Shared Ownership, is it a good idea?

ahomemadetouch

its something we are looking into as we currently can't afford a mortgage on the open market

river_storm

[FONT=&quot]I am in a similar position as loads of other 30 something, professional couples.[/FONT]

[FONT=&quot]My husband and I have been saving for years to try and get a deposit together to buy a property, but with house prices increasing a the rate they have been, our dream of buying a property outright has now completely slipped out of our hands.[/FONT]

[FONT=&quot]As such we have very reluctantly started looking at shared ownership properties and have discovered a much “darker” side to SO, than the glossy brochures banded around by the HA / Developers would like us to believe[/FONT]

[FONT=&quot]First things first, and this is the most important part of SO that you need to understand.[/FONT]

[FONT=&quot]There is no such thing as “shared ownership”. This is a myth that is being sold to thousands of people. No matter how large the share you purchase in the property, you DO NOT own any part of that property. You are merely buying the lease and have no stake in the property. [/FONT]

[FONT=&quot]The Housing Association remain the owners of the WHOLE property up to the point where you buy 100% of the property.[/FONT]

[FONT=&quot]The case that brought this very much to the attention of the legal world was Richardson vs. Midland Heart Ltd (2008). A[FONT=&quot]s I am a new user of MSE, I am not all[FONT=&quot]owed to p[FONT=&quot]ost link[FONT=&quot]s, but [/FONT][/FONT][/FONT][/FONT]you Google it, you will find a lot of information on this case.[/FONT]

[FONT=&quot]From this case, you will see that the 50% owner of the property (in the case Mrs Richardson), who paid the full £29,995 cost for her 50% share in the property outright and continued to pay rent on the remainder for a further 10 years, lost everything because she fell behind on her rent for 2 months.[/FONT]

[FONT=&quot]“The second consequence is that the landlord is then entitled to retain for itself the whole of the tenant’s capital investment in the property.”[/FONT]

[FONT=&quot]“The householder was not, it seems, the owner of a half share in the property, paying a rent on the other half share that the association still owns. There is no shared ownership at all. What the householder owns is the lease and nothing else, and once the lease has gone then so has the householder’s stake in the property. It is the way these two consequences intersect that makes the result so unpalatable. Once arrears have accrued, the tenant only has a short window of opportunity to pay the debt or lose the whole investment.”[/FONT]

[FONT=&quot]I cannot stress how important it is that all people considering SO need to be aware of this. It doesn’t matter who the HA is, this applies in the vast majority of cases and I find it quite unsettling that solicitors do not bring this to the attention of buyers during the legal bits of the buying process.[/FONT]

[FONT=&quot]Pros of shared ownership (If you could call it that):[/FONT]

· [FONT=&quot]A minimum of 5% deposit is required on the share that you are purchasing[/FONT]

· [FONT=&quot]In some cases, this allows you to “buy a share” in a property that you wouldn’t be able to afford on the open market[/FONT]
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[FONT=&quot]Cons:[/FONT]

· [FONT=&quot]New builds and resale’s, which are normally new builds, are way overpriced for what you get [/FONT]

· [FONT=&quot]Landlord control (i.e. the HA). You are not allowed to make any changes to the interior of the property (even minor changes) without the express prior written consent of the HA (for which they charge a fee of no less than £75 and in some cases, £150 + VAT per item). These changes also need to be carried out by qualified tradesmen (no matter how small the piece of work is), s[/FONT][FONT=&quot]o, DIY for anything other than a coat of magnolia is going to be out of the question.[/FONT]

· [FONT=&quot]It is also important to note that any improvements that are made to the property which leads to the value of the property increasing (let’s say an improved kitchen which you have paid for) – the HA will have a percentage stake on it. [/FONT]

[FONT=&quot]For example, if you “own” 50% of the property and you have done work which increases the value of the property by £2K. When you sell the property, £1K of that additional value goes straight to the HA, even though they have contributed nothing to the improvements that have been made to the property which led to the increase in value.[/FONT]
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· [FONT=&quot]There are limited amounts of Banks / Building Societies that offer SO mortgages. Those that do, charge high interest rate on the mortgages and higher mortgage arrangement fees due to low deposit paid. The Banks & BS still very much see SO properties as a high risk.[/FONT]

· [FONT=&quot]No control over rent or service charge increases. [/FONT][FONT=&quot]E.g. rent starts at 4% of the original value of the equity (per year), but each year it is increased by RPI + 1%. In other words, every year you get an inflation busting rent rise.[/FONT]

· [FONT=&quot]You are 100% responsible for all maintenance and repairs to the property, inside and out..[/FONT]

· [FONT=&quot]There is the possibility of large maintenance bills, especially in flats. [/FONT][FONT=&quot]On blocks of flats maintenance can be very expensive, and you do not get a say in whether it is done or not. If the landlord wants it doing, it gets done, and you get the bill. [/FONT]

[FONT=&quot]If it's major work like replacing external windows, then it can be a big bill. E.g. people who had bought their council flats, and had lived in them for a further 5 years, suddenly one day got a letter saying the external windows in the block all needed replacing - a bill for the work was enclosed £15k per flat, payable within 30 days. [/FONT]

[FONT=&quot]At least in a block with a high proportion of 100% owner occupiers, there is likely to be a residents association, where such matters will get appropriate discussion and residents approval, which is likely to include saving funds for several years (or a communal business loan, to be repaid over a few years). In these shared ownership blocks, or in block with large absentee landlord owners, the top landlord's decision is final.[/FONT]

· [FONT=&quot]You are not allowed to rent out (sublet) bedrooms or even the whole property, should you fall on hard times or need to leave the area due to work commitments etc.[/FONT]

· [FONT=&quot]You're obliged to sell back to the housing association as a first resort and for a period (usually around eight weeks), the housing association has the exclusive right to market the property. The effectiveness of housing associations in marketing property does vary, but many shared owners feel that they don't 'sell' as effectively as an estate agent would for those first two months. [/FONT]

· [FONT=&quot]Don’t think the HA are doing you any favours by marketing your property for 8 weeks. You will need to pay them a sellers fee, usually 1% of the whole property value ![/FONT]

· [FONT=&quot]You can only sell to certain people, i.e. first time buyers, people who meet the HA financial eligibility criteria etc etc.[/FONT]

· [FONT=&quot]Even if you own 100% of the property, most HA have a clause that state for a period of 21 years after you have bought the full property, if you want to sell the property, you need to give them first refusal and sell through them.[/FONT]

· [FONT=&quot]Depending on the property you have bought (flat / house), you are still liable to pay service charges etc. to the HA, even if you own it outright.[/FONT]

· [FONT=&quot]If you do want to staircase and increase your share of the property, you have to have the property valued through the HA, normally at a cost between £500 - £700, plus you then have to pay full solicitors fees again, as you are changing the lease and are technically going through the whole “buying process” again. You might also have to pay further mortgage arrangement fees etc., depending on your mortgage.[/FONT]

[FONT=&quot]So if you are thinking of increasing your share by 10% or 15% increments at a time, this will work out to be very costly ![/FONT]

· [FONT=&quot]If you fall behind on your rent, even by a small amount, the HA can impose a possession order, which means you will lose all your equity and the property and will find yourself on the street with nothing to show for all they money invested in the property and a destroyed credit rating.[/FONT]


[FONT=&quot]If you are considering buying a SO property, ask the HA if you could have a copy of the lease to read before you make any decisions as this is where the real truth of the matter comes out.[/FONT]

[FONT=&quot]HA's differ all through the country, but the main principles remain the same, so approach SO armed with all the facts and make an informed decision.[/FONT]

[FONT=&quot]My personal opinion is, as long as you pay all your bills on time, have no intention of making any changes to the property (even minor), are willing to have all the responsibility of a home owner, with none of the rights, or have no intention of selling / moving, SO if probably an OK option. [/FONT]

gazfocus

That last post by river_storm sounds like the crap that brit1234 usually spouts.

If you look at the details of the Richardson vs Midland Heart, arrears had built up over 8 months (February 2005 - October 2005) before Midland Heart began Possession Proceedings and the case was based on Richardson falling behind on the assured tenancy, not the lease.

It may be different for some cases but I know when I bought a Shared Ownership property, I did not enter into an assured tenancy. It's also standard practice now for Shared Ownership leases to include a provision that the landlord must give the mortgage provider the opportunity to pay off the arrears.

However, it's no different to falling into arrears with your mortgage payments. If you fail to pay your mortgage, you lose your house, so how's that any better than losing your house if you fail to pay the rent element?

· New builds and resale’s, which are normally new builds, are way overpriced for what you get

The new builds are not anymore overpriced than if you bought on the open market. Resales are often available at a much less overpriced cost.

· Landlord control (i.e. the HA). You are not allowed to make any changes to the interior of the property (even minor changes) without the express prior written consent of the HA (for which they charge a fee of no less than £75 and in some cases, £150 + VAT per item). These changes also need to be carried out by qualified tradesmen (no matter how small the piece of work is), so, DIY for anything other than a coat of magnolia is going to be out of the question.

This is not the case for all housing associations. You only need permission to make structural and layout changes (i.e. erecting walls/conservatories) and things like fitting a new kitchen, but in my experience, we were never asked to pay a fee to the Housing Association for their permission.

I built a partition wall, conservatory, new kitchen and the permission granted was on the basis that the job was carried out by a competent tradesperson, but this was never enforced and as long as the job was done properly, they didn't care (they also never inspected the work afterwards).

· It is also important to note that any improvements that are made to the property which leads to the value of the property increasing (let’s say an improved kitchen which you have paid for) – the HA will have a percentage stake on it.

For example, if you “own” 50% of the property and you have done work which increases the value of the property by £2K. When you sell the property, £1K of that additional value goes straight to the HA, even though they have contributed nothing to the improvements that have been made to the property which led to the increase in value.

Again, check the terms of the lease but in my experience, this was not the case. The terms of my lease stated that any increase in the value associated with work I had done would be added to my share only. As an example, my HA valued my house at £130,000 but only wanted £60,000 to purchase their 50% share.

· There are limited amounts of Banks / Building Societies that offer SO mortgages. Those that do, charge high interest rate on the mortgages and higher mortgage arrangement fees due to low deposit paid. The Banks & BS still very much see SO properties as a high risk.

I do agree with this one. My Shared Ownership mortgage was at 5.79% whereas the mortgage for my current house is 2.69%.

· There is the possibility of large maintenance bills, especially in flats. On blocks of flats maintenance can be very expensive, and you do not get a say in whether it is done or not. If the landlord wants it doing, it gets done, and you get the bill.

If it's major work like replacing external windows, then it can be a big bill. E.g. people who had bought their council flats, and had lived in them for a further 5 years, suddenly one day got a letter saying the external windows in the block all needed replacing - a bill for the work was enclosed £15k per flat, payable within 30 days.

To be fair, if you buy a property in a block of flats, you would still have to pay a service charge so that's nothing unique to shared ownership. There terms would also be the same.

· You are not allowed to rent out (sublet) bedrooms or even the whole property, should you fall on hard times or need to leave the area due to work commitments etc.

I would check this one with the specific housing association. There are allowances for exceptional circumstances.

· You're obliged to sell back to the housing association as a first resort and for a period (usually around eight weeks), the housing association has the exclusive right to market the property. The effectiveness of housing associations in marketing property does vary, but many shared owners feel that they don't 'sell' as effectively as an estate agent would for those first two months.

You have to offer the housing association first refusal but they are usually reluctant to buy the house back (as they must pay market value). If the housing association fail to sell your house, you get to put it on the open market. Most housing associations also give you the right to sell 100% of the property so you can attract more buyers that way.

· Don’t think the HA are doing you any favours by marketing your property for 8 weeks. You will need to pay them a sellers fee, usually 1% of the whole property value !

Which is about 50% cheaper than estate agents who usually charge around 2% of the whole property value.

· You can only sell to certain people, i.e. first time buyers, people who meet the HA financial eligibility criteria etc etc.

Not true - many housing associations give you the option to sell the house as a 50% share or as a 100% outright purchase.

· Even if you own 100% of the property, most HA have a clause that state for a period of 21 years after you have bought the full property, if you want to sell the property, you need to give them first refusal and sell through them.

They may say you have to give them first refusal but there is no clause to say you have to sell through them.

· Depending on the property you have bought (flat / house), you are still liable to pay service charges etc. to the HA, even if you own it outright.

Exactly the same as any other property with a service charge!

· If you do want to staircase and increase your share of the property, you have to have the property valued through the HA, normally at a cost between £500 - £700, plus you then have to pay full solicitors fees again, as you are changing the lease and are technically going through the whole “buying process” again. You might also have to pay further mortgage arrangement fees etc., depending on your mortgage.

You pay for the valuation at COST. Therefore, if the housing association pays £150 for the valuation, you pay £150. I had to pay £180 for my valuation...nowhere near the £500-£700 you claim.

You pay for your own solicitors fees and the housing association pays for their own solicitors fees.

· If you fall behind on your rent, even by a small amount, the HA can impose a possession order, which means you will lose all your equity and the property and will find yourself on the street with nothing to show for all they money invested in the property and a destroyed credit rating.

No they can't. They have to inform your mortgage lender of the arrears and the mortgage lender has the option to pay the arrears and add them to your mortgage amount. It is then up to the mortgage lender to decide whether or not to impose a possession order, in the exact same way they would if you owned 100% of the house and fell behind with the mortgage.

gazfocus

After that long response, I thought I would share my opinion.

I sit on the fence somewhat with regards to shared ownership. I do believe that you need to be careful and you need to read the lease carefully before proceeding (which is what I did). The lease will tell you everything the housing association are/are not allowed to do and if you don't understand something, speak to the housing association for clarity. I made a nuisance of myself to the housing association but I am armed with all the facts.

My experience was that I purchased a 50% share in a 3 bedroom semi-detached resale house. I paid a 10% deposit and got my mortgage through Leeds Building Society. In total, between the monthly mortgage payment and the monthly rent payment, I was paying £600 per month. This is the same as what the rent on similar houses in the area cost so I was much better off knowing that I was also paying equity into the share that I own. The housing association have been great and provided permission whenever I've needed to ask and the house is now a million times better than it was when I bought it.

We have since moved out of the shared ownership house and opted not to sell it because we had just spent £13,000 on a conservatory and we wouldn't get that money back. After some persuading, the housing association gave me permission to sublet the house and have been very helpful at all times.

I'm not sure I would buy a shared ownership property again, but I don't regret doing it.

emcap

I'm not a fan of Shared ownership as at the end you are responsible for all the charges though you own only part of the property and still have to pay rent on top.

I did some comparison on buying outright or using govt home2buy new build scheme.

I have a google spreadsheet at -
http://www.gurinder.net/blog/newbuild-help2buyoroutrightanalysis
you can put your own values and see how it works out for you.

stator

I don't see the point of shared ownership to be honest. It seems like you get all the bad bits of owning a house (paying for all the repairs) and all of the bad bits of renting (no pets, can't make your own changes/extend). Plus with the rent going up over inflation every year, you're getting overcharged.

Would be better to buy using a Help to Buy 95% mortgage.

gazfocus

stator wrote: »

I don't see the point of shared ownership to be honest. It seems like you get all the bad bits of owning a house (paying for all the repairs) and all of the bad bits of renting (no pets, can't make your own changes/extend). Plus with the rent going up over inflation every year, you're getting overcharged.

Would be better to buy using a Help to Buy 95% mortgage.

This is why I sit on the fence, even having bought shared ownership.

Realistically speaking, yes, I got to buy 50% of a £124,000 house for £62,000, but if I had bought a £62,000 house outright, I would be in a much better position now.

I do think that 100% of people buying shared ownership houses go into it believing that they will staircase to 100% throughout their ownership, but this very rarely happens as it's somewhat difficult to pay mortgage, rent, and save up enough to staircase as well.

river_storm

Hi Gaz,

I am new to the forums and not sure who Brit somebody is, but I didn't have time to finish my post.

I've been looking into SO for a while now and have done a lot of reading, including on MSE over the past 6 months or so.

The facts that I have posted are 100% correct and the reason I can be so confident about this, is because we are considering buying a SO via Rooftop Housing and I have a copy of the lease in my hand.

The house that we are thinking about has a reasonable sized kitchen, however, it has extremely limited storage and work surface space, We knew we would have to get permission from Rooftop to carry out any work in the kitchen and asked them how much this permission would cost. I have an email that I could forward on to you if you so desire from Rooftop clearly stating that we need to apply in writing to do the work and it would cost £75 for a letter from them giving us permission to carry out the work.

It also clearly states in the lease that the rent will increase annually by the RPI, plus 1.05%.

It also clearly states in the lease about the 21 year thing having to sell back to them etc etc.

I am not in the habit of posting incorrect information or facts on the internet / forums and was merely giving my opinion in a debate.

I also state in my post that things vary from HA to HA and not everyone is the same. Some are more strict than others, but the majority of them are the same.

samo8076

I have just moved out of a shared ownership property. They are great for getting on the ladder, but a pain to sell. Took me 2 attempts over 3 years to sell.

I had a 50% share, mortgage on my share, paid rent on the housing assoc share. Together worked out almost half as it would cost to rent a similar property, so price wise it was great. I could decorate it how I want, and the only time I would need permission is if I wanted to make any structual changes.

I don't regret owning one, but wouldnt go for another again.

AMILLIONDOLLARS

Shared Ownership through a housing association, I would recommend. A member of my family did this and now has a decent deposit to buy their own home outright.

They have first refusal to sell on the share and it can take out the hassle of selling yourself. Like everything in life, it's swings and roundabout.

Just to correct one thing, they are only paying the 1% fee on the share they are selling, not the value of the whole house.

AMD