Help to Buy vs Shared Ownership

roadweary

Hi,
I have some dear Polish friends who have clawed their way up financially making lives here.  They have 2 young children and rent a 2-bedroom flat.  I have been encouraging them to buy their own place for some time, being here to help with the deposit.

They are super-cautious about not over-extending themselves.

They've found a 50% shared ownership scheme with a 25-year mortgage.  It's only a 2-bed property.  I think the help to buy incentive where the government loans them 20% of the cost is better.  I have limited knowledge hence my post, but here are my two examples - please feel free to correct me.

Imagine a house were worth £200,000
With 50% ownership, in 25 years the £100k would be paid off, but the 50% they hadn't purchased might have double in price.  So then, unless they had a spare £200,000, they couldn't actually own the whole house easily.  Now of course, they could try to purchase more of the house etc..
Also, selling the house to trade up would be far more awkward, and the fees would be higher.


With help to buy, they'd need a 5% deposit (10k) and of course the mortgage would be higher, and after 5-years they'd also need to start paying off the 20% loan from the government.

I can't seem to see any organisation that can help advise them well.  I guess as a question, does anyone have experience of these schemes from any angle?  I'm happy to help my friends out to the 10-15k mark....I know they have to be able to afford all arrangements, but I'm concerned at them getting "trapped" by a scheme that isn't advantageous to them.

Thanks,
R

MFWannabe

You may get more responses if you post in the House buying forum 

K_S

@roadweary If the choice is between a shared ownership flat and an h2b freehold house, for me personally the h2b option wins hands down. If they're worried about being "trapped", from my experience that's far more likely with an SO property.

Just to be clear the above is a very crude comparison ignoring a lot of other factors which may be equally/more important. Plus, I rarely come across a scenario where someone has to choose between the two as at the outset SO flats are far more affordable than H2B houses.

getmore4less

You don't have to start paying off the H2B at 5 years you can start paying interest.

Its a number crunch  but need longer term plans considering and final objectives. 

firsttimesellerldn

Very few people staircase up to ‘owning’ (as much as you can for a leasehold property) the full 100% of a shared ownership property. From friends who own S/O the rent portions seem to be very expensive, and you’re responsible for all repairs and maintenance costs despite not owning the property in full. If there was a choice I’d go for a HTB property. That’s what I did and not having to pay a mortgage on 40% (as I’m in London) means I’ve been able to save and improve my financial position in that time. The s/o properties I was looking at would have cost me more per month. Also I believe that soon HTB leasehold properties won’t be able to be sold with any more than peppercorn ground rents, so that would be a plus if the alternative is a s/o property with ground rent and perhaps a shorter lease. 

MalMonroe

I'd also go for Help to Buy - in fact, I'm seriously considering doing just that as I live in a council property. I don't want to share ownership, unless it's with a family member. Certainly not with a housing association. In my case, I'm entitled to a 66% discount (and counting annually until the deposit is 78% or £84.2k) and it's so tempting. I just need to gather together a small deposit - and I've been told that some lenders consider the council discount to be a deposit. I need to research further but it sounds good to me. I want to be the owner, not share 50-50 with a landlord 

roadweary

I hadn’t even been aware of the leasehold aspect. Can either be freehold?

Again this is part of why I’m asking - even though I’m just giving a helping hand, I feel responsible for getting them decent advice. 

Happy to pay if there is a highly recommended person out there?

I think the fundamental issue with H2B is the limited number of properties in Gloucestershire running the scheme, the cost of those properties, and the 70% minimum mortgage...with the 20% H2B loan after 5 years - even if interest only. 

For context, the SO mortgage is £52,500 which is roughly £250 a month for a 25-year mortgage and £350 a month rent. 

I think £700 or so is their max rent/mortgage budget. 

getmore4less

£52500 mortgage over 25years £250pm that's 3% which is a high rate.
what price is this shared ownership and what share and deposit getting put down,
£350 that's a lot for a 50% share of a £100k place(8.4%0 a bit better for a £200k place(4.2%).

still more than borrowing

roadweary

You are right - I will gather more detail!

Seashell517

Would they be planning to stay in the SO property long term? House or flat? Any limit on the rent portion with regards to inflation? There's a lot to consider...

My personal experience... SO 1 bed flat in a city, 25% ownership, rent went down before it went up as linked to inflation and costs, sold after 5 years without issue to move to a HtB 3 bed semi in a more rural location, now selling after a further 5 years to move back to the city.

roadweary

Spoke to my IFA.  Turns out it is a 25% share in a £210,000 house.  Mortgages are a higher rate for Shared Ownership - it's probably from Leeds BS.  Based on their income, it's their only option, but they should purchase as large a share as they can afford due to the valuation fees for staircasing and the increased share being charged at the market valuation at the time...