Shared Ownership on older properties, still such a bad idea?

C22DTJ

Hey all,

I made a thread recently about my partner and my journey to buying our first home. At the time we'd had an offer accepted on a new-build property, but decided to pull out for two reasons, a)we couldn't get a mortgage with our deposit (15% LTV where most banks want 20% on new build) and b)we discovered how much social housing was on the new development and were concerned with future values since the house in question was already a little high.

So a couple weeks have passed and we've completely gone off the idea of a new build. We've been looking at some fantastic older properties both in our local town-centres and also out of town. We live in Warwickshire so there's a great selection of older properties (Leamington Spa - Regency) and REALLY old properties (Stratford Upon Avon).

The most important thing to us is location. We're looking at £150k for a 1 or 2 bed apartment, which isn't necessarily an issue, but I've just noticed a few shared ownership properties in similar locations but they're much better properties; 2 bed houses (with gardens in some cases).

The SO properties in question are not new, and they're not in new/ongoing developments. They're about 7 years old and the areas they are in have managed to become decent, respectable areas, and the prices have obviously stabilised a little (and come back in line with other prices). So for around £100k we can get 50% of a 2 bed house with driveway and garage.

We've been approved by Bromfords (the housing association selling the SO properties) and they've offered us the 50% we want. However, the current tenant/owner only owns 25% of it, and whilst we can negotiate with him, we can't get Bromfords to shift on their share price, which is currently slightly above market value in my opinion.

The thing is, if we can knock the seller down ~£5k, then even with the 25% from Bromfords at their valuation, our total cost for the 50% does bring it closer to what I'd say is a better price.

We've checked the terms of the shared ownership scheme and it looks ok. We pay a reasonable rent figure, which is reviewed yearly but over the past 5 years hasn't increased by more than .5%. We can purchase any further share at any point up to the full 100% providing we pay our own associated legal fees and valuation fees.

So it is kind of appealing to us right now, but I can't help but notice the bad press SO gets. Is it fully justified? Should I just forget about the SO and go for the smaller 100% owned option?

We probably wouldn't end up buying the whole 100%, and we're only planning to stay in the house for 3-5 years.

Thanks

cbr600f

C22DTJ wrote: »

We've checked the terms of the shared ownership scheme and it looks ok.

I also looked into shared ownership in my area, With a 25% share. My conclusion on shared ownership is that once your in its very hard to get out.
I decided that if i was going to opt for shared ownership i would have to have the Full 100% (Ring fenced in a trust - which is handy because i dont have to declare the full amount) or be able to reasonably get it within a short space of time (say something changes you need more space or need to move)

I have found that alot of people are stuck in SO, the association wont buy their share, so have to sell their share on the open market after a 2 MONTH period of the association trying to find someone to buy through thier list.

Check my post and you will see in the poll that shared ownership is very low on the scale.
https://forums.moneysavingexpert.com/discussion/4130387

So its easy and cheap to get into but hard to get out is my concluding statement. (Plus if you loose means of paying rent then thats also a problem)

cbr600f

Also the HCA (Housing and Communities agency) should be able to get you a minimum of a 25% share if thats what you can afford. (this may not apply to Shared ownership resales but applies to new builds for sure)

C22DTJ

Thanks for the comments.

Yeah it doesn't look like an ideal option that's for sure.

We made an offer to the seller on the 25% they own, but they weren't willing to move. In all honesty it sounds like they've been screwed by the deal themselves and if we go below the asking price, they're going to be in negative equity.

That kind of makes me wonder whether we'd be in the same position in a few years if we want to sell, hence me wanting to try and get the overall price down a bit.

We could buy a 50% share, and we'd be putting around £25k down, but even then we have the problems you mentioned about selling and the difficulty some people have with trying to sell their share.

It's a real tough call because it's a house, and a pretty good house at that, but long term, it could be a financial mistake.

TrickyDicky101

If you only want to stay somewhere between 3 and 5 years then I would suggest buying is probably the wrong choice - given the associated costs and the uncertainty within the housing market (especially over such a shot horizon) I would think it would make more sense to rent.

martinsurrey

C22DTJ wrote: »

Hey all,

We've been approved by Bromfords (the housing association selling the SO properties) and they've offered us the 50% we want. However, the current tenant/owner only owns 25% of it, and whilst we can negotiate with him, we can't get Bromfords to shift on their share price, which is currently slightly above market value in my opinion.

Highlighted the important bit.

this means if you staircase you'll pay more than market value, and if you sell, your buyer will be paying more, so are less likely to buy.

All in all, easy to get in, hard to get out! (as the current owner is finding)

I would buy a smaller 100% owned property.

C22DTJ

Thanks guys.

It's interesting you say that TrickyDicky. We've considered renting but aren't sure whether it's the right thing. I mean, it would make sense since we are only planning to stay for 3-5 years. We currently don't have kids, but are planning to in the next few years, certainly within 5. The kind of properties we're looking at will most definitely not be suitable for kids, so we had a view to moving when we need to.

The problem is, renting is expensive and I'm not sure where that would leave us with regards to saving extra money for a house later. A mortgage on a £150k house with our £25k is looking like around £620 p/m. Rented places of a similar size (1 and 2 bed apartments) go for around £700 p/m so not only would it be more expensive, we'd be accruing zero equity and not really able to put much aside. At least not right now, I suppose that may change in the coming years as salary increases (hopefully!) but that's speculative.

It's worth looking at though maybe, and I definitely see the benefits for short term.

Martin -

Indeed, that's what I'm concerned about. It seems like the right solution would just be to go with the smaller property and purchase it 100%. I find myself disliking the idea of SO more each day due to the negative responses I'm seeing.

Thanks again.

TrickyDicky101

Don't forget that were you to rent you would be able to invest your £25k and earn interest on it (@3%pa that would equate to £750 in the first year which practically offsets the increased cost between rent and mortgage).

Admittedly, you would be paying back a fraction of your mortgage in your mortgage payment, but over the course of 5 years and assuming a 25year term, this would only represent 12%ish of the original amount borrowed (also assumes a rate of 4% on the mortgage). However, there are maintenance costs to be factored in when you own a property which could easily wipe out this capital element.

So savings will be marginal at best on the figures you have quoted. You have to ask yourself 'is exposure to the volatility of the property market worth it to me?' because this is the question you need to answer from a financial point of view.

martinsurrey

TrickyDicky101 wrote: »

So savings will be marginal at best on the figures you have quoted. You have to ask yourself 'is exposure to the volatility of the property market worth it to me?' because this is the question you need to answer from a financial point of view.

if youtalk about volatility in the property market its only fair to talk about volatility in the rental market.

average rents increased by 5% last year, add on to this the costs of moving from rental property to rental property (credit seach, admin, removal costs, check in) and you can very quickly spend as much as maintaining a purchased property.

If the £700 rent went up by 4% a year you would be paying £818 a month in year 4-5, while a mortgage might not move too much (should actually get cheaper if you can get some more equity and move from a 85% to 80% deal)

Factor in the none cash elements as well. A rental home will never feel like your home, you cant decorate you cant put pictures up, you cant do a great many things. (I know there are a few great LL who will let you do things but by a large you cant).

C22DTJ

Thanks for the replies guys.

Well, we decided against SO, we found a beautiful period conversion apartment which we instantly fell in love with. Ended up offering a little more than we'd planned to but it's affordable and the location/floorspace is better than anything we'd seen prior.

We bought it for £148k but were competing against three other offers (one was higher but part of a chain apparently) so comfortable that it's a realistic price.

We went through the mortgage application and got approved for 81% LTV. The documents are now on their way to us and been told it's just subject to underwriting and valuation.

The thing is, we've now had to instruct a solicitor which is going to cost us a small amount up front, but I'm concerned about this 'subject to underwriting' thing. Does that mean the mortgage application could still be declined? I'm worried I'll have paid a bunch of legal fees and then have the mortgage turned down.


I mean, I'm hoping everything will be ok. Our ID's are all fine, employment history is legit and verified by plenty of payslips/bank statements.

Apologies if this is a silly question, as FTB's we are blissfully unaware of all of the process.

geoffky

FTB's we are blissfully unaware of all of the process.

And here is why first time buyers are screwed by sellers and company's...easy meat for all..
I did 2 years homework before buying my last house and knew every house on the market in my area. I also had asking prices on a the computer and selling prices, and the difference was amazing..