Shared ownership again sorry what's wrong with my logic?

chimpxp

Hi

I'd really appreciate someone's help with this as i've read about a million posts and a lot of people seem to say its shared ownership is stupid or bad, but they tend to be quite old posts when the market was a bit different and i wonder if many of them relate to areas outside of London which may again be a quite different market.

Here's my options. I'm tending to go with option 2...i know a lot of people will say i'm stupid, but if so can you explain why?

Option 1

---

Buy a 1 bed flat for £268K. This would stretch me to my absolute max, i'd have to use my 18K of share money + about 8k stamp duty and it would cost me around £1400 p/m + if mortgage rates go up i'd really struggle.

Option 2

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Buy 40% of a shared ownership newbuild for £127K (40% of 317K). I wouldn't need to use my share money for this and stamp duty would be around 1.5K. I would then pay £500 a month rent + service charge and £500 morgage (I currently pay 1K rent a month for a one bedroom flat). I'd be better off each month and live in a flat that was a bit bigger with an extra bedroom.

Option 2 seems better to me? No?

CheeseCat

Must admit to being a bit biased against SO as I don't really get why anyone would want to own half a house (or even less in your case)

The things I would want to know/consider would be:

Is the rent fixed? Or can they put it up at any time?
Is the service charge fixed? (christ, a flat for £317k?!):eek:
What happens if you want to sell?
Do you have any option to buy the other 60% at any point?

Orpheo

Shared ownership is a scam.

BitterAndTwisted

Buy the smallest and cheapest freehold place you can get your hands on.

In my opinion shared ownership really is a scam. It all looks quite attractive when you're buying but it's when you're trying to sell that all of the major disadvantages show up. In spades.

chimpxp

Thanks for responding CheeseCat

I think the rent is fixed a 2% of their portion - so it will go up, but it shouldn't be difficult to handle
Service charge can go up in theory, but I think there are limits
If I want to sell they have priority to try and sell it for me, if they can't i can try and sell myself
I can buy their portion when I want, but it will be at market value and i will have to pay fees whenever i do this

i could actually afford to buy a bigger chunk now, but to be honest i'm not really thinking of buying it outright. Just trying to get my 40% paid off asap and then just rent the rest (maybe I should go 50/50).

chimpxp

Bitter and Twisted and Orpheo ..... i keep hearing these arguments, but don't understand why?
If i buy the smallest and cheapest freehold property - i'd have to live in a crappy house for say five years, pay a load of stamp duty and pay more money in mortgage
If I buy the shared ownership i probably wont make much money, but i'd live in a swanky pad that might be worth a bit more in 5 years time?

How is it a scam?

Wickedkitten

chimpxp wrote: »

Hi
Option 2

---

Buy 40% of a shared ownership newbuild for £127K (40% of 317K). I wouldn't need to use my share money for this and stamp duty would be around 1.5K. I would then pay £500 a month rent + service charge and £500 morgage (I currently pay 1K rent a month for a one bedroom flat). I'd be better off each month and live in a flat that was a bit bigger with an extra bedroom.

Option 2 seems better to me? No?

Your rent + service charge on a new build flat this year is 500.

Rent is linked to RPI and it's usually RPI + 1%, RPI at the moment is 5.3% so say it didn't fluctuate and was still the same this time next year, you would be looking at a rent rise of 6.3%.

You have a new build development so in Year One, your service charge will probably be quite constant, year two however, it could end up going up by quite a bit because things will start breaking.

Mortgage - same really, Base rate won't stay at 0.5% forever and outside of the shared ownership aspect, since you are in a new build, your property has more than likely been valued for at least 20% more than what it's worth which would make it harder to get a good remortgage.

I'm guessing this might be a one bedroom flat, but even if you had a two bedroom, you might not be able to sublet a room to get a lodger in to help out financially because the HA won't allow it. Nor would they allow you to rent it out if something happened where you lost your job, got married, had to move to a different part of the country for work.

casper_g

chimpxp wrote: »

Hi

I'd really appreciate someone's help with this as i've read about a million posts and a lot of people seem to say its shared ownership is stupid or bad, but they tend to be quite old posts when the market was a bit different and i wonder if many of them relate to areas outside of London which may again be a quite different market.

Here's my options. I'm tending to go with option 2...i know a lot of people will say i'm stupid, but if so can you explain why?

Option 1

---

Buy a 1 bed flat for £268K. This would stretch me to my absolute max, i'd have to use my 18K of share money + about 8k stamp duty and it would cost me around £1400 p/m + if mortgage rates go up i'd really struggle.

Option 2

---

Buy 40% of a shared ownership newbuild for £127K (40% of 317K). I wouldn't need to use my share money for this and stamp duty would be around 1.5K. I would then pay £500 a month rent + service charge and £500 morgage (I currently pay 1K rent a month for a one bedroom flat). I'd be better off each month and live in a flat that was a bit bigger with an extra bedroom.

Option 2 seems better to me? No?

Option 1: don't do this. You'd be stretched from the word go, and completely unable to cope when rates rise. When rates rise, not if.

Option 2: I wouldn't do this personally. I've been convinced by the many arguments put forward on this forum and elsewhere that shared ownership is not a great deal for the buyer/tenant in the medium-long term.

To me, the two options you present don't seem to make much sense. You're comparing a one bed flat for £268K with a two bed that (based on the price of a 50% share) costs only £254K. Surely, if a 2 bed can be had for £254K there must be lovely 1 bed places available for significantly less than that. Go and find one of them.

Out,_Vile_Jelly

chimpxp wrote: »

Bitter and Twisted and Orpheo ..... i keep hearing these arguments, but don't understand why?
If i buy the smallest and cheapest freehold property - i'd have to live in a crappy house for say five years, pay a load of stamp duty and pay more money in mortgage
If I buy the shared ownership i probably wont make much money, but i'd live in a swanky pad that might be worth a bit more in 5 years time?

How is it a scam?

What exactly do you mean by "swanky"? Does the marketing brochure use words like "executive living", "up and coming" and "metro luxury" to describe a tiny flat with a kitchen in the living room?

If you only plan on living there for 5 years, you have to think about who is going to be willing and able to buy it from you at a break even price. Your "swanky" pad will be one of many identical new build 1 beds, with the brand new shiny "designer fittings" now looking a bit tired. Will you be able to rent it out? Can anyone buy it? Who are going to be your neighbours- lots of slick professional couples as depicted in the brochure, or council tenants?

Shared ownership is generally thought to be a combination of the worst of buying and the worst of renting. Read the small print. Twice. Then get your solicitor to explain exactly what happens when you want to move.

chimpxp

Thanks Wickedkitten, Casper and OVJ, very clear responses. Back to the reality of having to live in something pretty shoddy and looking for a more affordable one bed flat

mlz1413

My mum bought a shared ownership some years back, I can't remember the %, the plus sides are compared to rental you can't have your contracted ended (short of never paying any rent), you can decorate how you like and have friends / relatives come to stay for however long they want without having to ask the LL permission, have pets if you want.

Bad points were when she went to sell. The bit about the association can try and sell for you was actually you have to allow the association to try and sell for a period of time (3 months?) then afterwards it can go on the open market. I've got a feeling my mum's actually had to go on a swap list for a period before it was even put on the sale list but it was so long ago the memories are fading.

Also she had to pay 100% of all costs to sell this included both solicitors, everything is at current market value, in mum's case this was much higher but for you it would be worth asking what happens if the market prices are lower. ie if you buy some of the 60% would it be at cost when signing or at lower market value.

Ask for a copy of the terms & conditions and read it through - if you don't understand something then write asking your question and get the answer in writing.


I have to say Orpheo's response is useless - either back that comment up or put 'in my opinion' in front of it!