Shared ownership scheme or continue to rent?

jobug

Hi all,

I was wondering if anyone had any advice or experience or shared ownership schemes.

I am 22 years old, and have been renting since I was 18. I am desperate to get onto the property ladder, and have been saving as much as I can for a deposit. I have saved just over £8000, but with the high cost of rent and other living expenses, I feel as though I am throwing my rent money away, whereas if I was able to buy a property, my hard earned cash would be going towards paying off a morgage.

Obviously £8000 deosit would not be enough for a 2 bed house that I dream of, but if i were to buy a 40% share of a house with Thames Valley HA I would only need a mortgage of around £70,000, which is more in my price range.

I currently pay £795 for a 2 bed rented house with my boyfriend. We have heard from different sources that if we were paying a percentage of mortgage/rent it is likely to be less than this, which is a bonus already.

I understand that there are pitfalls to this, and have been scared off a bit by some other threads and articles about these schemes. But would it be better to be paying towards at least 40% of a house and 60% rent, rather than continue to rent and have nothing to show for it?

Thanks for taking the time to read, all advice/opinions is greatly appreciated!

J_i_m

It may be harder to move from there when you are there, so what happens when you have kids and need to expand?

You have £8000 already.. So why not sight tight and save some more for mortgage on 100% ownership.

jobug

Yes I have thought about that, as I would like to have children in the not too distant future, and I would need to expand then.

This may sound really stupid, as I am not too clued up on the housing market, but why would it be more difficult to move from a co-owned property?

Thanks

J_i_m

There may be some clauses in the contract that could limit the amount of potential buyers from you. The scheme might have the position of being able to veto a sale if they want it to continue as shared ownership.

Then there's the value of the house, there's no guarantee it'll hold it's value, quite the opposite and so your £70'000 share (which you'll still be likely repaying to your lender) could then then worth considerably less, reducing the amount you can use as a deposit on your next house, (remember to take into account, fees and duties). And then there is no guarantee that you'll be able to get a mortgage for your next house anyway.

In your place, my plan of action would to be to remain where I am and continue saving for a deposit for a 100% ownership to coincide with your future family plans.

jobug

Thanks for your advice! I think your right, I just got excited at the thought of being able to get away from renting, but like you said if I wait it out a few more years and work really hard on saving, I would be in a better positon to buy 100% (hopefully).

Fire_Fox

Feeling like you are throwing money away on rent is not the same as actually throwing money away on rent. Had you purchased at any time since 2007 you would have lost thousands or tens of thousands on equity and the costs of buying and selling. Remember the lions share of your mortgage is interest, you don't actually see anything for that except a roof over your head - and with shared equity you also have to pay rent.

Property is a reasonable investment longer term - ten years plus - it is a gamble in the shorter term so rarely a good idea to purchase something you know you will grow out of.

jobug

What I mean by throwing away money on rent is I am pretty much paying my landlords mortgage at the moment. Would it not be better, even if it is just for say 5 years, to be paying a shared mortgage so I am paying in at least 40% into something I own.

If I was to sell up 5 years down the line, would I get any money back from the sale? (Sorry if these questions seem stupid, I really don't understand how mortgages work)

Thanks

Gordon_Hose

We're in a shared equity scheme where the developer "paid" 25% of the purchase price.

For £127,000 we bought a 2 bed, new build flat. The developer (Fairview) paid 25% of that and we put in £7k. Which left us with just over £88k on a mortgage.

It was a good deal at the time because there was no stamp duty. The developer then wanted their 25% repaying after 10 years. We bought in 2009.

Although we didn't pay any stamp duty at the time the government now want their slice of the pie and eventually re-instated stamp duty, starting at £125k and 1%.

We now find ourselves in the position that we want to sell, but no-one will pay over £125k for these flats, instantly robbing us of £2k. We wanted to sell at the price we purchased, but after a frank and open conversation with an estate agent, quickly realised getting £127k for the property was a pipe dream. Even though the estate agent said they were worth £127k PLUS all day long.

Personally I wouldn't enter one of these shared equity or part rent part buy schemes ever again. We're trying as hard as we can to save money to buy a house now that we have a little 'un.

My advice is to stay rented until you can afford to mortgage on your own.

J_i_m

The shared ownership house for you and your future intentions is still a relatively short term solution to a problem which isn't really a problem.. At 40% you've still got less of your fingers in the pie than the "Land Lord" does yet unlike a normal tenancy you're responsible for maintenance and repairs, you could end up paying mortgage, rent, ground/service charges, emergency repairs (and all the other usual utility) to the extent that you find your ability to save money is actually more compromised than it was when renting. And that could then harm your aspirations of climbing the ladder to a more family sized home.

I wouldn't be worrying about who's mortgage I might paying off or which greedy banker is making money out of me, I'd be thinking of my own long term goal and the most sensible and direct way to achieving that.

My personal plan is (I'm currently living with parents) is to save as much money as required to obtain a mortgage on house of my own, a house that ticks all my boxes and that I can see myself living in for the foreseeable future.

jobug

Gordon Hose, thanks for your advice. I have had a look into the house that I was interested in, and after comparing it to non 'shared-ownership' houses, it does seem overpriced in comparison. The price they are asking is £180,000 for a 2 bed semi, if I was looking at going down a normal 100% mortgage route, I could get a lot bigger for that price!

jobug

J I M, I think your plan would probably be best for me, but I have to live near to London for the commute, and my parents live in the Midlands which is a shame.

Maybe a better plan of action for me would be to downsize to a flat rather than a house, so I can step up my savings. I would need A LOT more than £8000!!