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

[StepBackPlease]

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?

The problem is few lenders will lend against a shared ownership property because it's a second charge. If they are desperate they could go with it but shared ownership properties are hard to sell on and advise them against doing very much except decorating because they wont get that value back. If it's just a step to something else it might work out. But sometimes with shared ownership you get the worst of both worlds

I had a shared ownership property and it was a great solution however they are being a bit reckless only buying 40% of a 3 bed and being stuck with a high interest mortgage- is it at least a fixed rate????

The more you "buy" up front the better as the rental side isn't particularly cheap tbh...

Sorry @windmill26. And actually, good point, the loan to value will affect the interest rate. When we got 2.5%, we'd been living there for years and had a good loan to value ratio by then.

[quote StepBackPlease]@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 .[/quote]
My first mortgage a few years ago was a rare 95% one, buying myself not shared ownership. I’d need to dig out the paperwork, but I’m sure the interest rate was 3.95% over 2 years so the rate sounds about right for the product. The repayments were eye watering for the first 2 years until I dropped an LTV band and could remortgage. Short term it was a stretch that I thankfully managed, but I’m not sure I’d recommend it.

Try to persuade them to pull out. The owner of the other half can fix the price when they come to sell. Another thread on here mentions this. It's a really really bad idea.

They must absolutely talk to a mortgage broker. Absolutely. THey will be able to advice them better than anyone who's not qualified could.

@Viviennemary

Try to persuade them to pull out. The owner of the other half can fix the price when they come to sell. Another thread on here mentions this. It's a really really bad idea.

That's not my experience of shared ownership. When we purchased the flat and sold the flat, the price was fixed by an independent surveyor, not the owner of the other half.

They need to find out what mortgage they could get for purchase elsewhere. I think the thing is that people are seduced by the thought of a shiny new build and end up paying a lot in monthly mortgage repayments and rent when they could buy an older property conventionally and being paying less because older properties don't attract the same premium as new builds.

They are higher risk for a lender therefore will end up with a higher interest rate mortgage rather than they are being ripped off.

A benefit of shared ownership is that the housing association can offer some flexibility if they have temporary issues paying the rent element.

Please, please advise your family to research shared ownership and housing associations thoroughly. The new model is a different beast and fraught with traps. Housing associations are the most devious and money grabbing. New Build Estates/shared ownership/ Help to Buy is a heavily monetised industry over which you have little control. Crippling estate and service charge fees, permission fees, expensive and problematic lease extensions (if leasehold), overpriced..
I know some will disagree but I know a lot about this subject having studied it at great length.
It is sold as a dream. In reality it is usually a nightmare.
Join the National Leasehold Campaign Facebook group and read the realities of over 18,000 members who are trapped in a nightmare and lost so much money in these schemes.
It is being investigated at the moment. CMA are investigating the mis selling of aspects of the scheme. A highly respected investigative news programme is currently in the process of making a documentary exposing the realities of the industry.

nationalleaseholdcampaign.org

@KihoBebiluPute

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.

A lot people on here giving advice have never experienced Shares ownership. I was given the same bad advice when I was buying mine, thankfully I didn't listen. I looked at it this way: Mortgage + rent + service chg was way less than renting When it comes to selling, an independent (RICS) surveyor will do the valuation. You build up equity plus the increase in the value of the share you own, it's a win win. The property I bought on SO doubled in price when I sold & my rate was 5%

Buying outright v SO: I'll chose buying outright
SO v renting: I'll chose SO

Choose**

@20questions

Please, please advise your family to research shared ownership and housing associations thoroughly. The new model is a different beast and fraught with traps. Housing associations are the most devious and money grabbing. New Build Estates/shared ownership/ Help to Buy is a heavily monetised industry over which you have little control. Crippling estate and service charge fees, permission fees, expensive and problematic lease extensions (if leasehold), overpriced.. I know some will disagree but I know a lot about this subject having studied it at great length. It is sold as a dream. In reality it is usually a nightmare. Join the National Leasehold Campaign Facebook group and read the realities of over 18,000 members who are trapped in a nightmare and lost so much money in these schemes. It is being investigated at the moment. CMA are investigating the mis selling of aspects of the scheme. A highly respected investigative news programme is currently in the process of making a documentary exposing the realities of the industry.

Rather unrelated; but the CMA are not investigating shared ownership in any shape or form, which you’d know if you’ve studied it at great length. They’re investigating a specific area of leasehold miss-selling. Don’t offer misinformation as fact.

OP, glad you’ve managed to help them out and give them good advice, you seem like good sorts.

@MindatWork I think you have had a name change fail... You might want to get your post deleted and repost.

The CMA report also covers the unreasonableness of fees which is both leasehold and fleecehold.

www.gov.uk/government/news/cma-finds-evidence-of-serious-issues-in-leasehold-selling

"Unreasonable fees: being charged excessive and disproportionate fees for things like the routine maintenance of a building’s shared spaces or making home improvements. If people want to challenge such charges, the process is often difficult and costly, meaning few people decide to go through with it."
Housing Associations are very much involved with Shared Ownership and have rapidly become some of the worst offenders when it comes to the monetising of these properties.
Just putting it out there so people can research all aspects.

@20questions

The CMA report also covers the unreasonableness of fees which is both leasehold and fleecehold.

www.gov.uk/government/news/cma-finds-evidence-of-serious-issues-in-leasehold-selling

"Unreasonable fees: being charged excessive and disproportionate fees for things like the routine maintenance of a building’s shared spaces or making home improvements. If people want to challenge such charges, the process is often difficult and costly, meaning few people decide to go through with it."
Housing Associations are very much involved with Shared Ownership and have rapidly become some of the worst offenders when it comes to the monetising of these properties.
Just putting it out there so people can research all aspects.

I know what it covers - I work on the case. And there’s nothing wrong with allowing people to research all aspects, but the vehicle of shared ownership is not, as you implied, an aspect the investigation is concerned with. The majority of flats in the U.K. are leasehold, and the vast majority of these leaseholds - including those for shared ownership, where a housing association remains the freeholder - are standard and abide by consumer protection legislation.

The legal basis for SO leases (because that is what you are buying are outlined here. You are essentially buying a long term tenancy. It isn't a good idea if you have any other possible alternative. I speak as a burned SO myself.

@StepBackPlease

We purchased our S/O six years ago, buying 60% (maximum available). We had to pay a £500 deposit to the HA to reserve the house, non refundable if you couldn't get a mortgage or pulled out - but would be deducted from the fees upon completion.

Our mortgage was with Leeds Building Society and we paid a 5% deposit, so it was a 95% mortgage. We used an IFA who found us the mortgage, I remember him saying there weren't many lenders who did shared ownership so we were limited in choice. I think the rate was 4.8% or something similarly high but it was the same for the other lenders.

We then had to pay rent each month on the remaining 40% plus some other costs like buildings insurance and maintenance.

We could do pretty much whatever we wanted on the house, it was just anything structural would need permission (which you would need to pay a fee to apply for permission)

A few years later, we stair-cased to full freehold ownership so we now own the house "normally". So far, we have about £40k or equity in the house so it's worked out well for us. Our mortgage rate now is like 1.6%!

I would tell them to check a few things before proceeding, firstly are they entitled to buy a three bed - some HA's including ours, won't allow a couple to purchase a three bed property, they could only purchase a two bed.

Secondly, can the property be staircased to full freehold ownership, some have restricted levels of ownership so you can never own it all.

Also, are they aware that there are quite a lot of fees involved with S/O, fees to apply for changes fo the property, fees for applying to staircase, etc. Plus when you staircase you have to pay all the normal legal fees again so it does get expensive - so Staircasing in one go is the best option, don't do it in stages.