Shared ownership? Good or bad idea

[Chestrockwell]

Hard work getting onto the property ladder these days, especially if you’re buying by yourself!

I’m quite fortunate to have the backing of my parents as they want to help however I’m not sure it’s worth it in the current climate and with how house prices are.

I can borrow 150k yet 1 bedrooms flats start at 230k and it makes me wonder if it’s worth sinking that kind of money in a 1 bedroom flat that’s not near any train stations and also needs work. The worst part about it all is that the flats I’m looking at have all been on the market for an average of 6-8 months.

The way I see it, a 2 bedroom flat will sell relatively quickly and will rise in value. The problem is that they’re way over budget.

I’ve stumbled onto a few shared ownership flats and on the face of it, they do make sense, it’s like renting but a lot cheaper with some form of return.

One nice flat I found in Weybridge is a 35% share, 92k, 14k down (20k down drops the mortgage by £35 a month) and it’s 815 a month, rent, mortgage and service charge.

I understand I wouldn’t technically be on the property ladder but I will have my own place for as long as I want without paying a stupid amount of rent. This flat will cost at least £1100 to rent a month.

What do you guys think? My dad is against it but I feel like it would be wrong to put that money into a small 1 bedroom flat.

[Mandat]

Chestrockwell said:

Hard work getting onto the property ladder these days, especially if you’re buying by yourself!

I’m quite fortunate to have the backing of my parents as they want to help however I’m not sure it’s worth it in the current climate and with how house prices are.

I can borrow 150k yet 1 bedrooms flats start at 230k and it makes me wonder if it’s worth sinking that kind of money in a 1 bedroom flat that’s not near any train stations and also needs work. The worst part about it all is that the flats I’m looking at have all been on the market for an average of 6-8 months.

The way I see it, a 2 bedroom flat will sell relatively quickly and will rise in value. The problem is that they’re way over budget.

I’ve stumbled onto a few shared ownership flats and on the face of it, they do make sense, it’s like renting but a lot cheaper with some form of return.

One nice flat I found in Weybridge is a 35% share, 92k, 14k down (20k down drops the mortgage by £35 a month) and it’s 815 a month, rent, mortgage and service charge.

I understand I wouldn’t technically be on the property ladder but I will have my own place for as long as I want without paying a stupid amount of rent. This flat will cost at least £1100 to rent a month.

What do you guys think? My dad is against it but I feel like it would be wrong to put that money into a small 1 bedroom flat.

My first property was a shared ownership flat in central London. Bought a 50% share for £65,000 and sold that 50% share for £120,000 nearly ten years later, when moving up the property ladder.

Don't forget that you can usually purchase additional shares in the property at the prevailing market rate, if you wish to do so and finances allow.

Based on my own experience, shared ownership was not a problem and I wouldn't hesitate to recommend it to others. However, I'm sure that some people do have bad experiences, and you'll probably hear from some them in this thread.

[Chestrockwell]

Mandat said:

My first property was a shared ownership flat in central London. Bought a 50% share for £65,000 and sold that 50% share for £120,000 nearly ten years later, when moving up the property ladder.

Don't forget that you can usually purchase additional shares in the property at the prevailing market rate, if you wish to do so and finances allow.

Based on my own experience, shared ownership was not a problem and I wouldn't hesitate to recommend it to others. However, I'm sure that some people do have bad experiences, and you'll probably hear from some them in this thread.

My finances would allow me to own up to 75% of the property however I’m told they’re hard to sell and a 35% share would be easier to sell as not everybody could afford it.

Thanks for the information, may I ask when you bought your 50% share?

[Mandat]

The flat was bought circa 2002, and we moved out in 2012.

[anonymous-user]

Panorama https://www.bbc.co.uk/programmes/p08z2wms

I’m sure there are good and bad examples on the market

[Mandat]

JPJPJP said:

Panorama https://www.bbc.co.uk/programmes/p08z2wms

I’m sure there are good and bad examples on the market

I've just watched that episode of Panorama, and though it was a bit disingenuous.

They showed a number of people with examples of "The home that I can't afford", with the underlying theme that the shared ownership scheme was to blame for their woes.

In reality, the issues these people faced are the usual and bog standard issues associated with leasehold properties, such as service charges, maintenance, and short lease renewals.

Even people owning a 100% share in a lease will have a service charge to pay, and be faced with a renewal charge when the lease terms becomes short. This is not unique to shared ownership.

Obviously, people can avoid such leasehold issues by buying freehold. But on the flip side, you've still got to pay 100% of the costs when your freehold property needs a new roof or new windows, or needs rewiring or a new boiler, or if a pipe bursts or the drains get blocked up.

The reality is that with the benefits of home ownership, come the responsibilities and obligations, which includes the costs of repairs & maintenance.

The programme made the point a number of times that the shared ownership owners were considered as "social tenants" in "affordable housing", and implied that the housing associations were somehow to blame or profiteering from the situation.

The conclusion that I drew from the programme is that some people are not suited to property ownership, particularly those who don't understand that owning a property incurs costs and has responsibilities. However, I suspect that this was not the conclusion that Panorama was looking to invoke in their viewers.

[Chestrockwell]

Mandat said:

The flat was bought circa 2002, and we moved out in 2012.

Ah, yes, the golden era, my parents house was bought in 2002 and has more than doubled in value since.

I don’t expect it to rise in value and im not bothered either as neither would a one bedroom flat.

[Mandat]

I'm sure that it hugely depends on the location and which part of the country you're in, but the general rule of thumb in London seems to be a doubling of prices every 10 years.

Our current house, in West London, was bought in 2012 for £350,000 and similar houses in the area are now going for £550,000.

My parents bought a similar house 2 streets away in the mid 1980's for around £50,000.

[Glosphil]

First house in village outside Bristol bought in 1972 for £5750 & sold 15 months later for £9750 - near a 70% increase.
Last house bought in Gloucestershire for £81,000 and sold 23 years later for £355,000.
House price inflation in England is ridiculous.

[Scootersp]

Tricky, mixed for me.

I used to work in a housing association that did this. Principle is 'OK' but the schemes vary, some never allow you to own all of it, some limit buyers to those with a local connection potentially limiting/slowing future sales.

A big advantage of a mortgage is once paid you have no rent, if you own a smaller percentage of a shared ownership then the rent portion is sizeable and over the years will grow, total payable calculations over a mortgage term can be eye opening. If you never get to buy out more percentage it could be a burden in older age. You'd keep paying rent past the end of the mortgage and do may overall pay more than owning outright in the very long run.

You could benefit if there was a crash as your partially protected against that and if you could then afford to buy more you'd 'win'.

The panorama show probably highlights that it can encourage borderline affordability cases to take the plunge.......so yes mixed views for me, but projections of costs (especially the rent/service charge areas that will go up with rpi) is crucial to be aware of the bigger picture.

[Chestrockwell]

To be honest for me, it’s not a long term solution, maybe a couple years, 3 years max, it depends on my job, my girlfriend etc, if things get more serious, we’d buy together I imagine and that changes everything as it’s worth putting a bigger deposit as with the combined income, we’d be getting something proper.

For me, it’s an easy way to get out the house without paying a stupid amount of rent. I see it as putting 14k in a bank and gaining equity (depending on the mortgage) as the money will always be there, I won’t lose any of it and it shouldn’t take too long to sell providing I buy in the right area.

I saw a flat today that’s 1 bedroom, above a shop for £200,000 and the price was last reduced on 19/04/2019! This is what worries me about 1 bedrooms, sure this one is small but unless it’s in London or an area with fast links into London, who is going to buy it?

[untakenname]

Mandat said:

I've just watched that episode of Panorama, and though it was a bit disingenuous.

They showed a number of people with examples of "The home that I can't afford", with the underlying theme that the shared ownership scheme was to blame for their woes.

In reality, the issues these people faced are the usual and bog standard issues associated with leasehold properties, such as service charges, maintenance, and short lease renewals.

Even people owning a 100% share in a lease will have a service charge to pay, and be faced with a renewal charge when the lease terms becomes short. This is not unique to shared ownership.

Obviously, people can avoid such leasehold issues by buying freehold. But on the flip side, you've still got to pay 100% of the costs when your freehold property needs a new roof or new windows, or needs rewiring or a new boiler, or if a pipe bursts or the drains get blocked up.

The reality is that with the benefits of home ownership, come the responsibilities and obligations, which includes the costs of repairs & maintenance.

The programme made the point a number of times that the shared ownership owners were considered as "social tenants" in "affordable housing", and implied that the housing associations were somehow to blame or profiteering from the situation.

The conclusion that I drew from the programme is that some people are not suited to property ownership, particularly those who don't understand that owning a property incurs costs and has responsibilities. However, I suspect that this was not the conclusion that Panorama was looking to invoke in their viewers.

I don't think the tenants in the program did much wrong affordability wise as they based their calculations on what the costs were at the time and didn't expect them to skyrocket way above inflation or reason.
I felt sorry for their predicament, especially the woman whose service charge went from £150 per month to £3000 per month!

[SCEtoAUX]

With a functioning housing market it wouldn't even be a thing, never mind a good or bad idea.

[SCEtoAUX]

With a functioning housing market it wouldn't even be a thing, never mind a good or bad idea.

[untakenname]

The fact the government minister they had on the program didn't see an issue and just kept on repeating that 60% of the participants in the scheme were satisfied was infuriating and also the housing associations saying they are charities as if that makes everything ok, raising the service charge 20x from the initial years price is criminal imo.

The people they used in the program as example cases had bought when house prices were a lot lower than they are currently and are still destitute so unable to breakeven and get out of the scheme, anyone buying in the last couple of years in London is going to be screwed when it comes time to sell.

[xeny]

Chestrockwell said:

To be honest for me, it’s not a long term solution, maybe a couple years, 3 years max,

Have you factored in transaction costs/hassle? My rule of thumb is the cut off between buy and rent is similar to that for equities ~ 5 years.

[Spidersleg]

Been in a shared ownership for just under 10 years. We own 25% Went to buy the remaining 75% only to be told it was leasehold and not freehold. Before we bought the 25% we were told we could purchase 100% but no mention of leasehold only. Just last month we had to replace the heating system with a new heat pump £9000. Not great when our 25% is only worth about £45,000
The only redeeming thing has been cheap rent for nearly 10 years and some equity in the house when we come to sell, but any savings will probably be wiped out by having to add years on to the lease for the new buyer.

[Mandat]

Spidersleg said:

Been in a shared ownership for just under 10 years. We own 25% Went to buy the remaining 75% only to be told it was leasehold and not freehold. Before we bought the 25% we were told we could purchase 100% but no mention of leasehold only. Just last month we had to replace the heating system with a new heat pump £9000. Not great when our 25% is only worth about £45,000
The only redeeming thing has been cheap rent for nearly 10 years and some equity in the house when we come to sell, but any savings will probably be wiped out by having to add years on to the lease for the new buyer.

It sounds like your solicitor was negligent at the time of your purchase, if they did not advise you that you were buying a leasehold rather than the freehold.

Also, it sounds like you bought a short lease, which again you should have been advised about at the time of purchase. You solicitor has no excuse for not providing you with the relevant advice on these two points.

However, I don't see the relevance of the shared-ownership concept to the issues that you've experienced. Even if you bought a 100% share of the property at the outset, the fact that you were unaware it was a leasehold on a short lease, means that you would still be in the same predicament.

Edited by Mandat on Thursday 3rd December 17:27

[Spidersleg]

Mandat said:

It sounds like your solicitor was negligent at the time of your purchase, if they did not advise you that you were buying a leasehold rather than the freehold.

Also, it sounds like you bought a short lease, which again you should have been advised about at the time of purchase. You solicitor has no excuse for not providing you with the relevant advice on these two points.

However, I don't see the relevance of the shared-ownership concept to the issues that you've experienced. Even if you bought a 100% share of the property at the outset, the fact that you were unaware it was a leasehold on a short lease, means that you would still be in the same predicament.

Edited by Mandat on Thursday 3rd December 17:27

My bug with the heating was that I had to foot the bill for the whole lot, where that has benefitted the landlord on their 75% In fairness they should have stumped up 75%
Shared ownership = 100% costs to fix issues, not shared costs to fix issues.
May not have bought if I knew it was leasehold with 99 years.

[Mandat]

Sounds like you've been totally misled and misinformed about everything to do with your property purchase.

You should seriously consider suing your solicitor for negligence for their failure in advising you on the basic due diligence with the purchase. You can at least use the money recouped towards your heating repairs.