Shared ownership in London - experiences please?

moomin82

Hi,
I’ve been saving a deposit towards my first home in a Lifetime ISA. I currently have £6k.
I’ve done one viewing in North London and was surprised to be advised I would probably have enough to reserve if I wanted to. 

I’m not clued up about the whole process? For example, if the property would always be leasehold, why do people still staircase if it will never be yours? Should I get a valuation and IFA/ mortgage advisor?

I’ve been doing more research on Shared Ownership and want to hear from anyone who’s gone down this route? I’ve read a lot of horror stories and it’s putting me off. But I am 41 now, have finally achieved a stable job in the last couple of years, earning £39,566 a month and have paid off over £12k of debt in the last 5 years.
I am currently back living with my parents to help me save and my board/bills are around £500 a month.
Buying in London seems like a pipe dream but I am not really looking outside London at the moment. 

I work in the City so need good links in.

sourpuss2021

£39,566 a month is a solid income even for London.  But, alas, I expect it’s a typo!

Isn’t the drawback of shared ownership that you have to pay 100% of maintenance costs even though you only own part of it?  

Also the property developer / housing association will benefit from any increase in its value since they will want a fixed % back on sale, it’s not like paying off a mortgage company.

lika_86

moomin82 said:

I’m not clued up about the whole process? For example, if the property would always be leasehold, why do people still staircase if it will never be yours? 

Most flats (shared ownership or otherwise) are leasehold, although some come with a share of the freehold. Usually leases are super long so would cover you for life and the overwhelming majority can be extended as a matter of legal right, so it's just a form of ownership. Once you staircase to 100% it's yours in the same way any other leasehold property would be.

If shared ownership is your only means of getting on the property ladder then it's not a bad one. However, if you think you could own without it then personally I'd wait. Keep in mind that there will be other costs other than deposit - money for valuations, legal fees, kitting the place out, ideally an emergency fund etc. 

If you're currently able to live at below market rent and are ok with living at home then I'd save as much as humanly possible in the short-term and really give yourself enough of a cushion to buy. Costs of living are spiralling but hopefully everything will calm down a bit in time.

eddddy

moomin82 said:

For example, if the property would always be leasehold, why do people still staircase if it will never be yours? 

You need to be careful about what you take notice of. When some people say things like "you don't really own anything if your property is leasehold", they're kind-of playing with words in an unhelpful way.


More generally, you need to do the calculations to see if shared ownership works for you. In case you're not clear how it works, here's a random example, with made-up numbers...

• A property has a market value of £400k

• You might pay £100k for 25% of the property (and pay rent for the other 75%)

• You might take out a mortgage of £90k to pay for it - and put in £10k of your savings

• So each month you have to....
• • Make repayments on your £90k mortgage
• • Pay 75% rent
• • Pay a service charge (for repairs and maintenance etc)
• Plus pay all the usual expenses like council tax, electricity, etc

The benefit comes about if/when the value of the property increases. If you decide to sell in 5 years time, and it's increased in value to £500k - your 25% will be worth £125k. i.e. You'll have made £25k return on your investment.

But if the value of the property doesn't increase - or maybe drops, it's not such a good deal.


To decide whether that's a good idea, you probably need to compare the costs of doing something else. For example, the costs of staying with your parents for 5 years, or the cost of simply renting a place for 5 years.


Edit to add...
There are other associated benefits to consider - like you can't be 'no-fault evicted' (i.e. served a section 21 etc) from a shared ownership property. So you have greater security.

JM68

New Builds tend to be quite overpriced.  Also, once you factor in the mortgage, rent for the share you don't own, service charges (often high), council tax and bills, your overall outgoings could be very high, and as a new build the value of your flat is likely to fall as soon as you buy it as happens with new builds.

It sounds like you you have only recently 'found your feet' as it were, in terms of clearing debts, getting a decent income, and starting to save.  On your current salary you could probably get a mortgage to buy outright for up to £180,000.  With approx. £2500 take home each month and only £500 rent/bills you should be able to save a significant sum each month now to build a decent deposit.  Plus the Government (OBR) are forecasting prices to fall over the next year or so.

You may have to go quite far out in North London, or look in East or South London, including possibly accepting a bus journey to get to a tube station or using overground, but there still plenty 1-bed flats currently listed for under £230,000 around, which would likely mean lower monthly outgoings than a new build shared ownership.  Plus if and when you had money to staircase a new build you could simply get a bigger mortgage and move instead.

[Deleted User]

Be very careful. Chances are the new build is massively over-priced, and they are just hoping people will use the shared ownership scheme to get one.

You buy only part of it, and pay rent on the rest. Double check but usually buy can buy more of it over time, called staircasing. Of course that can be very hard to do if you are also paying a mortgage and rent. Check the rent terms very carefully, if they can increase it you could find it becomes unaffordable, and if you miss payments it's probably going to be very bad for you.

Another problem is, until you own 100% of it, selling it could be difficult. It was over-priced to start with, and because the developer owns part of it they can usually veto any potential buyer, especially if they too are looking to use shared ownership.

Also those homes are usually leasehold, not freehold. Expect ridiculous service charges, and beware of them increasing and making it unsellable.

Remember, they aren't doing it to help you. They are doing it to make more money. In the long term, it will cost you more. Of course you have to balance that against the fact that you are 41 and don't earn much by yourself. Especially if you want to stay in London.

Don't get too hung up about "getting on the ladder". This kind of shared ownership isn't really a ladder, and the whole concept of a housing ladder is starting to become a fantasy for many FTBs.