Benefits of shared ownership

ethereal

Hi everyone.
We are sort of first time buyers. We currently rent but are looking into buying our own property. I keep seeing shared ownership properties coming up on the market but I just can't seem to grasp the advantage of this other than you need a much smaller mortgage to borrow but at the end of the day you are still paying mortgage plus rent every month and you only own half the house (give or take a bit).
Do you actually end up owning the property? Could you buy out the rest later on? Are there any other benefits to shared ownership? Sorry if my questions sound dumb. I'm new to all of this. Many thanks for reading.

molerat

None - not for you anyway

Kynthia

Shared ownership is for those who need security and to stay in the area but couldn't afford to buy a property that meets their needs without this type of scheme.

If you can afford to buy a whole property, even if it means waiting a couple of more years or moving to a slightly more affordable area, then shared ownership isn't for you. It has downsides that wouldn't be offset by the benefits if you have alternatives.

sann420

From my owner personal experience of buying a shared ownership property I can think of the following

Benefits of shared ownership:

- It allows you to buy in an area that is generally out of your reach.

- Prices are fixed and mostly going market rate or a bit lower as its classified as "affordable housing". So at the very least you wouldn't end up in bidding wars with other buyers on an already overpriced property.

- The SO properties are generally of good quality both size and build quality wise. The non SO properties in the same building or development will mostly be going for more than the SO properties. The builders generally justify this with glossy kitchens and bathrooms which IMO are not worth it.

- If you are buying short term ie 2 to 5 years as a starter home then you pay a lot less stamp duty. On a 600k flat full price the stamp duty is 20k and on 150k ie 25% of that same property SD is £500.

- The rent that you pay on the share that you dont own is only 2.5% and is more or less fixed bar small increments even if the property prices explode in your area. More over you get some sort of concession on this rent incase you end up loosing your job.

- My observation is that the service charge and ground rent tends to be much more reasonable for shared ownership properties compared to other similar properties in the same area.

- Over the years you can build up your financial muscles and staircase to higher percentage of the property or even buy it outright. I would certainly prefer to buy a percentage of a property rather than renting for years "trying" to save up. I have mates who could afford to buy 50% of a property 3 years ago and now they would struggle to buy 25% of the same property. Saving is easier said than done. In my own experience once I had a property I had a goal/pot to put my money into so some months I even overpaid my mortgage when I could.

There are cons to buying shared ownership and plenty/most of the members of this forum will be happy to point them out to you.

If you are interested in buying shared ownership then do keep the points that I have mentioned in mind and also make sure you buy in a desirable area where there is a high demand for the kind of property you are going for. This would ensure decent increments in price and a swift sale when it comes to it.

All the best

Paul_the_Painter

It does depend on the area, but the rent is usually a social rent, particularly on the second hand market. To give an example I own 30% of my shared ownership property. Full value for 100% is probably close to to £200,000.

The rent on the 70% I don't own is around £240/month. Market rent in the area would be about £800/month. So if it was based on market rent I would be paying £550/month rent, but I pay less than half that.

magicpork

You may also want to look into HTB Equity Loan option if your can afford to spend a little more than Shared Ownership. EL gives more much freedom when it comes to sell the property and properties are arguably of higher quality. many developers tend to fit better flooring or better kitchen, for example stone worktop instead of laminated, they're obviously more expensive but may well worth it. Recently I've seen many SO new builds in London with a very similar price tag to retail units in the same building but come with a significantly downgraded spec, so please make sure you've done your own research.

Another thing I find a little strange is you'll need to pay between 2.5%-3% rentals while the comparable mortgage rate is lower... (still better than renting though!)

Nothing really wrong about SO, it works very well for many first time buyers, you just need to be aware of some of its drawbacks, a very cumbersome process to sell being the biggest of them all imo, but if you plan to stay for quite long time then this becomes a non-factor.

boundy

It worked well for me but it's not for everyone. It has enabled me to move from a 2 bed flat to a 2 bed house for the same monthly outgoings but I'm paying down capital on my 35% share.
The house was a similar price to the the 2 bed retail houses on the site but was much bigger but a lower spec, no overpriced shiny bits. My house 2 bed house is the same external dimensions as the 3 bed retail house on the site and the developer is just finished selling the last of the 2 bed retail house for £15-20k more than the full value of mine went for 2 years ago. I pay £33 p/m service charge, this covers building insurance and upkeep of the shared flowerbeds and paths.

My Mortgage deal end in March and I will look to remortgage and buy the rest of the house, a small increase in value and my small overpayment each month should see me hit 94%LTV. I will then automatically own the freehold. I'm the gonna split the back bedroom into 2 so it matches the other 3 beds on the street. My neighbour sold his 3 bed Feb for 195k, up from 180 paid according to mouse price, so the street has seen nice little increase in prices in 2 years. More than likely due to builder now finishing this phase and charging 215k for a 3 bed on the last phase.

For me though, it has meant a secure house in area I want to live in with a real chance of owning it all, whilst ensuing my children go to the school I want them to and not being stuck in a 2 bed flat with horrible neighbours with 2 kids and a dog.

theartfullodger

It appears that the main benefit is to housing groups able to "sell" shares of properties for more than their normal market value.

So they are very keen on such schemes

boundy

theartfullodger wrote: »

It appears that the main benefit is to housing groups able to "sell" shares of properties for more than their normal market value.

So they are very keen on such schemes

I do not doubt this is the case in some instances but if you go into a shared ownership scheme with the full facts and knowing the outcomes you want to get, you should be OK. Thinking you can buy somewhere, sell 2 years later turning a few 30% you're living in dream world

hounslowfish

I'm someone who only got onto the housing ladder thanks to shared ownership so I can tell you its benefits.

The main one is it allows you to buy property on a very small deposit and then, if the property appreciates in value the equity you gain can then be used to get a better mortgage and ultimately buy the whole property.

In a rising market (and if your own income rises alongside it) this works well so it's particularly well suited for a young person with little capital expecting to be promoted and see their salary rise.

There are downsides and one of the main ones is that housing associations seem over willing to allow shared ownership flats to be bought by people who can't really afford them. I've seen sad cases of repossessions and having seen the minimum incomes usually stated I understand why.

So, if you are young asset poor professional with good promotion tracks ahead and if you believe prices will continue to rise (they can't forever!) then I'd say go for it!

gaz141

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