Buy under Shared Ownership scheme, or just continue renting?

osullic

I'm a 41-year-old single person, living and working in London. I'm currently renting a one-bedroom flat. While sometimes I think the flat is a little small (38.5 sq.m), in general it's a nice enough flat, and not inconveniently located for work and social life. I've been here for 4 years, and have a good relationship with my landlord. Actually, we go for months without contact, but he's always reasonable and responsive whenever something comes up.

However, as I said, I'm 41, and sometimes I feel like I still live like a 20-something year old - renting a small flat. I have a little over £20k in savings, and my salary is £50k. I've been wondering if it's time for me to "get on the property ladder".

Based on those figures, and London property prices, I'm thinking that buying a one-bedroom flat under the Shared Ownership scheme might be my only realistic option. Doing some rough calculations, let's say I bought a 50% share of an apartment that has a full market price of £400k. A mortgage of £180k seems to equate to monthly repayments around £950. Let's say the rent I'd pay on the 50% share I don't own would be around £450, and a ballpark figure of £200 in service charges. That comes to £1600 per month. (I think I could afford that.) That's higher than what I'm currently paying in rent - my rent is £1150/month.

This might seem strange that I'm asking this question, but I'm wondering why I would/should choose to buy a Shared Ownership apartment. I have to say, I'm a bit of a "newbie" in this whole area. Does it make sense based on those figures, just to be on the very lowest rung of the property ladder? Is it a good/bad decision? Would I be better off staying where I am, and just continuing to save?

Thanks for your advice.

MovingForwards

If I was in the first flat I rented when relocating, I would have carried on saving up. Moving to the second flat I couldn't wait to get out and saved everything I possibly could to get out and buy my own place. You sound like you're in the former situation.

I looked into shared ownership and help to buy equity loans, but for me it wasn't the right thing; I could, and did, get something I wanted via a regular mortgage by moving further out and into an area which had the same feel and amenities as the first rental did. Celebrating my 45th in my first home was good.

With shared ownership you don't pick the percentage, you're assessed and told how much you can afford to buy.

Do you plan on living where you are on retirement or moving somewhere else? If the latter then there's no harm in waiting and using your working life to save and invest for bigger growth, scaling it back to retain your capital as time goes on.

Owleyes00

Do you have a lot of outgoings? £20k saved on a £50k salary at 41 is a bit lower than I would expect.

In general I would normally say you are better off buying than renting if you can afford it because your monthly repayments are often lower per month, you are getting something for your money and it affords you more security in retirement. All of these things you have likely thought of or you wouldn’t be considering it.

HOWEVER, I would spend some time seriously considering the pitfalls of shared ownership where you have all the agg of being an owner and none of the benefits of being a renter. Some things to consider:

-are you able to continue to afford it if the ground rent/maintenance/rent on the other portion of the property were to change?
-do you have sufficient funds to cover maintenance issues? (As I say, it seems like you might have a lot of outgoings and remember you are liable for all of the maintenance even if you only own some of the property)
-are you aware of the difficulties than can arise when selling a shared ownership property? The housing association may have the right to first refusal and not pay market value, or insist you try to sell to another shared owner which can cause delays.
-staircasing. This the is dream sold with shared ownership but in reality is managed by very few people. Some HAs have a minimum residential term before you can staircase by which time the property value might have gone up but your income has not. Are you aware that you will also have to pay stamp duty and legal fees for yourself and the HA if you were to do this?

If I were you I would be looking to buy somewhere further out that I could afford all of.

osullic

Yes, 20k savings is not a lot, but without getting into my life story, I actually haven't been working non-stop all that time. I had a period of unemployment, returned to study, and my career only really kicked off in earnest in the last decade. I am in a much better financial/professional position now, which means I can save/afford more from this point on.

It seems to me that my outgoings would be quite a bit higher if I bought rather than rented. I know that eventually owning a property provides security for the future, but I could equally just consider investing my savings wisely, to match the gains of buying my own home.

Thanks for advice. Food for thought.

longtimelurker2020

If I were in your shoes I’d look into full ownership, not shared ownership, not only because of the increased security and sense of control in the here and now, but also because property, particularly in London, could form part of your retirement plan - hopefully you’ve had a plan in place since your career took off? 

I’m not far off from you age-wise and after wasting money and time am only just scrambling to play catch up with my pension. 

In your shoes I definitely would not continue to rent in London. You have a great landlord now; what if he decides to sell and you end up with a nightmare landlord? Plus historically property prices have risen faster than savings growth. You mention investing, which is a great idea, but I’d do that as part of a mixed portfolio that included property ownership and a loaded pension fund. 

I suggest you do the maths before dismissing the option of  buying outright. Are you eligible for the 5% mortgage scheme or any of the others for first time buyers? There’s a helpful thread in the Mortgages and Endowments forum called Mortgage Broker Ask Me Anything, where you could post a question about the eligibility criteria or even reach out to one of the brokers that contribute to that thread, if from their posts you feel they’re knowledgable and might be able to help. 

Time flies by so quickly and before you know it, you’re staring 50 in the face and still renting without much to show for it. 

Runningmad

Hi there, for a time we thought shared ownership was our only way. But like the other replies say there are a lot of down sides. Our main reason for not proceeding was the leasehold side and they can be hard to sell. 
Have you thought about the help to buy equity loan, if you are a first time buyer? This is our preferred option now and have started the ball rolling.
Good luck

zenbuddhist

I'm in a similar situation and age (but on a lower salary and lower rent) and I decided to keep renting, saving and investing mostly in a SIPP. Shared ownership seems like a bad idea.

verycleverusername

I'm in a not dissimilar boat but I'm in the process of buying a shared ownership. However, if I earned £50k I would try to buy outright. Nationwide are doing 5.5x salary mortgages at the moment, but you do need 10% deposit plus another £4k for fees and such. Or there are plenty of 5% mortgages out there now. You could buy somewhere for roughly £240k - which is an option if you look in zone 4 and outwards. I wouldn't do shared ownership if I had another option but the price of even 1-bed flats is shooting up. Two bits of advice: watch out for cladding. Lenders don't like it even on low buildings. Avoid new builds like the plague. The shared ownership place I'm buying is a resale. 

You'll regret not buying later in life if you don't. It's a investment into your future. That £1k a month in rent could be going in your own pocket. 

osullic

This thread has been very helpful for me. I hadn't given a whole lot of consideration to the 'Help to Buy' scheme, but looking at some of the details (5% deposit plus government loan of up to 40% of the property price, interest free for 5 years), it looks also like an attractive option. I need to investigate further. (If I was to make use of the 'Help to Buy' scheme, I wonder if a mortgage lender would still lend me ~4.5x my salary. I guess they'd take that additional government loan into consideration as something that reduces my ability to repay the mortgage, so would then only offer a lower mortgage amount. I also need to investigate how the government loan gets repaid, and if it would all be affordable for me.)

I wonder why the last poster suggested to avoid new builds like the plague. To be honest, I don't quite fancy living in some dingy old flat that's cold and damp for six months of the year. A new purpose-built apartment, if I could afford it, sounds appealing to me.

Owleyes00

If you are using help to buy then you will only be able to purchase a new build.

People often suggest avoiding new builds as many are made to very poor specification and have long lists of snags but are priced at a premium because they are shiny and new. Also new build flats tend to have depressingly short leases and the ground rent/maintenance can be much higher.

Owleyes00

However I would say that a new build under help to buy is a better option than shared ownership for sure (these are also often new builds anyway)