Looking for advice for a Shared Ownership purchase

throwaway_lon

I’ve tried to weigh out the pros and cons and while it sounds good at first glance, there are many risks and I sometimes think about whether or not I should just move out of London buy a house, as I have the option of working from home. I’m trying to look at it purely from a financial perspective at the moment, as there are too many personal factors for moving out of London to go into in this post.

I’m currently in the process of purchasing a shared ownership property where I’ll own 50% of it. I am single and buying alone. The price is around 318k for a two bed flat in greater London. I have around 58k cash and I’ll be putting down 50k for a deposit. The rest going towards fees, furnishing and an emergency fund. The flat is around 45 minutes to my office, and similar to other central locations. It’s no closer to friends or family, and the local amenities are acceptable. It’s not a new build but looks well maintained and has a good amount of space and is great value with all things considered

Future monthly outgoings

• 500 - Mortgage
• 155 – Service charge and ground rent
• 370 – Rent which I pay the housing association for the 50% I don’t own
• 120 – Council Tax
• 170 – Bills

For a total of 1315 which is 60% of my net salary rising to 64% at the end of this year when I’ll lose a small allowance (I’ve rounded up /overestimated slightly, so it likely would be a bit lower).

I’d be taking in a lodger and aiming to get 650-700 per month which seems realistic considering the transport links and large double bedroom (3.2 x 5.2m). This would take my monthly housing costs to around 700 (more like 800 after budgeting for wear and tear), which sounds great on paper - even assuming I only take a lodger for 6 months out of the year, it's still a good deal.

However, I think the chance of a global recession happening within the next 1-3 years is >50% and at minimum that would cause house prices to drop by 5-10% which would destroy any equity I’ve built. Also, this would likely happen (based on my crystal ball) around the time I'd want to sell and move on.

I know shared Ownership is generally considered to be a bad idea, but with my relatively large (for a single FTB) deposit London is still unaffordable, and this basically works out to be the same cost as renting and I benefit from a decent rate mortgage which I could overpay. I’ve tried to list out the pros and cons and have come out with the below list.

Have I not considered anything? Or some of the things I’ve mentioned non-issues? Any advice?

If I were to pull out of the purchase now I’d lose £500, which I’m happy to do if it makes sense.

Positives

the security of ‘my own place’
I’ll be building equity instead of paying off someone else’s mortgage
Low interest rate/monthly mortgage means I could overpay significantly, or aggressively save to staircase or move on
A secured rent, and a good amount of space for my things, and only sharing with one person
Enough space to start a family if my circumstances change
No stamp duty to pay as I’m a FTB
Being able to furnish my space without worrying if whether or not a future place would have enough space for everything

Negatives

Still sharing with a stranger (though I can replace them if we don’t get on)
Risk of negative equity and being trapped, unable to sell or even lease it out
Still have to answer to a housing association, so it won’t fully feel like my own for another 3-5 years when I could raise a mortgage to buy the remaining share.
I’d be committed to a mortgage
Having to deal with all of the problems of owning somewhere, and all of the problems of renting
Getting 50% return on any home improvements, but having to pay out for the problems.
Will lose FTB stamp duty benefits without much to show for it
Will have to furnish the whole place & get some (not all) white goods though I have the budget for it

Thanks for reading.

WLITC

Hi I'm in the process of buying a Shared Ownership 2 bed apartment now. I had similar concerns but decided to go ahead anyway. May be that makes me biased, but I look at it this way, if I ever hope to live rent free, I have to buy and shared ownership is the only way I can afford to buy on my own in London.
What is your current rent? For me, this was a big deciding factor. If the sale goes through okay, I will pay out for the mortgage, rent and service charge combined only £30 more a month than I pay now in rent. Is you current rent close to the combined mortgage, rent and service charge of £1025?
As for the lodger, would you be doing this because you need the extra money to afford it? or just to generate some extra income to pay down the mortgage? I've considered this too, not because I need it, but it is of course easy extra money to pay off the mortgage quicker.

throwaway_lon

My rent is significantly lower than my new outgoings would be, but I'm in a house share and the landlord is selling so I have to move whether I go through with the purchase or not.


I wouldn't -need- to take the lodger to afford it, the new outgoings would be around what I pay on rent & saving for a deposit now, which is do-able, but a lodger would make that painless, and allow me to build a cushion. Part of it is psychological I suppose, in that it would spread the burden of the £800 or so monthly on rents, service charges, taxes and bills which feels like a high figure to have nothing to show for it after the month is over.

AliceBanned

Is the Housing Assoc happy for you to take in a lodger? As long as that is in accordance with the lease I think the purchase sounds fine.


I am single, in a one bed SO flat just outside Greater London which I bought over 5 years ago and hope to staircase this year to 100% (I own 40% and am not happy with that aspect but it has still been a good investment due to timing of purchase). The other thing to consider re staircasing in the future is although prices look to be flatlining in London at present, a steep rise in value also leaves you a bit stuck in relation to purchasing more, which is obviously based on the value at the time. With the lodger this would help and would make financial sense.


Personally I am now having to be patient and waiting for the steep rise to drop a bit as it has been over the past year, so I can purchase the other 60%.

Takmon

throwaway_lon wrote: »

I’ve tried to weigh out the pros and cons and while it sounds good at first glance, there are many risks and I sometimes think about whether or not I should just move out of London buy a house, as I have the option of working from home.

Personally I would do exactly this unless there is a good reason you want to stay in London. I might be biased because I enjoy the countryside but a 45 minute commute into central London for a job where your only taking home around £2200 a month doesn't sound very good (unless you have big advancement opportunities coming up with a big salary increase).

Having a lodger is also a big negative for me and isn't something I would want to do.

throwaway_lon

AliceBanned wrote: »

Is the Housing Assoc happy for you to take in a lodger? As long as that is in accordance with the lease I think the purchase sounds fine.


I've been told yes by the HA Estate Agent, but haven't seen the lease agreement. Can I get this from this from the EA?

The other thing to consider re staircasing in the future is although prices look to be flatlining in London at present, a steep rise in value also leaves you a bit stuck in relation to purchasing more, which is obviously based on the value at the time. With the lodger this would help and would make financial sense.


This is what I'm thinking - plus I can stop having a lodger if circumstances change (partner or job change)


Personally I am now having to be patient and waiting for the steep rise to drop a bit as it has been over the past year, so I can purchase the other 60%.

One of my concerns is whether I'm essentially tying myself in now, and will miss out on any major house price falls if it all goes belly up in the next 2-14 months.

throwaway_lon

Takmon wrote: »

Personally I would do exactly this unless there is a good reason you want to stay in London. I might be biased because I enjoy the countryside but a 45 minute commute into central London for a job where your only taking home around £2200 a month doesn't sound very good (unless you have big advancement opportunities coming up with a big salary increase).

Having a lodger is also a big negative for me and isn't something I would want to do.

That's a very good point regarding salary, I really hate commuting though 45 minutes is acceptable as I have the opportunity to work from home a couple of days a week, which minimizes the commuting and makes up for the average salary.


Also, while jobs exist outside of London for my industry, London is where most of the opportunities are. I could move to a new company for a 20-30% pay bump, but I want to try out the work/life balance of staying where I am in my own space first, as I'd enjoy working from home more with a lot more of my own space and comforts.