Is it silly to consider shared ownership if we don't have to?

lis1320

I had pretty much accepted my partner and I would look into shared ownership on our first property next year. We're looking at getting a two bed flat in the South East, and would love a new build. Those sorts of properties start ~£350k around here. We will have £25k deposit and £5k for fees, and mortgage calculators show we could borrow ~£235k. 

Since reading this forum however, I have seen many people really advising against shared ownership if you can help it. Since we could afford a property of ~£260k by ourselves, is it silly to consider shared ownership? I think since most of our friends and family have gone down that route, I just naturally assumed we'd do the same, but now I'm a bit more wary. I'm wondering what people's thoughts are on shared ownership on a new build versus full ownership of a pre-owned flat which will probably need some work. Pros and cons, that kind of thing.

Any advice greatly appreciated!

trex227

Shared ownership properties always seem to be more expensive than similar properties e.g. £80k for 50% share when you can buy non shared ownership property 100% that’s pretty much the same for £140-150k. I don’t know if that’s true everywhere but it is around here and I also noticed it when I worked at a conveyancing firm. 

They are also not as straightforward to sell when the time comes- you usually have to try and sell initially through the housing association. You have to have a valuation done and the HA has to agree to the sale price. There’s usually fees associated with these things.

If you have the option to buy normally I would do that- the way I look at it is shared ownership is there for the last resort. Also not sure on the process but don’t you need to “qualify” to buy shared ownership? Would you be eligible given you can buy regular property?

Webxite

A lot depends on your individual circumstances. Do you expect your income to go up over the years, so that you’ll be able to borrow more in future? We did shared ownership 11 years ago and it has worked out really well for us. We went from 25% to 60% to 100% ownership and love our home. That said, we’ve not wanted or needed to move. It can be harder to buy and sell SO as there’s another layer of faff to get through. 

Pros are that the rent part is often very affordable, meaning you can live somewhere nice and be building up equity even if you can’t afford to buy outright. Cons are that you have to deal with a housing association and almost all of them are terrible. As a leaseholder you’d face a management company anyway, but SO adds in the layer of housing association. 

Check the development carefully. We were told that our whole block was for key worker rent, and SO. The first part was a lie, and some of our neighbours are drug dealers and other such anti-social things. But the new build itself is very high quality. Incredible sound proofing to the point that next door can be having a rave and we can’t hear him. 

Ultimately it comes down to your situation, the housing association, the terms of the lease, and the flat itself. 

[Deleted User]

I looked at shared ownership for my son. It wasn't for us. The rent, mortgage and service charge works out quite a bit. Its good if people are on universal credit as you can claim the rental part under UC.

Your debts, rent, SC and mortgage cannot be more than 45% of your net monthly income.  

My son is either going to buy on help to buy or get a second hand property when the time is right to buy - easier without all the SO rules and extra expenses 

lis1320

trex227 said:

If you have the option to buy normally I would do that- the way I look at it is shared ownership is there for the last resort. Also not sure on the process but don’t you need to “qualify” to buy shared ownership? Would you be eligible given you can buy regular property?

This is really interesting, I just quickly googled this and it does say "You should not be able to afford to buy a home suitable for your housing needs on the open market". I know a couple who have shared ownership on a two bed new build, even though they could have afforded at least a single bed otherwise. We would be in a similar situation, and just like them looking to expand out family in the coming years. At the same time though, it would make me feel a bit iffy if I felt I was 'taking' the property away from someone who needed it and couldn't otherwise afford it.

Webxite said:

Do you expect your income to go up over the years, so that you’ll be able to borrow more in future? We did shared ownership 11 years ago and it has worked out really well for us. We went from 25% to 60% to 100% ownership and love our home. That said, we’ve not wanted or needed to move. It can be harder to buy and sell SO as there’s another layer of faff to get through.

I'm a teacher and my income goes up every year until I get to about ~£38k. Currently on £24.7k so there's room there. We would only stay in this flat for about 5 years before trying to move into a forever home if that's possible, so the pain of selling a SO is definitely not great.

lis1320

Densol said:

My son is either going to buy on help to buy or get a second hand property when the time is right to buy - easier without all the SO rules and extra expenses 

My partner and I both have Help to Buy ISAs and so should be able to get £3,000 each towards the mortgage. If we can find a property within the allowed price range, maybe this is the better option, seems easier indeed.

numbercruncher8

Where abouts in the South East?
Some local authorities have schemes especially for their own residents or key workers.
TBH I would rather get a great deal on a shared ownership property than a poor deal on a fully owned one.

With a time horizon of c.5 years I think it would be better to protect the downsides a bit more, and the potential for property price drops will be greater on a new build. Once they lose their newness (and the ability for buyers to use HTB) you are kind of dependent on an increasing market to maintain their value. In London I can see a few blocks which are a few years old that can't sell for more than what they were sold for new because of this.

amandacat

My first property was shared ownership. It was a choice of me buying a flat which wasn’t shared ownership or having a 3 bed semi on shared ownership. I couldn’t afford a house that wasn’t SO at the time.  I went for shared ownership because with the flat, I would’ve had no garden and also the flat service charge plus mortgage meant I’d have been paying £200 month more than for the shared ownership house. I had a 40% share of the house and the rent and service charge plus mortgage meant I was paying less than renting. I managed to staircase to 100% about 7 years later. 
The pros: cheaper overall monthly payment, had a nicer property than what I could’ve afforded without SO, the house was a good spec and compared to the ones that weren’t SO on my estate, mine had bigger rooms. I was able to staircase to 100% once I could afford it, there was no stamp duty to worry about but I did have to pay it later when I bought the rest. 

Cons: while you’re waiting to staircase, the part of the property you rent is increasing in value so you’ll pay more later for the rest unlike if you’d bought outright at the time, you have to pay for a valuation and solicitor fees again when you staircase. Only some mortgage providers do SO, selling can be a little more tricky, I tried to sell it while it was still SO and it fell through 3 times but I guess that can happen with any house but the housing association were pretty useless and delayed things and I think that didn’t help. When I sold it when I owned it all,  it came up with the buyers solicitor that it was ex SO, they wanted confirmation from the HA that they had no interest in it and that caused some issues and delays. 

Sandyra

SO worked well for me, if I could’ve afforded to do it alone then I would’ve. I had a good deposit but not enough to buy a flat in the SE. I love my 2 bed property but its not long term. I bought it myself and I will want to move somewhere at some point bigger with my partner. As a teacher as well, I used a promotion to enable me to staircase from 35% to 75% then 100. It was always my intention to reduce my rent and own all of it quickly to reduce the amount of associated fees. To be honest the HA are terrible, but it seems they are all bad! As for selling, my flat is in a premium location so only 2 have gone up for sale in the last 5 years. Both sold very quickly, one was with a share the other was 100%. 

It works for some and not for others.

lis1320

numbercruncher8 said:

Where abouts in the South East?

With a time horizon of c.5 years I think it would be better to protect the downsides a bit more, and the potential for property price drops will be greater on a new build. Once they lose their newness (and the ability for buyers to use HTB) you are kind of dependent on an increasing market to maintain their value. 

Surrey. I think maybe if this was a property to want to live in long-term I would not be so worried about SO, since I would have no plans to sell, but with wanting to be there for just a few years, I don't know if it's worth it.

amandacat said:

It was a choice of me buying a flat which wasn’t shared ownership or having a 3 bed semi on shared ownership. 

Was it not an issue to anyone that you could technically afford a flat but opted for a SO house? trex227 rightly mentioned that one of the qualifying factors is not being able to get a property otherwise, which would rule out SO for us.

Sandyra said:

I used a promotion to enable me to staircase from 35% to 75% then 100. 

I'm not sure whether we would be able to staircase to full ownership in the time we plan to live there. I also read on here that properties with higher ownership percentage are more difficult to sell since buyers might as well then pay 100% for their own property without all the hassle that SO brings. That then leaves me with the question of what percentage to go for. Instincts tell me to take 75% if possible so that when we sell on, we (hopefully) get the benefits of that if market prices increase, but I'd worry about staircasing from that for the reason I mentioned above. Did you feel that your profession helped in any way? I keep hearing about these magical key worker schemes or how teachers are loved by lenders because of job security but I haven't met anyone who has actually experienced that.

blue_max_3

Charges, fees and conditions all put me off. I'm surprised there are so many positive posts, but maybe I'm blinkered.
All these schemes and wheezes are for the benefit of the seller. Some are worse than others.