Easy explanation of shared ownership

GraceD_17

Hi all, 

New to this forum and this is my first post so forgive me if this has ended up in the wrong place or there is another way of getting the answers.

Myself and my partner are in our early twenties and we both have help to buy ISA's to save for our deposit, by the end of 2021/early 2022 we should have a reasonable amount saved for a deposit on a house within our budget, we have come to realise over the past few months that we want to get out of our town up north and move down south toward Devon, the house prices in that area are obviously a significant amount higher than what our budget was up here so we've had a look at shared ownership to be able to afford living in that area without going way over budget or pro longing our plans to move in order to save more. We found a lovely 3 bedroom semi-ditched new build near Torquay which was around £90,000 (shared ownership) which is well within our budget, leaving us with a lot more to use for furniture, family life etc. 

My only question is the obvious, what is shared ownership? Why does it seem like such a good deal, there has to be a catch. We'd live there for perhaps 3/4 years before we wanted to buy a bigger house that was not shared ownership and was 100% ours, if someone could explain in the briefest way possible why shared ownership almost seems too good to be true, the pros, cons etc that would be great! 

izoomzoom

Next week, I'm hoping to complete on the final staircasing of our SO house, that we bought first 50% of 14 years ago.  It's the only way we would have been able to get onto the housing ladder. Fortunately our house was big enough, because within a year, we had another unexpected child. (We did turn down smaller houses that were offered to us, but if we had taken them, it would have cause a major headache).
You really need to understand SO. You might only be paying for 25/50% but you become 100% due for all repairs and maintenance, eventhough the HA own the other %. In year 2, our boiler was condemned. Small baby in the house & on maternity pay - it was very hard for us to find the money.
Fast forward a few years, we wanted to convert the garage into another room. We had to get permission. My HA was a little difficult (see my previous posts, circa 2017) but it all turned out okay in the end. They have never bothered us about anything. As I kept all the receipts for the work done - I was able to get £10K knocked off the current market value). However, the 2nd 50% has cost us a LOT more than the first, as prices are based on current market value.
Whilst on less that 100% ownership, you are subject leasehold, so there are restrictions, - maybe no animals or no business run from home - these are type of things you should check out at enquiry stage. Ask for a sample lease.
Also, some schemes do not allow you to staircase to 100%. This will restrict you to lenders. Also I found, but this was 14 years ago, that we couldn't get the best / mainstream lenders, so our interest rates were a bit higher. Now that we are doing 100% we had no problem with mainstream lenders.
Can't think of anything else to tell you, but feel free to ask Qs

[Deleted User]

Shared ownership are cheaper then renting on the open market but far more expensive than a mortgage. 

The reason being you have to pay a mortgage, service charge and also rent on the bit you dont own. Thats usually around 2.75%. 

As said above - its leasehold so lots of restrictions. 

In popular areas where SO houses are in short supply, resales are like gold dust. However Id max own 50% or get to 100%. Those that bought or staircased to say 75/80% can find them hard to sell as they remain leasehold and people could buy a normal house on the open market for a little more. 

Some rural areas NEVER let you staircase past 75% so thats something you must check. Thats to ensure the houses always remain part of the affordable housing stock. 

Legal fees are more expensive as you have to pay the housing associations fees too. 

eddddy

Here's a simplified example to illustrate the concept: Assume there is a 'shared ownership' house for sale...

• You could buy if for £200k
• Or you could rent it for £500 per month

Or you could opt for 50% shared ownership, so...

• You buy 50% of the house for £100k
• And you rent 50% of the house for £250 per month

Or you could opt for 25% shared ownership, so...

• You buy 25% of the house for £50K
• And you rent 75% of the house for £375 per month 

If you need a mortgage to buy the 50% or 25% (or whatever) you will also have to pay your monthly mortgage repayments - on top of the rent mentioned above.

So the mortgage lender (and housing association) will want to check that you can afford both the mortgage repayments and rent.

Maybe in 5 years time you want to buy another 25% of the house (it's called stair-casing) and maybe the house is worth £240k after 5 years. So it will cost you 25% of £240k = £60k. (Whereas the first 25% would only cost you £50k today.)

You will also have to pay 'service charges' to cover the cost of maintenance and repairs of the house.
 

[Deleted User]

Oh I meant to add to my post 
mortgage payment, service charge, rental payment AND existing debts must not amount to more than 45% of NET monthly income 

vivster

If you’re moving into a new area there might restrictions on who can buy. Normally with shared ownership you pay the rent part to a housing association who will basically determine who they sell to. It’s not like buying on the open market. It’s possible these SO properties are aimed at long-term Devon residents.

chalky_white_2

Make sure you understand he scheme, as it is more complicated than normal ownership. But they are a great scheme to help people onto the property ladder.
not sure if I can post links yet, but here are some key facts that may help - https://www.bowerandbailey.co.uk/articles/shared-ownership-properties-key-points

Takmon

Also there are some shared ownership schemes where you purchase 50% of the property but pay no rent on the other 50% so these are very cheap compared to other properties in the area and very easy to resell.

getmore4less

simple explanation of shared ownership(same applies to HTB with the first 5 years no rent)
it where you rent part the house but pay all the usual landlord maintenance costs.

Comms69

GraceD_17 said:

Hi all, 

New to this forum and this is my first post so forgive me if this has ended up in the wrong place or there is another way of getting the answers.

Myself and my partner are in our early twenties and we both have help to buy ISA's to save for our deposit, by the end of 2021/early 2022 we should have a reasonable amount saved for a deposit on a house within our budget, we have come to realise over the past few months that we want to get out of our town up north and move down south toward Devon, the house prices in that area are obviously a significant amount higher than what our budget was up here so we've had a look at shared ownership to be able to afford living in that area without going way over budget or pro longing our plans to move in order to save more. We found a lovely 3 bedroom semi-ditched new build near Torquay which was around £90,000 (shared ownership) which is well within our budget, leaving us with a lot more to use for furniture, family life etc. 

My only question is the obvious, what is shared ownership? Why does it seem like such a good deal, there has to be a catch. We'd live there for perhaps 3/4 years before we wanted to buy a bigger house that was not shared ownership and was 100% ours, if someone could explain in the briefest way possible why shared ownership almost seems too good to be true, the pros, cons etc that would be great! 

Literally you will own a share of the property and pay rent on the rest. 

(the'yre difficult to sell)

csgohan4

if you can, I would avoid and buy a house outright. They have their own problems as  outlined above