Shared ownership is it a con?

[Gobacktothe90s]

Looking into shared ownership as a way of getting onto the property ladder but when you add up the rent they want and service charges monthly on top of the mortgage it seems it works out very expensive.
Has anyone bought a shared ownership house?
Do they regret it?

It isn’t “a con”, but whether it’s the best option for you depends why you’re considering it. If it’s mainly so you can get something you perceive as being better and newer than you could afford outright on the open market, then you do have to factor in that it’s also an expensive way as you’ll be paying the rent element; and additionally, unless you’re in a very popular area, then they can take longer to sell on, particularly if you’ve purchased a relatively high share.

Shared ownership has an absolutely valid place in the market if it’s the only means by which you’re ever likely to afford to buy because you have little chance of ever saving enough of a deposit or earning a high enough salary to get the mortgage you need for an outright purchase - who is the reality for many people in the most expensive parts of the country earning average wages. The downsides still remain, but they’re better on balance than the downsides of private renting potentially forever.

There was a good show on about this last year. I think it was on BBC. Might be worth checking it out.

Check out the BBC show as PP says.

It’s a last resort. It’s very expensive and big blocks of flats do tend to bring extra maintenance issues.

There are lots of shared ownership in my town. It's not a con at all. It's a way you can still get on the property ladder even if you can't afford a massive mortgage.

ds has shared ownership he pays less for a self contained flat in a nice area than he would if he went private
Have a look at "second hand" ones - some are still v new but often have lower costs
note if they have gyms etc on site they cost more
the shared ownership website should tell you most costs & give you an idea of how much you need to earn,

You pay the maintenance fees for the "other owner" too. So if the roof needs fixing, you'll pay the full bill for the property, while the other owner who received a lump sum of capital when you purchased, plus ongoing rent, plus is likely to benefit from increase in equity over time - they just had the roof fixed by you for free.

Plus, they are harder to sell than a regular flat, because only a small pool of

In high cost areas, shared ownership is the only way out of the extortionate costs & insecurity of private rents for those without neither an inheritance nor bank of mum & dad. However, if you can only afford to buy a low share, the proportion of rent will be high & obviously the equity you build up will be lower. I have 2 friends who’ve done very well out of shared ownership, but one bought a 50% share & the other 75%, although this was over 10 years ago. Re-selling the property wasn’t an issue as, if the H.A. don’t find a buyer within a period of 6 weeks or thereabouts, you simply sell it on the open market, which both regrettably ended up doing , as they would’ve preferred to see someone else have the opportunity they’d had to access an otherwise inaccessible housing market.

Have you heard of ‘Discount Market Rate’? It’s like shared ownership, but you don’t pay any rent on the part you don’t own. I know that some London boroughs offer it , but I don’t know if it’s available nationwide. It’s only on new- builds, as councils make developers provide it as part of granting planning permission. As far as I’m aware, unlike shared ownership, you can’t ‘ staircase up’ & buy a higher percentage later on, but it’s certainly worth looking into - a colleague is currently buying through this scheme in West London.

Good luck!

I think as above, in some areas with very high housing costs it might work. I'm in the SE but not London, around here it doesn't help people get on the housing ladder, it just helps them start higher up that they would have done. So is it a con... not really. Anyone looking at any sort of property purchase should so their research first. Would I recommend it here, no.

If you have no other way of either buying a home or getting a secure tenancy, I think they can be a good thing. Particularly for those who want some stability and long term home.

However they can be more difficult to sell and the rental and service charges aren't insignificant.

It's not a con, but you do need to have a plan.
We just sold our SO home. When we bought it we were just below buying a pokey 2 bed on the open market and we were trying to buy ourselves somewhere that could last us if we "got stuck" e.g. DC or change of jobs. So we bought a 3 bed semi on SO. We planned to be there about 5 years and bought 50% to begin with. After 2 years we were looking to buy the other 50% as it was much cheaper than moving (until the SDLT holiday, which led to us selling up).

My experience has shown, don't by a SO flat, the service charge is extortionate and can rapidly rise. SO houses seem much more reasonable.

Either treat it as a stepping stone, and have a short term plan (50% shares as your target market could also potentially afford 100% of something smaller. If you have a smaller share, then your buyer can normally buy more if they want in the same transaction. Disadvantage is that your paying less in mortgage, so equity gain is lower.

Look at the resale process for that HA. That 6 week clause can cause all kinds of issues. You can also be forced to sell at the valuation price and not allowed to drop it to get a quick sale. There's been an SO for sale one town over from ours that's been on the market for 6+ months and not dropped asking, I suspect that's the issue. Again this policy varies HA to HA. It was written in our contract, but the HA abandoned the process as it got in the way and put people at a disadvantage (again, members/tenants had a voice).

It was good for us for the 2 years we owned it. We were glad to sell it though and have used it as a stepping stone. If everything hadn't aligned the way it had, we crunched some numbers and worked out that if Covid hadn't happened, we'd have been better off in our old rental for 2 more years (inc. Factoring in things like our ftb SDLT allowance vs not having it to buy some where). Because of SDLT holiday, we came out 10k better off.

Hope that helps.

I would look into HTB instead if that is possible. You own the whole property, no rent, but you effectively get 20% paid interest free for 5 years, although be sure to research what exactly happens after those 5 years to weigh up if it's right for you. It's a good way of buying with a small deposit which is difficult at the moment.

Depends on the lease.

I have had a SO house for 5 years. We were living somewhere with a low rent but the tenancy came to an end. We could not have afforded to stay in our area otherwise and then would not have had family around to help with childcare (and because we like seeing them). Our jobs would have been more tricky too.

I absolutely love our house, it's been pretty well built and looks interesting, not as boxy as most new builds.

The rent has gone up but the mortgage went down after the initial 3 year deal so we are paying around the same. The service charge is so much cheaper than the SO flats in the same development (in fact I think the service charge is even higher for the open market flats as they are higher spec).

We have no plans to move anywhere else and hope that one day we can staircase to own more. So far it's worked out very well for us, although I don't believe that it should be so difficult for two people each earning an average wage to afford to buy a modest house without such schemes.

It works well in two situations: the first that you can never hope to buy in your area and so all you can hope to achieve is a staircasing up to an amount that lets you sell up and buy a house with a minimal mortgage later. One of my friends did this in a really expensive London property - her 25% was worth 300k when property was sold and she went on to buy a huge house with land ( outside london) for 450k. The second situation is if your combined income is under 30k - in this case the average house price in most areas might mean you never own a property otherwise as you might not be able to get a mortgage. Shared ownership allows you to slowly buy more and more of your property with savings (if possible)

Seems to me that it combines the worst of both worlds. You have the big debt and difficulty of moving of a homeowner, and you have the rent payments, restrictions, and risk of eviction of a tenant! I wouldn't touch it with a bargepole.

The Help To Buy equity loan scheme seems much better, though I would want to read the small print.

The difference between SO and HTB is that HTB means you must remortgage for the full value of the property after 5 years, sell up, or pay interest. Therefore, it is more of a gamble as to current market conditions and the risk appetite of lenders if you haven't paid off enough of the mortgage over those 5 years. SO doesn't have that sort of schedule.

There is a new SO framework due to come out soon, so it may be worth following that closely to see if it is better than the current model.

@MyDucksArentInARow the interest isn't horrendous though and is often still cheaper than the rental element of most SO properties, you'd be paying interest on the 20% if it was mortgaged so it doesn't make a huge difference to be paying interest on the 20% vs rent on a SO (though the ideal would be to remortgage to start paying back the full sum of course, but this doesn't HAVE to be done after 5 years, you just get the benefit of only having to pay for 75% of the property for 5 years, only then do you start to pay interest, but with SO you pay rent from day one)

So I disagree and I think SO is much riskier overall due to its difficulty to sell if your financial situation improves, and the fact you are often making a much smaller investment (depending on what the mortgage share is vs rental) and costly to staircase, whereas with HTB you only need to remortgage as you own the freehold already, unlike SO. So if anyone is in a position they need to use one of the schemes and could do both, I'd say HTB always.

Can someone please explain help to buy in simple terms please as I'm getting mixed up with a example say of house £80000.
Thank you

So if the house was worth £80,000 in total, the government would loan you up to 20% which would be £16,000, you would put down a 5% deposit of £4,000 and you would take out a 75% LTV mortgage of £60,000. The benefit to this is you own the whole house, the freehold, and the mortgage rate is better than if you were buying with a 95% LTV mortgage.

The government loan is interest free for FIVE years. After that you start to pay interest on it, speak to a broker to work out how much. This does NOT start to pay back the loan.

You need to settle the loan within 25 years, you can only do this is in stair cased amounts, not a direct debit for example. So a lot of people will try to chip away at it when they come to remortgage. If in 5 years time you are able to take on the whole loan, you could mortgage it out and then have a larger mortgage.

The BUT is the loan amount is not the £16,000 you borrow, but 20% of the value of the home. So if in 5 years time your house is worth £100,000, the government's share is £20,000, they essentially take 20% of your equity profit. But the good news is, if the house drops in value, so does the government's share, so if the house is only worth £50,000 in 5 years the government's share is only £10,000, so a good time to try and mortgage it out!

For me it's a good option if you can't quite get the full mortgage now and only have a small deposit but are likely to be able to remortgage in 5-10 years. I would speak to a broker about your personal circumstances to see which is likely to fit better for you.

(You own the freehold if the freehold is available of course, not likely the case if it's a flat).

We had a SO terraced 2 bed house (2 very generous bedrooms, would have been 3 bed but demand in the area required 2).

Absolutely athe best thing we did. After 5 years we sold it with absolutely no problems and even made around £30k profit.

Selling is not difficult, if the association who owns the remaining share do not have/cannot find a buyer - you are free to market through EA as normal. And the buyer does not have to purchase SO, they can buy 100% of the property

@BrimFullOfAsher I think it depends and it can be very difficult, it's worth knowing the potential risks. I know several people who have had major difficulties selling a SO house, one had legal difficulties over the freehold, another ended up with their chain collapsing due to the length of time it took to do the legal work and 2 friends that bought SO it took in excess of 6 months. Plus the fees were quite excessive in comparison.

I would certainly be more apprehensive about selling a SO than a standard house, so it's worth being aware of the potential pitfalls. I'm glad it worked so well for you though of course and a good investment too.

you are free to market through EA as normal. And the buyer does not have to purchase SO, they can buy 100% of the property

This was the scenario my friend was in where there were huge delays due to the legal paperwork around the house changing from leasehold to freehold as is progressed from SO to standard, took MONTHS.

Be very wary. There are a lot of issues with SO and cladding with leaseholders being responsible for 100% of costs even if they own 25% share.

You never actually own the place either. Even if you staircase you 100%. It's still an assured tenancy.

I would avoid if at all possible.

It isn't a con. It can be complicated and isn't right for everyone though.

It essentially gets you a secure tenancy with a specified rent increase % on the part you pay rent on. So instead of being at the mercy of a private landlord who can lift the rent by 20% at the end of your year tenancy or decide they want to sell the flat or move back in themselves or whatever, you have security of tenure assuming you pay your rent.
If you live in an expensive area and do not have the savings, family contributions, inheritance to put down a deposit and never will if you are currently paying market rent in the private sector then it is a good way to get a stable place to live and where you benefit in a small way from rising property prices.

Example of my friends, married couple in London, professional jobs but from families with no much money, grew up in council housing etc so no assistance with savings, deposit. At 30 they were looking to start a family and had spent a decade renting in the private sector moving numerous times because landlords wanted to whack the rent up, sell the flat etc. Shared ownership allowed them to get a two bed flat and they knew exactly how much their costs were for the next 20 years on the rental side. Five years and two kids later they sold easily and moved to another shared ownership place nearby with three bedrooms and again have much more security of tenure and have been able to continue living in the city they grew up in and work in.