Shared Ownership... Case Closed?

elliotwave

I am looking at options of the best way to get on the property ladder assuming there is going to be a brexit deal and therefore stability in the housing market.

Before I rule out shared ownership have I got this right?...

The fundamental flaw with SO is that there isn't a large enough difference between what you end up paying for your % share mortgage + rent + service charge, than if you bought the property outright with a full mortgage. So, straight off the bat, it's a bum deal. Yes, I understand it enables people that don't have the deposit for a full mortgage to 'get on the ladder', but you're not really on the ladder!

Also, the claim that monthly payments are generally lower than private rent is also not really true. Mortgage and rent costs can be more expensive than renting.

On top of this, and in order of severity:-

* You have to pay all the normal costs of purchase as if you were buying 100%.
* Can't rent the property out in the future.
* If you staircase it's an expensive pain in the !!!. Valuation fee, legal expenses, stamp duty?, mortgage fees.
* If you want to sell you are restricted to the SO buyer market which is smaller than the open market.(It's a real niche market with only around 50,000 properties being sold on a shared ownership basis in the last ten years (that’s about 0.4% of the housing market).)
* Even if you own 25%... you're still paying for any maintenance.
* Both rents and service charges tend to increase over time.
* Not all lenders offer mortgages for Shared Ownership.
* Rent arrears can mean eviction with no right to the share you have purchased.
* Restrictions on what you can do to the property, and any that you do pay for, that adds value to the property, is benefitting you only to your % share.

The only material upsides are:-

* No Stamp Duty up to £500K on the initial purchase, however, if your share ever gets above 80% you pay it then, so SO is in effect a 'deferred' stamp duty scheme.
* If there is a crash you won't be in as much negative equity as if you owned 100%.
* Again in a crash scenario, you have the potential to staircase, in one go, to a much lower valued property (although this is when you would pay stamp duty).

MrsFingersCrossed

I think you've got it covered. We've ruled out shared ownership for for the reasons you've listed. We're hoping to help our daughter out with a very small deposit to buy her first, tiny, one bedroom flat, if one ever comes up that she can afford in the SE. We're having enough problems thinking leasehold rather than freehold, but quickly came to the conclusion that 'shared ownership' is not really a good option for her at all.

Slithery

I must congratulate you for doing such thorough research

The majority of SO issues on this forum are due to people not fully understanding what they are signing up for.

General_Applause

elliotwave wrote: »

I am looking at options of the best way to get on the property ladder assuming there is going to be a brexit deal and therefore stability in the housing market.

Before I rule out shared ownership have I got this right?...

The fundamental flaw with SO is that there isn't a large enough difference between what you end up paying for your % share mortgage + rent + service charge, than if you bought the property outright with a full mortgage. So, straight off the bat, it's a bum deal. Yes, I understand it enables people that don't have the deposit for a full mortgage to 'get on the ladder', but you're not really on the ladder! That is not the case with us. With my circumstances, the building society would not lend me the full value of the house anyway.

Also, the claim that monthly payments are generally lower than private rent is also not really true. Mortgage and rent costs can be more expensive than renting. Not so with us. Our combined rent and mortgage (we don't have a service charge) is £500. To rent a similar property in this area would be £200 to £300 more.

On top of this, and in order of severity:-

* You have to pay all the normal costs of purchase as if you were buying 100%. Ours was a new build so no survey, just solicitors fees. We did our own removals.
* Can't rent the property out in the future. You are buying a house to live in. Why do you want to rent it out?
* If you staircase it's an expensive pain in the !!!. Valuation fee, legal expenses, stamp duty?, mortgage fees. That may be true. We have no intention of staircasing though.
* If you want to sell you are restricted to the SO buyer market which is smaller than the open market.(It's a real niche market with only around 50,000 properties being sold on a shared ownership basis in the last ten years (that’s about 0.4% of the housing market).) On our estate, the SO houses sell far faster than the privately owned ones.
* Even if you own 25%... you're still paying for any maintenance. True (except, in our case, the roof is covered by the buildings insurance that forms part of the rent).
* Both rents and service charges tend to increase over time. Our rent increases by RPI plus a fraction of a percent. We don't have a service charge.
* Not all lenders offer mortgages for Shared Ownership. True
* Rent arrears can mean eviction with no right to the share you have purchased. This is true, especially if you have paid off the mortgage. I don't think it is quite as simple if the mortgage is outstanding. Housing benefit (or UC) is claimable on the rent part.
* Restrictions on what you can do to the property, and any that you do pay for, that adds value to the property, is benefitting you only to your % share. We can do what we like to the inside. We would need permission for an extention, say. Benefit is more than just financial, you know.

The only material upsides are:-

* No Stamp Duty up to £500K on the initial purchase, however, if your share ever gets above 80% you pay it then, so SO is in effect a 'deferred' stamp duty scheme.
* If there is a crash you won't be in as much negative equity as if you owned 100%.
* Again in a crash scenario, you have the potential to staircase, in one go, to a much lower valued property (although this is when you would pay stamp duty).

My comments are in red.


Every scheme is different and everyones circumstances are different. For us, this is our forever home and I personally am happy with a 25% share. It gives me security of tenure and enough free cash at the end of the month to live, rather than exist.


I see houses as for living in. If I want to invest, I will buy shares. Don't think housing stability is dependent on a brexit deal. There have been many booms and busts over the last few decades. Don't over-reach yourself in these times of low interest rates. You are taking a 25 or even 40 year gamble. Live within your means and good luck for the future.

asm89

Are you buying in London?

I also think SO works if you have an exit plan and a good salary but not enough for a deposit in the interim. Or if you don't need an exit plan!

SO is definitely better than renting because you will pay more in rent and the deposit levels are similar if you need move into a new place.

SO is also a good way to get a new build flat at 5% deposit especially if you can buy the 75% share

epinjy

Two aspects to affordability: 1. availibility of credit (how much mortgage you can get), and 2. monthly payments. Shared ownership addresses the first one, not so much the second.

asm89 wrote: »

SO is definitely better than renting because you will pay more in rent and the deposit levels are similar if you need move into a new place.

I'm not sure. I'm fully in the buy a house at all costs crowd, but I'd take renting with a 0% share of the maintenance costs, no service charge on my head, and the obvious flexibility benefits over a shared ownership.

SO to me seems to represent the worst of both worlds. No flexibility of renting, and having full maintenance costs (and not the full equity gain/value benefit of any improvements) and other conjured fees (service charges, fees when buying further shares) eating away at any potential capital gains.

asm89

epinjy wrote: »

Two aspects to affordability: 1. availibility of credit (how much mortgage you can get), and 2. monthly payments. Shared ownership addresses the first one, not so much the second.


I'm not sure. I'm fully in the buy a house at all costs crowd, but I'd take renting with a 0% share of the maintenance costs, no service charge on my head, and the obvious flexibility benefits over a shared ownership.

SO to me seems to represent the worst of both worlds. No flexibility of renting, and having full maintenance costs (and not the full equity gain/value benefit of any improvements) and other conjured fees (service charges, fees when buying further shares) eating away at any potential capital gains.

I disagree with your take on renting but maybe because I'm in London and see how the rental market is for a property of the same quality. But as I said SO works if you have a good income... But a low deposit. You can get a new SO 2 bed flat for c. 1k all in for mortgage, rent, service charge but would rent such at £1600 a month. Both could require a 5k deposit/prepayment upfront

The need for flexibility is a personal one as well.

[Deleted User]

Depends where you are buying and what you are buying. Where I am (very close to Cambridge) the council heavily subsidises the rents on the s106 shared ownerships. So you can get 76% of a 3 bed house for £160k and pay £25/month for the rent on the other 24%. A 'standard' 3 bed house would cost about £260k in the area

The biggest benefit is affordability though as the whole value of the property is not subject to stress testing as a standard mortgage is.

As an example, client recently:

10k deposit. Max loan on normal mortgage was £130k. - buys a 2 bed flat
10k deposit, max loan with 50% shared ownership (including rent) £108k. - buys a 3 bed semi detached house


Sounds like shared ownership is not right for you but not everyone has the same circumstances

elliotwave

asm89 wrote: »

I disagree with your take on renting but maybe because I'm in London and see how the rental market is for a property of the same quality. But as I said SO works if you have a good income... But a low deposit. You can get a new SO 2 bed flat for c. 1k all in for mortgage, rent, service charge but would rent such at £1600 a month. Both could require a 5k deposit/prepayment upfront

The need for flexibility is a personal one as well.

That difference of £1K to 1.6K, from what I have seen at least, is not the case for the most part. Maybe £1.4K to £1.6K if you are lucky. Which isn't enough. It might be different outside London....not sure ...haven't looked there yet.

asm89

elliotwave wrote: »

That difference of £1K to 1.6K, from what I have seen at least, is not the case for the most part. Maybe £1.4K to £1.6K if you are lucky. Which isn't enough. It might be different outside London....not sure ...haven't looked there yet.

Might depend which part of London you are looking at and the % share.

Zone 1 and 2 at 25% is extortion I agree. But zone 3/4 at at least 30% is much cheaper than rent from the months of research I've been doing even with a c. 3% mortgage interest rate.