Shared ownership - London

ryanm8655

Hi all, 

Potentially, by the middle of next year I could have £10k saved towards a deposit for a property, plus be debt free.

At present I am living with family while I clear debts and save but am keen to regain my independence when the debt is gone and life is more normal again. At which point I’d be saving at a slower rate (£5k/year including LISA allowance would be my aim). Which means it’ll be several years before I have a 5% deposit so that I can make use of help to buy.

When I move back to London I’d prefer to have my own place, which is why I’m considering shared ownership. It works out cheaper than renting my own place but means at least some of what I’m paying goes into building equity and I’ll have the opportunity to increase my share over time when circumstances allow. Alternatively I rent and continue to save for several more years for help to buy, or even go with a flatshare.

I’ve been doing a bit of research and think I have a good grasp of the pitfalls:
- harder to get a mortgage and rates are higher (been quoted 2.2% on £120k for 25% share, with highest being about 3.5% - not sure if these are like loan calculators though, where the rate goes up quite a bit on application)
- harder to sell as selling to a smaller pool
- rents and service can go up (though aren’t they always below market rate rent?)

The other thing I’m thinking is that potentially it’s a waste of the stamp duty exemption for first time buyers.

If I did buy through shared ownership then my aim would likely be to move after 5 years, at which time I’ll be in a stronger position to make use of help to buy (higher salary and savings from the equity hopefully, plus whatever I can save on top). Or I’d look to staircase. Once it’s at 100% ownership can I just sell on the open market?

Alternatively I save for a few more years and look to buy through help to buy in 3-5 years time.

Is there anything I’m missing?

Thanks!

ryanm8655

Bump - anyone have any thoughts? My current salary is about £50k if that helps. Secure job.

My options seem to be:
1) rent in a flatshare and continue to save for several years until I can afford help to buy in circa June 2024
2) shared ownership where I can only afford a 25% share (with the pitfalls that come with that) with a view to selling for help to buy in 5 years time or staircasing

Thanks!

boxer234

I’ve looked into it and didn’t like the terms.  Also you don’t say how old you are but a lot could change you could meet someone and need a bigger place, need to move for work and these places can be hard to sell. 

ryanm8655

boxer234 said:

I’ve looked into it and didn’t like the terms.  Also you don’t say how old you are but a lot could change you could meet someone and need a bigger place, need to move for work and these places can be hard to sell. 

Thanks for the reply. What didn’t you like about the terms?

I’m early 30s. Things could change relationship wise but wouldn’t see a flat as a major issue. Someone could just move in. I’m extremely unlikely to need to move for work, most jobs are based in London (I’m a civil servant). Plan to live and work in London longterm (have been working in London for 6 years).

One thing that does put me off is that on my current salary I’m unlikely to be able to stretch to a 2 bed on affordability grounds. That would be more likely to suit my needs longterm. Though I am applying for promotions, which would help there.

For help to buy I’d need to save at least £25/30k, which is going to take a longtime. I’ll have managed to clear over £20k of debt in a year by August but that has been in extreme circumstances and has essentially meant putting life on hold and compromising my independence and has also been helped massively by lockdown. I could do that for a bit longer to get the £10k saved by June next year but I think I’d go nuts doing it for much longer ha.

boxer234

ryanm8655 said:

boxer234 said:

I’ve looked into it and didn’t like the terms.  Also you don’t say how old you are but a lot could change you could meet someone and need a bigger place, need to move for work and these places can be hard to sell. 

Thanks for the reply. What didn’t you like about the terms?

I’m early 30s. Things could change relationship wise but wouldn’t see a flat as a major issue. Someone could just move in. I’m extremely unlikely to need to move for work, most jobs are based in London (I’m a civil servant). Plan to live and work in London longterm (have been working in London for 6 years).

One thing that does put me off is that on my current salary I’m unlikely to be able to stretch to a 2 bed on affordability grounds. That would be more likely to suit my needs longterm. Though I am applying for promotions, which would help there.

For help to buy I’d need to save at least £25/30k, which is going to take a longtime. I’ll have managed to clear over £20k of debt in a year by August but that has been in extreme circumstances and has essentially meant putting life on hold and compromising my independence and has also been helped massively by lockdown. I could do that for a bit longer to get the £10k saved by June next year but I think I’d go nuts doing it for much longer ha.

I was looking at houses.  I can afford place without it but these were much nicer.  I asked about my dogs and they said I’d have to get permission this put me off immediately I don’t want to have to have permission if I’m buying I do that now renting.  

Obviously this wouldn’t effect you in a flat.  However it just seemed silly money for rent and ground maintenance that could go up.  Also I can’t afford to buy the house out right so will I ever be able to ?  It’s a £400 000 house I can get a mortgage for £220000 I am on my own as well.  My ultimate goal is to be mortgage free so I aim to keep saving.  

It does work for some folk of course. 

rachel230

Research Shared Ownership very carefully. It may sound like a good idea to get on the property ladder but there can be many pitfalls and ongoing hidden expenses over which you have no control. Generally speaking the developers will sell on the estate to large corporations who will monetise your home and use it as their investment to produce a steady income stream.
 

ryanm8655

rachel230 said:

Research Shared Ownership very carefully. It may sound like a good idea to get on the property ladder but there can be many pitfalls and ongoing hidden expenses over which you have no control. Generally speaking the developers will sell on the estate to large corporations who will monetise your home and use it as their investment to produce a steady income stream.
 

Yeah, I've done quite a bit of reading and was put off but then it still ultimately turned out to be less than renting and in London even a 1 bed you're looking at £400k+ to buy outright, so there aren't many alternatives other than waiting another 4 years while saving. Even with help to buy, the properties are overpriced...

I do know people in London who have done well out of it, staircasing and then selling for a huge profit but the housing market has stagnated somewhat since then. My understanding is that, though they can increase, the costs are based on being cheaper than renting the equivalent property? Or is that not true in reality?

My position at the moment is that, while I see flaws, it would still leave me in a better position in 5 years time than if I was renting, unless there is something I am missing?

I do see that if my circumstances changed and I wanted to move that could be a big issue. While on paper I'd be better off, all of that would be locked within an asset that could be very difficult to sell and that I wouldn't be able to let if I wanted to move. Basically I'd have to be able to staircase.

ryanm8655

Ok - so I read a little more into some of the horror stories and the main issues seem to be:
1) Issues with not being able to lengthen the leasehold making the property impossible to sell
2) Issues with not being able to staircase as the particular scheme doesn't allow it

Are these common with shared ownership? People I know who have done it (in London) have been able to staircase to buy the whole property and not had issues with the length of the lease either.

Once you've staircased and own the whole property am I right in thinking you can just sell it like any other leasehold flat?

Likewise, though service charges can increase, am I right in thinking the total cost (rent+mortgage+service) is capped to be lower than the rental market rate?

Thanks,
Ryan

Nazariah

Hi,
I've been doing similar research into shared ownership vs renting in London and eventually settled on shared ownership for similar reasons you have laid out. 
Firstly, I think it's important to note that of course when you compare shared ownership to buying outright SO loses which I think is often the biggest criticism of SO. But when you weigh it up with private renting in London I decided it was a smarter option. Which is exactly what the scheme has been designed for. The cost of renting in London is really ridiculous and you have very little security where as with SO your monthly costs will be significantly lower, you have security and hopefully when you sell you get a bit extra out! My partner and I have moved 5 times in the last 3 years due to rent increases, dodgy landlords and problems with the properties all whilst paying huge amounts towards someone else's mortgage.  
Some of the problems with SO you have already noted the one I would add is if you buy new build you have to factor in the new build premium in the full price of the property. Also, a big factor is that some of the SO properties have better deals on how the rent portion compares to market rent price, same with the service charge element. For instance, the property we are buying the rent portion is significantly cheaper than other SO properties in the area and any increase are tied to inflation. This really depends on the housing association/developer you buy with. 
The only other thing I would say is, I was advised by our mortgage broker and other friends who have bought SO that once you start staircasing if you try to sell before reaching 100% ownership, you will struggle to sell quickly. Our broker suggested that up to 30% SO properties sell very quickly but over that they will sit on the market for longer as the pool of buyers who can pass affordability checks is smaller and people with higher incomes are more likely to be able to buy outright. 
Personally our plan is we are buying 25% in a 2 bed flat in London we'll stay for 5 years without staircasing at which point we will have saved more and have a higher income when we will sell and buy outright somewhere further out of London. 
I hope that helps some. Good luck!

ryanm8655

Nazariah said:

Hi,
I've been doing similar research into shared ownership vs renting in London and eventually settled on shared ownership for similar reasons you have laid out. 
Firstly, I think it's important to note that of course when you compare shared ownership to buying outright SO loses which I think is often the biggest criticism of SO. But when you weigh it up with private renting in London I decided it was a smarter option. Which is exactly what the scheme has been designed for. The cost of renting in London is really ridiculous and you have very little security where as with SO your monthly costs will be significantly lower, you have security and hopefully when you sell you get a bit extra out! My partner and I have moved 5 times in the last 3 years due to rent increases, dodgy landlords and problems with the properties all whilst paying huge amounts towards someone else's mortgage.  
Some of the problems with SO you have already noted the one I would add is if you buy new build you have to factor in the new build premium in the full price of the property. Also, a big factor is that some of the SO properties have better deals on how the rent portion compares to market rent price, same with the service charge element. For instance, the property we are buying the rent portion is significantly cheaper than other SO properties in the area and any increase are tied to inflation. This really depends on the housing association/developer you buy with. 
The only other thing I would say is, I was advised by our mortgage broker and other friends who have bought SO that once you start staircasing if you try to sell before reaching 100% ownership, you will struggle to sell quickly. Our broker suggested that up to 30% SO properties sell very quickly but over that they will sit on the market for longer as the pool of buyers who can pass affordability checks is smaller and people with higher incomes are more likely to be able to buy outright. 
Personally our plan is we are buying 25% in a 2 bed flat in London we'll stay for 5 years without staircasing at which point we will have saved more and have a higher income when we will sell and buy outright somewhere further out of London. 
I hope that helps some. Good luck!

Thanks, that’s really helpful! And a very good point re: staircasing making it harder to sell. Makes me think saving for longer for a 2 bed would be optimal as then it’s a little more futureproof. Also a good point re: new build premium, though the alternative for me would be help to buy, which would have similar issues (unless I met someone or my salary increases dramatically - it will likely increase a bit but not enough I don’t think).

It seems as though it’s either staircase to 100% or sell at 25% and hope to have enough equity for a deposit.

Whereabouts in London did you buy and with which developer, if you don’t mind me asking? 

Thanks!

grayg

I'd suggest you start perusing the market and see what is available. A lot of SO properties will be in high demand, so there are no guarantees. This is particularly the case in some boroughs / areas with a limited pool e.g. Islington (c.f. Southwark), and also for resale as they are more likely to hold their value, and a lot of new builds aren't up to much. By way of example for the SO property I am in now, the lady selling had 2 full days of viewings, and I only got it because the first choice prospect pulled out in the end. Also the rules vary for housing group to housing group. Some are meant to be pretty useless, so perhaps make up for a lot of the criticism you see online. I have found ours to be completely fine. If you see my old posts I've shared my experience i.e. positive, and continues to be so!