Shared ownership- good or bad idea
Discussion
This is for my daughter who's been renting for six years, starting from room shares, sharing a flat with others and then an ex partner.
We have a new development around the corner, in short she can buy 40% of a 2 bed flat for £88k. So mortgage (5 year fixed) + rent + monthly maintenance etc works out at 36% of net income. (has a £15k deposit)...and less than renting a similar property.
To put things into perspective the cheapest 2 bed flat around here is approx £200k, 1 bed £180k.. this is marketed at £220k, all appliances ,decent area, with a full lease.
For a single person it appears to make sense (there are no 1 beds available) and we're thinking a 2 bed is more sellable.
Any thoughts ? I've seen a few old threads with differing opinions but my thought is that surely its better to nibble away at ownership rather than rent forever.
We have a new development around the corner, in short she can buy 40% of a 2 bed flat for £88k. So mortgage (5 year fixed) + rent + monthly maintenance etc works out at 36% of net income. (has a £15k deposit)...and less than renting a similar property.
To put things into perspective the cheapest 2 bed flat around here is approx £200k, 1 bed £180k.. this is marketed at £220k, all appliances ,decent area, with a full lease.
For a single person it appears to make sense (there are no 1 beds available) and we're thinking a 2 bed is more sellable.
Any thoughts ? I've seen a few old threads with differing opinions but my thought is that surely its better to nibble away at ownership rather than rent forever.
I suspect that although she only owns 40% of the property, she's responsible for 100% of the maintenance, insurance costs, etc. Yet the other party still want the full rent for the 60% they own. Worth checking that out.
Also, some schemes say that if the value goes down, their value doesn't. So if the whole place is worth £100K, and you buy 40%,for £40K, if the value drops 20%, you don't own a £32K stake as you might think. The place is now worth £80K, but you now only own £20K's worth, and they still have a £60K stake.
Also, some schemes say that if the value goes down, their value doesn't. So if the whole place is worth £100K, and you buy 40%,for £40K, if the value drops 20%, you don't own a £32K stake as you might think. The place is now worth £80K, but you now only own £20K's worth, and they still have a £60K stake.
TwigtheWonderkid said:
I suspect that although she only owns 40% of the property, she's responsible for 100% of the maintenance, insurance costs, etc. Yet the other party still want the full rent for the 60% they own. Worth checking that out.
Also, some schemes say that if the value goes down, their value doesn't. So if the whole place is worth £100K, and you buy 40%,for £40K, if the value drops 20%, you don't own a £32K stake as you might think. The place is now worth £80K, but you now only own £20K's worth, and they still have a £60K stake.
Yes, so responsible for maintenance inside the flat (its all new however) but external maintenance and insurance is included in the monthly fee.Also, some schemes say that if the value goes down, their value doesn't. So if the whole place is worth £100K, and you buy 40%,for £40K, if the value drops 20%, you don't own a £32K stake as you might think. The place is now worth £80K, but you now only own £20K's worth, and they still have a £60K stake.
Interesting about the valuation situation and I kind of presumed that might happen. Having suffered negative equity back in the early 90's I can see a potential issue so will raise it with them.
DT1975 said:
This is for my daughter who's been renting for six years, starting from room shares, sharing a flat with others and then an ex partner.
We have a new development around the corner, in short she can buy 40% of a 2 bed flat for £88k. So mortgage (5 year fixed) + rent + monthly maintenance etc works out at 36% of net income. (has a £15k deposit)...and less than renting a similar property.
To put things into perspective the cheapest 2 bed flat around here is approx £200k, 1 bed £180k.. this is marketed at £220k, all appliances ,decent area, with a full lease.
For a single person it appears to make sense (there are no 1 beds available) and we're thinking a 2 bed is more sellable.
Any thoughts ? I've seen a few old threads with differing opinions but my thought is that surely its better to nibble away at ownership rather than rent forever.
Personally, I'd run a mile. I'd hate to be a 40% shared owner, preferring to move to a cheaper area.We have a new development around the corner, in short she can buy 40% of a 2 bed flat for £88k. So mortgage (5 year fixed) + rent + monthly maintenance etc works out at 36% of net income. (has a £15k deposit)...and less than renting a similar property.
To put things into perspective the cheapest 2 bed flat around here is approx £200k, 1 bed £180k.. this is marketed at £220k, all appliances ,decent area, with a full lease.
For a single person it appears to make sense (there are no 1 beds available) and we're thinking a 2 bed is more sellable.
Any thoughts ? I've seen a few old threads with differing opinions but my thought is that surely its better to nibble away at ownership rather than rent forever.
Tyre Smoke said:
Can't argue with your logic.
Presumably she is able to make lump sum payments on the rented part to transfer into ownership?
Not entirely sure how it works, but presumably it is possible to convert the 60% rented part into ownership over time?
Yes, they can buy more of a share, its called staircasing I think. I'm not sure if there's a limit but I doubt she'd reach it unless her personal circumstances change dramatically. Its more likely she'd probably sell with her current or increased share. Presumably she is able to make lump sum payments on the rented part to transfer into ownership?
Not entirely sure how it works, but presumably it is possible to convert the 60% rented part into ownership over time?
I'm only posting as she's about to pull the trigger and being new to it I'm playing catchup double quick !!
I think it's a good idea.
Yes, the property value could fall. But I think the way inflation is going, the fact it is a starter home (she isn't going to be there for decades) there is a minimal risk. Plus, as you say, it's all new, so maintenance shouldn't be a problem. Just check on the buildings insurance and is that rechargeable and how the premiums are set. Check the small print for being nickel and dimed. Also check she is free to sell to whoever she likes when the time comes, and not to the 60% holder only.
Yes, the property value could fall. But I think the way inflation is going, the fact it is a starter home (she isn't going to be there for decades) there is a minimal risk. Plus, as you say, it's all new, so maintenance shouldn't be a problem. Just check on the buildings insurance and is that rechargeable and how the premiums are set. Check the small print for being nickel and dimed. Also check she is free to sell to whoever she likes when the time comes, and not to the 60% holder only.
DT1975 said:
Dorset, nothings cheap here or nearby. Any further and commuting fees mount up, notwithstanding family and friends and all that malarky, single female and all that.
Depending on where she is looking, North Dorset is a lot cheaper (we paid £125,000 for a two bed flat with a garage), but it is a pain not being in a town as such. I miss Tesco being a five minute walk rather than a 20 minute drive away! I do have an hour commute to work though. We looked at shared ownership but the place we looked the rent was stupidly high (plus it was Gillingham so not the best of places!). Although it would have been a two bed house rather than a flat. We decided it wasn't for us.
My sister is just waiting for things to be finalised on a shared ownership flat in Poole. Sounds like a similar price etc to the one your daughter is looking at. She's happy with it and it seems to suit her for what she needs/wants.
My first flat in central London was 50% shared ownership, back in early 2000's.
Back then it was an affordable way of getting on the property ladder, without having the cash / mortgage to finance the full 100% value.
I had the intention of staircasing (i.e. buying additional shares up to 100%) but in the end I ended up selling when I upsized to the current family house.
Despite owning only 50% of the flat, I doubled my money upon sale, and I had no problems with selling, as the conveyancing process was straightforward enough, and there were plenty of eager buyers looking to buy the 50% share.
The only downside was that at sale time, I was not allowed to sell above the market value, which was determined by an independent RICS valuation surveyor.
Back then it was an affordable way of getting on the property ladder, without having the cash / mortgage to finance the full 100% value.
I had the intention of staircasing (i.e. buying additional shares up to 100%) but in the end I ended up selling when I upsized to the current family house.
Despite owning only 50% of the flat, I doubled my money upon sale, and I had no problems with selling, as the conveyancing process was straightforward enough, and there were plenty of eager buyers looking to buy the 50% share.
The only downside was that at sale time, I was not allowed to sell above the market value, which was determined by an independent RICS valuation surveyor.
Has she thought about help to buy? I used it to buy my flat and found it really useful, owned it all and when I sold 2 years later I paid back s addition 2.5k which I didn’t think was to bad on a 26k loan!
Not the ideal situation but the property market is so broken you can only do so much
Not the ideal situation but the property market is so broken you can only do so much
TwigtheWonderkid said:
DT1975 said:
Its more likely she'd probably sell with her current or increased share.
If she can find a buyer. It's a very limited market, as most buyers are after 100% of any property they are buying. As long as the property is on a decent location, structurally sound and no massive expenses to be coming, Shared or Not, it is always better to buy. (imho). In short, if fundamentals right, instead of paying rent she will be owning a large chunk of her flat and can always increase her share depending on her future prospects. I know loads of colleagues who literally stepped on the property ladder with their shared-ownership and moved on to better/bigger properties.
Vasco said:
Personally, I'd run a mile. I'd hate to be a 40% shared owner, preferring to move to a cheaper area.
I would disagree. Moving to a cheap, problematic area is one of the worst things can happen to you. Especially if you have to deal with problems such as lunatic neighbours, corrupt boroughs or anti-social behaviour (not to mention underfunded schools and hospitals around)...TwigtheWonderkid said:
If she can find a buyer. It's a very limited market, as most buyers are after 100% of any property they are buying.
I think selling a share actually also puts the property into an area not covered by other properties, and actually creates opportunities as well. Let's say a property with a £200,000 valuation comes to the market but does so at £150,000 as a 75% share. That situation means those looking at the very bottom end of the market, IE around £150,000, now have the opportunity to get into a property that is likely to be a significant step up from the others they might be viewing. Sure, there will be some rent to pay on the 25% they are not buying, but it will not be a very large amount, and they also will probably have the opportunity to buy that last share, should they wish to.Vasco said:
Quite. I hadn't realised that we were talking about (relatively) remote Dorset. It's understandable that there are few cheaper properties in the immediate area - but, for me, I still couldn't go for a 40% shared ownership.
Is it the 40% or simply the idea of shared ownership. Unfortunately as a single buyer she has no other way of buying around here. With a partner it would be a different story I guess . My thoughts are that once settled she could simply buy more equity if she chooses or over pay on the mortgage. Also in 5 years for example on a mortgage of £70k she'd have paid off £12k , has the ability to over pay but all the time chipping away at ownership.So the positives are that its in a very nice area (we know as its 2 minutes down the road), close to family and friends. It's brand new (all appliances included) so no unexpected costs. It has a full lease, Its £200 a month cheaper than renting a similar sized flat. Fixed mortgage rates are still very competitive.
The negatives are possible issues in relation to selling, no control over future rental rises etc. I'm hoping that because of the value of property down here (average price in Dorset is ridiculous) that shared ownership is here to stay, which may improve her chances of selling.
Thanks for all the replies, I'm leaning towards going for it -we're helping with the deposit and could probably stretch a little further.
I used to manage Shared Ownership stock for a several years, as well as leasehold/flats, and my worry would not be the shared ownership part, it would be the leasehold.
People are very wary (and becoming more wary) of buying leasehold properties, especially flats due to the terrible press they have received in recent years regarding maintenance costs, capital replacement costs, fire upgrade costs and so on.
Have you got a copy of the lease and studied it carefully? what does it say about reserve/sinking funds? Is there a percentage of the property value to pay if you sell again?
The biggest problem with shared ownership is people by them thinking they will staircase (buy more) of the property as time passes, but what usually happens is that the value of the property rises over time and the owner cannot afford to buy another chunk, so is basically trapped at 40% or 50% and stuck paying rent for evermore.
People are very wary (and becoming more wary) of buying leasehold properties, especially flats due to the terrible press they have received in recent years regarding maintenance costs, capital replacement costs, fire upgrade costs and so on.
Have you got a copy of the lease and studied it carefully? what does it say about reserve/sinking funds? Is there a percentage of the property value to pay if you sell again?
The biggest problem with shared ownership is people by them thinking they will staircase (buy more) of the property as time passes, but what usually happens is that the value of the property rises over time and the owner cannot afford to buy another chunk, so is basically trapped at 40% or 50% and stuck paying rent for evermore.
Lord Marylebone said:
I used to manage Shared Ownership stock for a several years, as well as leasehold/flats, and my worry would not be the shared ownership part, it would be the leasehold.
People are very wary (and becoming more wary) of buying leasehold properties, especially flats due to the terrible press they have received in recent years regarding maintenance costs, capital replacement costs, fire upgrade costs and so on.
Have you got a copy of the lease and studied it carefully? what does it say about reserve/sinking funds? Is there a percentage of the property value to pay if you sell again?
The biggest problem with shared ownership is people by them thinking they will staircase (buy more) of the property as time passes, but what usually happens is that the value of the property rises over time and the owner cannot afford to buy another chunk, so is basically trapped at 40% or 50% and stuck paying rent for evermore.
That's interesting and some good points . In relation to lease, the property is still being built so new with a 125 year lease. I can see how rising prices would indeed impact on the ability to buy further equity. I guess its also in the best interest of the housing company to keep folk renting.People are very wary (and becoming more wary) of buying leasehold properties, especially flats due to the terrible press they have received in recent years regarding maintenance costs, capital replacement costs, fire upgrade costs and so on.
Have you got a copy of the lease and studied it carefully? what does it say about reserve/sinking funds? Is there a percentage of the property value to pay if you sell again?
The biggest problem with shared ownership is people by them thinking they will staircase (buy more) of the property as time passes, but what usually happens is that the value of the property rises over time and the owner cannot afford to buy another chunk, so is basically trapped at 40% or 50% and stuck paying rent for evermore.
Maintenance will be £83 a month an increase from £76 last October when these were first marketed. I'll look at reserve / sinking funds as I know that can be contentious. Thanks for your thoughts.
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