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?

SallyMcNally Yes, you become a leaseholder, whatever percentage you own, so you’re responsible for 100% of everything, such as service charges.

However, your other point re assured tenancy is applicable to the purchase of any flat, not just shared ownership.

In high cost areas, people are often forced to buy flats as. even with relatively good salaries, houses are unaffordable.

@bluepie as someone with a HTB property now, and SO before, knowing the trouble some have come up in recently there is a case for HTB causing a huge issue. If you get to the end of your 5 years interest free, and unable to buy out the loan, you can be in a horrendous situation where mortgages vanish from thin air with the LTV for buying out the loan, or still not in a position to pass affordability on a mortgage with the loan interest payments. This can put you at the mercy of high, variable interest and the payments become unaffordable. It should be something that is considered as a factor and if someone is really stretching to afford the HTB property in the first place on affordability grounds in 5 years it could be worse. A smaller share in a SO property may lessen the financial burned and may make it more affordable given ability to obtain better interest rates on lower LTVs. You can view the rent as similar to the interest on a much larger mortgage. There is also the benefit with SO of being in a tenancy and able to access some benefits to help with the rent element should circumstances change.

SO also seems to have an appeal in the divorcee market, large deposits but childcare responsibilities mean low mortgageability. It gives security of tenancy, and far below market rate rent for size of property (inc. Small mortgage payments in calculations) and flexibility to buy more if one becomes more mortgageable without having to uproot.

We pay exactly the same each month as our net costs for our old SO property. If you do the maths, what we paid in rent is very similar to what now goes to paying off interest on a significantly larger mortgage.

Don't get me wrong, SO and HTB aren't for every one. People need to do the research to find what's right for them. But it shouldn't automatically be assumed HTB is outright better than SO. Horses for courses, and it depends on your risk appetite.

@MyDucksArentInARow I see what you are saying, but I suppose the worst case scenario in what you are saying is you just refix your mortgage and pay the interest rates, if your situation has changed and isn't favourable in 5 years, as with anyone who owns a house, you just don't remortgage and wait until you are on a more comfortable financial footing? You don't HAVE to remortgage in 5 years, it's just beneficial to if you want to pay off the loan ASAP. Obviously the longer you leave it the more likely the government share will increase, so it doesn't make it a "risk" to not remortgage, it's just more financially prudent to want to reduce the government share as soon as possible which will most likely happen by trying to remortgage sooner rather than later.

Htb issue is only on new builds which are often way more expensive, we looked at one on new build the same house 1 year old was £25000 less and new builds 3 bed in my area a good £30000 grand more .

@bluepie - no you don't have to remortgage. But you miss the point, it's not just remortgaging to buy out the government, it's also remortgaging with the loan in place. A surprising number of people over stretched themselves and are having to sell up. The affordability criteria to remortgage their existing mortgage balance with the interest payments means they are considered unmortgageable. Despite the initial assessment by HTB. Most commonly it is people who have subsequently had children. They then get stuck on their original product where their rate jumps from 2-3% to ~5%. They can't remortgage and they're stuck with their monthly payments for the mortgage increasing, as well as paying off the interest on the loan. People tend to over stretch themselves and be unrealistic about the equity they'll gain in 5 years. In some cases SO may be more appropriate, the costs are more predictable and 50% rather than 75% could be more sustainable in the long term.

With HTB, the government isn’t lending money out of the goodness of their hearts: you don’t just repay the original loan, you also have to repay on top the same percentage by which your home has increased in value. E.g. original price was £400k and you borrowed £100k through HTB; if when you sell or remortgage the value has increased to £500k, you need to repay £125k, plus fees.

Shared ownership is developed by housing associations who can generally cross-subsidise their development and price accordingly. Whatever their faults, housing associations generally remain invested in the communities they create, and have an ongoing interest in their assets.

Help to Buy flats are built by private developers out to make as much money as possible. They build, they sell, and they leave. Prices are usually vastly inflated as a direct result of the government support, and once the development is finished the developers don’t care about the community or whether it has the necessary facilities and amenities. They’re out.

Both have a place in the market, to enable people who would otherwise be completely unable to afford to own to get a foot on the ladder, provided buyers do their research and consider whether it’s the best option for them both immediately and long term. The owners who are unhappy are generally those who saw either SO or HTB as a way of getting something lovely and shiny and new in a better location than they’d afford on the open market, and are later dissatisfied with their decision.

@MyDucksArentInARow but you don't ever HAVE to remortgage? I agree it's pretty silly to go to the Max especially before having kids etc, anyone will struggle in that situation HTB or not, but if you have the mortgage in place you can just keep refixing your mortgage when the term ends? There is no NEED to remortgage so I don't see it as being quite as big of an issue as you describe because it can be avoided by sticking with your current mortgage. The risk then of course is interest rate rises and interest on loan, but most people are affected by that.

@bluepie it is an issue, if you stay with your mortgage outside of the deal period, you're tracking the base rate (with a higher rate on top compared to tracker deals). If base rate rises then you suddenly start paying more. If you're already stretched because you've used a scheme like HTB (because if you're using a scheme you are stretching, and maxing out affordability otherwise you wouldn't need a scheme) then the interest rate jumping can make repayments unaffordable. Yes interest rates have been low for a decent amount of time now, but more fool you if you're complacent. They could start rising and many HTB mortgages are 25-35 years. If you are unable to afford to fix a deal, you'll be unable to afford an interest jump. Only an idiot leaves their deal to run out and not remortgage when they have the privilege of CHOICE. It has forced people to put their HTB properties up for sale because they haven't prepared for this and that's only interest rate jumps from ~2% to ~5%.

@bluepie remortgaging is 're fixing which you have to pass affordability on. If you can't pass that you can't fix. That's what I'm on about. The bank leaves you on higher interest so they reduce their risk on the loan by covering losses in interest payments. That's why even fix deals for high LTVs have higher interest rates. The bank is protecting themselves so that they recoup as much as possible in the event of repossession.

Since when do you have to pass affordability on refixing? Last time I refixed I ticked a box on my online banking and that was it! No affordability checks were done.

Just to clarify refixing isn't remortgaging, refixing is where you keep the same lender, same mortgage, you just select a new deal so you don't go onto the SVR. You don't remortgage every 2-5 years!

I'm on 25% shared ownership on a flat. My combined mortgage/rent/service charge is £503. On the floor below me there is an identical flat up for rent at £875.
My rent share is so low (the rent part is around £170) that it would make no sense for me to staircase up. The interest alone on the mortgage would be more than I'm paying in rent.
For me it's worked out an absolute bargain.

@bluepie that's not universal. Many lenders will at least credit check you and some will reassess your affordability.

High LTVs often mean banks reassessing affordability, especially when you have to product switch. With HTB you almost certainly need to product switch as the original mortgage is a HTB mortgage and then you switch to a next step mortgage. With these schemes lenders effectively force you to remortgage because there's more risk to them in the first place. Not everyone can refix. It is something people should be aware of before locking into the scheme.

The rent you pay on the share you don't own is generally extortionate and the housing association can just put it up whenever they like

With HTB you almost certainly need to product switch as the original mortgage is a HTB mortgage and then you switch to a next step mortgage.

This is the bit that makes the most sense to me, what's a next step mortgage?

@CoronaIsWatching

The rent you pay on the share you don't own is generally extortionate and the housing association can just put it up whenever they like

No, they can’t. They can put it up by the terms of your lease, which both you and your solicitor will have been given ample opportunity to fine-comb prior to agreeing the purchase.

If your comment reflects your personal experience, contact the Ombudsman.

My rent on 75% is less that my mortgage on the 25% 🤷‍♀️