Shared equity does not lead to full ownership

Bf109

dest wrote: »

I understand all these points, but at the end of the day people need houses and if the only way to buy something remotely nice is to get shared ownership then that is what we have to do?

I despise the very principle of only owning 50% but i need a house for my gf and baby, with my mortgage offer of 74k i can either buy an old house in a poor area, or go for shared ownership and own 50% of a nice house in nice area?

While I appreachiate we are in the middle of a crash/recession the only thing i can hope is for serious negative equity allowing me to purchase the 2nd half of the house....

Why not rent a nice plac in a nice area rather than enslaving yourself financially with a shared-ownership rip-off slave-box?

And negative equity is not your friend in shared ownership. In fact, you dont have any friends at all in shared ownership.

If the market goes up = bad!
If the market crashes = bad!

You shouldnt believe everything you read in the papers.

poppysarah

Affordable housing is a serious issue in this country.
At the time when council waiting lists are bursting you've got to ask whether cheap rents and security of tenure are what people should be entitled to by law.

If rent levels were imposed at lower levels - and kill of LHA which can be easily manipulated by landlords in an area - then the economy would be healthier.

Bf109

Debt_Free_Chick wrote: »

If they're in the same area, then the £100k is likely to be a two bed flat and the £75k flat is studio

If its an SO place for £100k its likely to be a new-build one bed flat in an area where 2-bed terraces with nice gardens go for £75k.

Amongst everything else, SO places are grossly over-priced.

GDB2222

dest wrote: »

I understand all these points, but at the end of the day people need houses and if the only way to buy something remotely nice is to get shared ownership then that is what we have to do?

I despise the very principle of only owning 50% but i need a house for my gf and baby, with my mortgage offer of 74k i can either buy an old house in a poor area, or go for shared ownership and own 50% of a nice house in nice area?

While I appreachiate we are in the middle of a crash/recession the only thing i can hope is for serious negative equity allowing me to purchase the 2nd half of the house....

What's the absolute minimum percentage you can buy and still be classed as shared ownership? Can you buy say 10%? If so, why buy 50% in a falling market?

robin_banks

It's in all probability 25%, but why buy share ownership at all?

SandC

I've never really understood the attraction for anyone going into something like this. Well, perhaps in those areas of the country where the prices are/were absolutely ridiculous.

Seriously, where are these places where a 1 bed flat costs £400k? I'm not doubting they exist but are they not so called luxury developments or something?

What I could never get my head around is that if you only own 50% or less of a property yet pay rent on the rest, how on earth do you ever manage to save up to buy any more? The people who are destined for 100%, 200% increases in income within a short space of time (5 years say) are the only ones who ever could yet these are going to be intelligent people who recognise that it's better to buy something cheaper and move up rather than only own half or less of a property.

Maybe I'm being naive there...........

There are such schemes in my area but they don't look like they are going down too well. Only with those who believe they should have a 3 bed detached rather than a 2 bed terrace. Flats and apartments have never been very popular in a former industrial city where there are thousands of two up/two downs priced at less than a 'fancy' flat.

Affordable housing should be just that. I don't agree with the key worker schemes either - everyone is a 'key' worker in my eye but that's a whole other thread.

robin_banks

Seriously, where are these places where a 1 bed flat costs £400k? I'm not doubting they exist but are they not so called luxury developments or something?
_____________________________________________________________

A well known HA were advertising a 1 bed flat with 50% shared ownership for £195k in Marylebone , I would imagine it's still for sale as I can't see it shifting.

You wont get a newly built in London without the word 'luxury' in front of it.

Richard_Webster

You have to distinguish between the idea behind SO, which is a good, and what has mostly happened in practice, which is not.

Most SO properties are pretty new and developers have been forced to provide a proportion of "affordable" housing on their estates. They have sold the properties to HAs at unrealistically high prices which have then been reflected in the values placed on the share being purchased by the buyer. Lenders were too greedy for market share to downvalue. So if similar 20 year old properties were selling for say £160,000 a new one might be worth £170,000 not £200,000, but somebody borrowing 50% was happy to pay £100,000 because they couldn't afford £160K. Lender should have downvalued 50% share to £85K and if all lenders did that HAs would have had to be more sensible in their negotiations with builders who would have had to accept more sensible prices for their new builds.

On the other hand if have a SO deal on an older type of property under perhaps a DIYSO scheme where you go and find a house and get the HA to buy the freehold and grant you a SO lease then the market value is much more likely to be realistic to start with. Of course at the moment there could still be the negative equity problem, but that is not purely an SO issue.

dander

I know people who have bought with the second kind of SO deal that Richard speaks of. They chose theyir flats on the open market, and the housing association took a 25% share in it. Sure enough the people I know who took these schemes have now been able to increase their mortgages and take over full ownership. With these schemes the housing association doesn't retain an interest in the property if you want to sell up. The property is sold normally on the open market, but the housing association just takes 25% of the sale price (plus fees undoubtedly!) But they haven't been buying "luxury apartments", these have been conversion flats in unfashionable bits of London.

I think one of the keys is the percentage of ownership and the realism of the purchase. To get enough improvement in your finances to buy the final quarter of your property seems something most people can aspire to and achieve, but most people really can't expect to ever see the kind of leaps in salary that will suddenly allow them to increase a mortgage fourfold and the chances of ever going from a low percentage share to full ownership must be incredibly slim.

I think people get fooled by property programmes and luxury brochures into thinking they "deserve" to live in a luxury riverside "apartment" or whatever, even though they only earn the average wage or below, so they grab at owning a tiny percentage of a property that is realistically beyond their means and while they get to partially live in their dream world, they actually end up gaining all the disadvantages of property ownership - maintenance costs, reduced entitlement to benefits, reduced ease of relocation etc without gaining the major benefits of ultimately having a home for life and a foot on the 'housing ladder' that means you can move to a more suitable place for your changing needs.

Bargain_Rzl

SandC wrote: »

What I could never get my head around is that if you only own 50% or less of a property yet pay rent on the rest, how on earth do you ever manage to save up to buy any more?

A lot more easily than I could if I was renting...

I bought my flat (a 40% shared ownership) 2 years ago, prior to which I had been lodging/house-sharing. I have always lived in the cheaper boroughs of London and my "requirements" for a place of my own were modest: a one-bed flat in a non gentrified area within reach of Central London.

The bottom line for me was that in order to rent such a place by myself I would have been looking at £800-£850 in Zone 2, probably down to £750 in Zone 4 but with higher travel costs as most of my life revolves around Central London. Any further out and the prices aren't that much cheaper that they'd compensate for the still higher travel costs. If I'd chosen to buy outright, I could "affordably" (based on a sensible income multiple) have raised a mortgage for about £120k with a £10k deposit. At the time it would have been easy to get approval on a mortgage for a higher income multiple, but with interest rates historically low and property prices historically high, that wasn't a risk I was prepared to take. So I'd have been stuck with the Zone 4 option and would have been looking at £700p/m mortgage repayments plus service charges plus travel costs from Zone 4.

I then - while not even having considered Shared Ownership, as I'd recognised how overpriced most of them were - happened to see an ad for my flat, which is a newbuild in Zone 2, on bus routes (which keeps my travel costs far lower than if I needed a full Zones 1-2 travelcard). I bought a 40% share of a £145k property (which was priced very much in line with similar one-bed flats in the area) on which my monthly outgoings are around £600 including service charge. Rent and service charges are RPI-linked so there should be no shocks there. I put down a £7k deposit and started off with a mortgage of £51k, which I have effectively reduced by one-fifth in two years (in practice this is all still in fixed rate savings because I'm getting a better rate there, but I am expecting to move things around and have my mortgage below £40k by the spring, especially as most new savings accounts currently aren't even beating inflation so I might as well overpay.

My longer term financial plan is to clear the mortgage as soon as possible, then consider whether to buy the remainder. If I decide to remain at a 40% share and continue paying rent (which is currently about £220 a month), I will be looking at a long-term savings and investments plan, the idea being that if and when the time does come to move on, I will have the option of either selling it as a shared-ownership property if the market conditions at the time will support that, or buying the remainder prior to selling so I'm able to sell it as a normal, non-SO property. If I do decide to buy the rest as soon as my initial 40% is paid off, then regardless of the value of my flat at the time, I'm automatically starting off with 40% equity when I buy the remainder.

The people who are destined for 100%, 200% increases in income within a short space of time (5 years say) are the only ones who ever could yet these are going to be intelligent people who recognise that it's better to buy something cheaper and move up rather than only own half or less of a property.

Buying something cheaper and moving up is all very well if you're talking about family homes, but I needed an entry-level property, and that's what I will be needing for as long as I remain single (which is likely to be for the long term).

I fully appreciate how overpriced the majority of SO developments are (or at least were - are people still marketing these things?) I also fully appreciate that the way they're marketed is bound to appeal to people who haven't really done the sums. I have said at length on here in the past that I would never ever recommend Shared Ownership outright, only on a case by case basis - but it works very well in my circumstances