Can anyone explain pros and cons of part ownership?

going_nowhere_fast

I'm wondering if someone could explain the pros and cons of part owning a property because although i've tried researching it on the web, i am still clueless! In particular i'm curious about if you pay rent for the part you don't own.

Brief bit of info about me, currently a home owner in a sh*tty street in a shi*tty area with some lovely neighbours and some real shi*tty neighbours. Desperately want to move but have to clear debts and save up first. Am constantly trying to find ways to keep motivated and look for that light at the end of the tunnel.

Someone i know said that in future buying a share of a property in a nicer area would be much better for me and a way to get out of the shi*thole where i live now.

Is it a good idea? Is it good for a low income person/family?

Is it better to go from full ownership of a property in a rubbish area to part ownership of a property in a nicer area?

If anybody can give me some insight it would be appreciated and please any information/advice keep it as simple as possible - doesn't take much to confuse me!!

Thanks in advance.

00ec25

yes you have to pay rent for the bit you don't own

the other owner will have the final say in how much you can sell the property for when you want to leave. Typically shared ownership properties are overvalued compared to wholly owned places meaning that relatively speaking you get less property per £ you spend

this can cause great difficulty when you come to sell

IMHO shared ownership should be a last resort if you cannot afford anywhere else and do not want to rent and should only be undertaken in the foreknowledge that you will not make as much money as you could have done on something you wholly owned yourself

PasturesNew

I've had a SO. They're overpriced to move in (compared to comparables that aren't SO) and they are hell to move out of; you'll find them seriously underpriced when you're selling and restrictions on who you can sell to, at what price etc.

However, if you see it as a way of securing somewhere permanent to live, that's better than the insecurity of renting, then it's OK for some.

You are also responsible for all the repairs costs in their entirety.

If you just want a place to live, that's fixed and you don't want to staircase, or move out, then it's worth considering. The problems come when you want to sell, in the main.

spidereyes

going_nowhere_fast wrote: »

I'm wondering if someone could explain the pros and cons of part owning a property because although i've tried researching it on the web, i am still clueless! In particular i'm curious about if you pay rent for the part you don't own.

Is it a good idea? Is it good for a low income person/family?

Is it better to go from full ownership of a property in a rubbish area to part ownership of a property in a nicer area?

Yes you pay rent on the part you dont own, and from experience (I work in conveyancing) sometimes the rent + mortgage repayments per month can work out a hell of a lot more than what you would pay in mortgage repayments alone for a similar priced property that wasnt SO.
Also rental payments can be subject to increase over time so there is no guarentee this will be at a fixed rate.
Also just another note to add, under these new MMR rules, the amount of rent you pay on the remaining share will also now be taken into account by lenders for affordability purposes, so if the amount of rent + mortgage repayments was very high and our of kilter to what you would pay for just mortgage repayments you could actually be better off applying for a full mortgage than a shared ownership one.

Some shared ownership properties you also have to pay maintenance and service charges which can vary from a few pounds a year to a few hundred a month.

There are additional solicitors fees also involved with shared ownership properties and some lenders are not willing to lend on the basis that the property will have a second charge registered which will have priority over their own.

As others have said, they can be a nightmare to sell, there can be restrictions on who you can sell them to and again you can incur significant costs on disposal of the property. Sometimes you cannot sell them on the open market and as such they can be sold through the company that owns the remaining share, they become like your estate agents and as such they charge massive fees for this. (I recently had a client selling around a £100,000 share and the shared ownership company acting as EA charged over £3.5k which is huge when you consider most EA charge about 1%)

From a legal perspective as well, the shared ownership company is effectively your landlord, as such there can be a long list of legal conditions that they require you to comply with. For example you may not be able to make internal alterations to the property, or put on a conservatory.

If you did want to staircase (buy additional shares) then there can be restrictions on how much you buy and when, I have seen properties that you need to have owned for a certain number of years before you can even apply to staircase. The shared ownership company sets the value of the shares and you can be in their hands as to how much you have to pay.

Personally unless you were to fully staircase and eventually own 100% of the property I think shared ownership is a bit pointless as you never really own anything, the way I see it is that its just a more expensive way to rent.

How do shared ownership property prices in your area compare to prices for non shared ownership and what kind of percentage share would you be looking to buy?
For example where I live, you can buy a 50% share in a 2 bed semi for £60k which makes the full "value" of the property £120k which is overpriced when you consider there are identical 3 bed semis on the same estate that are not shared ownership for £120k

getmore4less

The first thing to investigate and research is the exit strategy.

Buying is the easy bit, selling is the hard bit

Next is how do you transition to non shared ownership.

If you can't afford a full house now you will need lump sums or pay rises to get out of the trap

Prices going up does not work so if that's how it is sold to you walk away.

Bonniepurple

We live in a shared ownership (HA, not private). Pros - cheap rent, security, no quarteley inspections, rent only goes up slightly every 2 years. Cons - we are responsible for all maintenance (ouch when replacing the boiler) and it is likely never to be "ours". We were lucky in that the deposit I'd saved up was just enough to pay for our share outright.

OP - shared ownership tends to have set criteria depending on the owner, so as a current home owner you might not get anywhere. We had to fill out a form explaining how we'd got the deposit (inheritance), and why a couple living in Worcester with no children wanted a 3 bed in Gloucester (we wanted to start a family and wanted help from our parents).

going_nowhere_fast

Thanks for the info. I think as a home owner already i am better off sticking to owning a property by myself rather than going diwn the shared ownership route. I think a sensible goal is accepting i will be in a small house but in a better area one day and accept the reality that owning a house with a garden and driveway are likely to always be out of my budget.

AliceBanned

getmore4less wrote: »

The first thing to investigate and research is the exit strategy.

Buying is the easy bit, selling is the hard bit

Next is how do you transition to non shared ownership.

If you can't afford a full house now you will need lump sums or pay rises to get out of the trap

Prices going up does not work so if that's how it is sold to you walk away.

I think it depends on the area.

SO in a really nice area is better than renting or owning in a very rubbish area; that has been my experience. Choice of location and ease of commute etc are really important to me, but it is a personal choice. I decided to take the plunge with SO as I as unlikely to buy outright on my own (I work in London) and prices were rising so it was getting more and more unlikely. Mine is shared with a Housing Assoc and they are limited to how much they can increase the rent.

I do intend to staircase up to around 80% if I can, (big if), meaning the remaining rent will be around £120 pm.

I've seen threads on this forum from some people saying SO worked well for them as they managed to staircase up gradually. Also with a smaller mortgage you pay less interest and with overpayments can pay it off more quickly then apply for a greater share.

For me the staircasing or selling is still theory at the mo as I only moved in October, but others have done it. It all depends on your circumstances whether SO is right for you. There is always negativity about it expressed on the forums so I had the same dilemma and in the end decided it was worth it to live in a nice area. I've viewed some horrible SO flats and I guess they can become a "trap" but mine is in a desirable area so found it hard to see that it could be risky. I know it was only on the market for a couple of weeks when I saw it, and other flats in the block have sold within days.

With regard to overpriced - I got into a bidding war and it was the housing assoc who negotiated the price down to a realistic price, saving me £4k on a 40% share. Sure they might do this to some extent when I sell but at least I didn't overpay when I bought. They can't wildly underestimate either when I sell as there are market values to consider.

I don't understand your last statement about prices going up and "if that's how it is sold to you walk away"?

going_nowhere_fast

I own in a rubbish area. I thought it might be a way to move to a nice area even if I only half half of it.

The rent (and how the rent can increase) for the other 50% is what would concern me.

I guess it's good for some people and best avoided for others.

princeofpounds

Pro: Security of tenure. Ability to fix the price of the portion you are actually buying at a moment in time.

Con: More or less everything else.

AliceBanned

going_nowhere_fast wrote: »

I own in a rubbish area. I thought it might be a way to move to a nice area even if I only half half of it.

The rent (and how the rent can increase) for the other 50% is what would concern me.

I guess it's good for some people and best avoided for others.

I know what you mean. There are different contracts re the rent. Mine is fixed at 3% of the remaining share value per annum, something like that. So it will go up as values go up. It isn't a perfect solution but I needed to move areas and it's hard nearer London or in London.

I've been thinking about it more since this thread and realise I can buy a place outright about 0.5 miles away..I went to view one of them before I bought the SO place and it felt extremely dodgy, with no secure locks on the doors to the blocks at all! Most of it was rented out, the estate agent told me.

I hope to move out of 40% ownership one way or another though..have thought about it a lot more. It was a start but I am now looking into Help to Buy..