developer took money off them to secure the house when they didn't have an AIP.

Totally agree there's nothing we can do to stop them if they really want to do it!

It's difficult to get a 95% mortgage on any new build at the moment.

I'm not against shared ownership, each scheme should be judged on its own merits. But it sounds like they need more time to get some savings behind them.

@Rowenberryjelly I believe 40% is the smallest share you can purchase

Can you encourage them to get everything from the developer in writing so that they have evidence if (or should that be 'when'?) they make their mis-selling scandal claim?

Shared ownership mortgages have to be approved by the Housing Association to ensure that the borrower isn't getting into unaffordable debt. They may not even approve this. I work in conveyancing and many people are getting 95% LTV on shared ownership, it is one of the only deals that still allows it.

Have they looked into what might happen if they can't afford the mortgage payments/rent, if they are stretching themselves? If you fall behind on the rent by just 2 months, you can be evicted from a shared ownership property like any tenant. If they have a mortgage, the mortgage company may step in and pay the rent for the percentage they don't own, if they fall into arrears (to protect their interest in the property). They need to find out what the partner bank's policy is and get good advice on the contract with the property developer.

They might want to look at Richardson v Midland Heart Ltd (formerly Focus Homes Options) [2008]. Ms Richardson bought 25% of a shared ownership property without a mortgage and with a 99 year lease, fell into rent arrears and was evicted. The courts found that her agreement with the housing association was in fact a very long AST so she was not entitled to her 25% share back when the property was sold.

What is the interest rate, I have shared ownership and it is higher than your standard mortgage

@safariboot

Wait, so it's a 5% deposit and that's on not even buying the house outright?

Sounds like a recipe for being ripped off, and they're letting their heart rule their head.

But then I don't think much of "shared ownership" anyway. You get the drawbacks of both renting and buying and the advantages of neither.

But then I don't think much of "shared ownership" anyway. You get the drawbacks of both renting and buying and the advantages of neither.

@safariboot as a former shared ownership owner, I completely disagree with this.

Advantage one: building up equity.
Shared ownership worked really well for us. We lived in one for years, and we were then able to use the equity we built up to buy a house without shared ownership. If we had carried on renting, we would have never been able to afford our house. We did have to move to a cheaper part of London to do this.

Advantage two: stable home. As we were shared owners, we didn't have to worry about our landlord selling up and us having to move.

Advantage three: home renovation
We could do whatever we liked in our flat such as replace the bathroom, put up shelves. The only things we couldn't do was replace the windows, which was the housing association's responsibility.

Unlike private rented, where some landlords won't even let you put a shelf up. And if the bathroom and kitchen need replacing, you are at the landlord's mercy.

Advantage four: no sudden rent increase

The amount the housing association could increase our rent by was fixed in our lease. Unlike private rented, where landlords can increase your rent when you renew your contract (which happened to me).

@Ugzbugz they've been offered 4.10%.

@AntiHop these are all the reasons they have given for wanting to buy this house and I 100% understand; DH and I were v fortunate to buy years ago in a much friendlier market and we had help, so I'm very much aware that I need to be sensitive when giving advice etc. I really hope it works out for them and it's great to hear from someone who it's really helped .

Shared ownership is almost always offered by housing association who are heavily regulated and, as a previous poster mentioned, have to thoroughly investigate and approve buyers for affordability. If they really can’t afford it, they’ll be rejected.

Encourage them to think about how far they could theoretically be from saving enough of a deposit and achieving the salary multiples required to buy outright on the open market. If this is going to be several years into the future - or indeed, unlikely ever to be feasible at all if they don’t have the capacity to increase their salaries significantly - then arguably, paying some mortgage towards owning a share of a shared ownership property is a wiser financial decision then paying an exorbitant rent for many years to come which they’ll never see any return on. That’s really why shared ownership (unlike HTB which was always about supporting developers) was designed, because there are people who are realistically never going to be in a position to own outright.

OP despite my positivity about shared ownership, I don't think your brother should buy this property. Under normal circumstances, there are plenty of mortgage providers who will lend for shared ownership, but not all of them will. However, if they are in a position of having no choice but to have a very high interest rate when their initial period ends. This is foolish. It's also foolish to buy a place with rooms they don't yet need, when they are financially stretched.

They should find out what the deal will be when they do want to sell - they are unlikely to want to stay in the same property forever. Will they need to find another shared-ownership purchaser who just buys their share and continues to rent the remainder, or can they just sell on the open market as normal? Does the shared-ownership provider get to dictate what selling price will be acceptable to them, and could they cause a potential sale to fall through by insisting that they hold out for a higher offer? If they do want to staircase-up their ownership fraction, how will the current value of the next slice they buy be determined? There are a myriad of ways this could cause headaches.

Wow that is high, mine is approx 2.4 I think with Santander

I was surprised the developer took money off them to secure the house when they didn't have an AIP. I'm not surprised. If it all falls through because of lack of a mortgage the developer keeps the holding fee. Talk about lambs led to the slaughter.

Sorry OP but I have no sympathy for your brother and his girlfriend. I appreciate your feelings and wanting to help them but when you bought the property market was a whole different situation - I saw this myself with DD1/SIL who could afford to get on to the housing ladder but DD2 doesn't stand a hope in hell.

Every 20 something would love to move into a 3 bed house but sensible 20 somethings know they have to begin small even in this day of high costs to move home. 2 bed is sufficient to start a family.

As for shared ownership it works out for some people but not others. Besides the high cost of the mortgage itself the rent for the part they don't 'own' is also likely to be high. Can they afford to start a family with those costs too?

Are they planning on selling it, or is it a forever home? Personally I wouldn’t touch one with a barge pole.

The 4.10% is pretty standard for shared ownership mortgages offered by a lender "partnered" to the Housing Association.
Generally the buyer goes with it and fix for 2 years after that you remortgage with an high street lender for a more competitive rate.
I would suggest that if they don't want to go for a smaller property they at least should fix at that rate for just 2 years instead of 4.

@windmill26

The 4.10% is pretty standard for shared ownership mortgages offered by a lender "partnered" to the Housing Association. Generally the buyer goes with it and fix for 2 years after that you remortgage with an high street lender for a more competitive rate. I would suggest that if they don't want to go for a smaller property they at least should fix at that rate for just 2 years instead of 4.

I would disagree. When we last renegotiated our mortgage in our shared ownership flat, our rate was 2.5%. We moved the following year to a non shared ownership property and the rate was pretty similar. Had we stayed with our original lender when we renegotiated our mortgage in our shared ownership flat, they offered us 5% at the end of our fixed term (this was in 2017). This is why I think your brother's shared ownership is a bad idea. If he has no choice of lenders, there's a high chance he'll get a bad deal.

@AntiHop maybe I wasn't clear or you misunderstood my post but we pretty much said the same thing.
You were one of the lucky few to have 2.5% rate from the get go when buying a shared ownership property.,maybe you had a bigger deposit than the usual 5%?
I don't think that SH is generally a bad idea if with everything included (Mortgage+rent + service charge) the buyer pay less than market rent and has a real prospect to buy more shares.