Shared ownership - Am I missing something?

HomelessChump

There is an upcoming development in London with one bedroom flats (valued at £290,000) only available to households earning between £28,000 and £32,000, which works out to £1,860 and £2,080 respectively after tax if you aren't paying off a student loan or towards a pension (so in reality almost everyone will be taking home less).

The housing association charges annual rent of 2.5% of the property's value, reduced in proportion to its share, and a monthly service charge of £150.

My estimate is that paying the mortgage on a 25% share with a £15,000 deposit, the service charge, rent of about £450, council tax and modest bills would come out to about £1,100 a month. On the eligible salaries, just running the flat would eat between 50-60% of your takehome pay (and more if you have a student loan or pension).

When you figure in the unavoidable cost of a travelcard at £150 a month, you will be left with perhaps £500 or £600 a month to live on. This is doable, of course, but every annual rent increase will - going by London's ever increasing property values - take a big bite out of this. Without routinely securing a very significant salary increase, you would be totally !!!!!!ed before long and have no hope of building a deposit to increase your share.

So what am I missing? If you were buying the property conventionally, surely the bank's alarm bells would be ringing at the risk of over-stretching yourself?

Lunchbox

Are you sure that's not the minimum salary required?

Similar price range property here says a minimum salary of £37k required; http://www.rightmove.co.uk/property-for-sale/property-56622278.html

The rent increases are limited somewhat in the leases, so they won't skyrocket in line with local rental market rates.

Edit; it must be minimum income. The maximum household income for shared ownership in England is 60k for a one bed property.

csgohan4

That's an eye watering service charge.

Search for shared ownership on the forums. IMHO it's a scam and you will be liable for 100% maintainence costs whatever % you own.

No crying to the LL if things go wrong like a boiler or roofing etc.

PasturesNew

If I had £500-600/month to live on I'd feel I'd won the lottery. After all costs, that's a LOT of money in the real world you know. A LOT.

HomelessChump

Thanks for the reply. The development is on the Peabody site. I can't link as a new user but it says:

"1 bed: Minimum gross household income is £28,345 and the maximum is £32,200."

If you're on the maximum salary and take home every penny possible, just living in the flat would absorb more than 50% of your income before food and transport. You'd be lucky to have 25% of your income left after unavoidable expenses, which seems like a recipe for disaster, but a cap on rent increases would decrease that risk (thanks for highlighting that).

Pastures, I appreciate that having £500 a month to spend on food, drink. etc, is a luxury, but the shared ownership arrangement seems to expose you to the risk of that money being consumed by the ever increasing rent (and preventing you from ever building significant savings). Interest rates on a normal mortgage are predictable by comparison.

Lunchbox

HomelessChump wrote: »

Thanks for the reply. The development is on the Peabody site. I can't link as a new user but it says:

"1 bed: Minimum gross household income is £28,345 and the maximum is £32,200."

If you're on the maximum salary and take home every penny possible, just living in the flat would absorb more than 50% of your income before food and transport. You'd be lucky to have 25% of your income left after unavoidable expenses, which seems like a recipe for disaster, but a cap on rent increases would decrease that risk (thanks for highlighting that).

Pastures, I appreciate that having £500 a month to spend on food, drink. etc, is a luxury, but the shared ownership arrangement seems to expose you to the risk of that money being consumed by the ever increasing rent (and preventing you from ever building significant savings). Interest rates on a normal mortgage are predictable by comparison.

The rent is predictable. All increase rates are laid down in the lease and the rent is subsidised, so it doesn't rise in line with the private rental market. From this respect you're relatively well protected.

My calculations come out a little lower than yours - around £300 a month for such a small mortgage with a reasonable deposit, bringing total cost to around £900 a month which is certainly achievable in those salary limits.

Spending over 50% of take home on rent/mortgage isn't unusual in London.

yllop1101

I recently learned that the overarching housing policy recommends that the cost of living in a SO property (rent, mortgage and service) is between 25%- and 45% of taken home pay.


So whilst it says the salary must fall within that bracket, maybe you will be required to put down quite a large deposit for the property, so that the mortgage is lower and the total amount doesn't exceed 45%, if that makes sense?


Housing associations can set their own limits within the 25%-45%; the one I am buying through are much more cautious and say between 35% and 40%, which was a ridiculously small window our salary had to be within in order to meet their criteria.


My overall impression is that the remit is very cautious and they wouldn't let you buy if it was any where near 'unaffordable'. Also, the banks take into account the rent you will be paying and thus lend you less for a SO property than they would if it was a non SO property.

Newbiebuyer2016

Not sure on your incomes, we had a maximum limit of £80k which it is now and have purchased 30% of £305k.

Our income is around £67k so no issue of affordability. Although if I had a £15k deposit I wouldn't be doing s/o!!! I would be putting down a 5% on a £300k property or less!

The point of us doing it is that the Montly cost is less that a mortgage and we didn't have a huge deposit. I'm currently on may leave so suited us to upsize and do so while our income is lower.

brit1234

Let me put something to you.

Does buying a property 10 x your salary not set off alarm bells?

If the answer is no please watch this latest video by Peter Schiff (13 mins)

https://www.youtube.com/watch?v=LGMMUuev4qk

We really need to teach fiance & economics in schools, the above is scary.

Newbiebuyer2016

I'm not sure I'm convince by that income level