Shared Ownership - why is it a rip off?

Mac_Sami

I've browsed these forums and read many comments about shared ownership, and some people have said that it's a rip off / not good value for money etc.

My question is: why is it a rip off? (As I honestly don't know whether it is or not, so would appreciate some good answers to this).

lucy_w86

Mac_Sami wrote: »

I've browsed these forums and read many comments about shared ownership, and some people have said that it's a rip off / not good value for money etc.

My question is: why is it a rip off? (As I honestly don't know whether it is or not, so would appreciate some good answers to this).

I would like to know as well as I have been advised that shared ownership was meant to be good. Came on here and everyone was against it.

Such a hard life!

dmg24

Not everyone is against it.

I think many of the new build SO schemes are not good value, but if you can get an older SO property they can be excellent value.

I bought my previous SO property for £22500 for a 50% share, and paid rent of £80 a month on the other half. When I sold the property I got £47500 for my share, and the rent at the time was still under £100 (the potential increase each year was limited).

Obviously in todays climate you are not going to make such a profit on resale, but if you can find one with such a low rent on the HA's share, it can certainly make sense to choose such an option.

PasturesNew

It can be a rip off because the whole value of the house is so much more than similar houses available close by to buy outright.

Although you own a portion, you are responsible for all the maintenance of the house.

In my opinion these schemes are best for people who can never see themselves getting a house entirely of their own. They can buy a stake in it and once the mortgage is paid just keep paying the rent for life. That way they get security of tenure.

If people are buying them to get a foot on the ladder, they might find they still can't afford the next one up, the restrictions on selling it (who you can sell it to for example) are prohibitive.

I bought a SO about 17 years ago. I paid £24,500 for 50% of a studio bedsit at £49,000 in 1990.
I was paying £100/month rent on the other half.

Even then I thought that the price for the half I bought was disproportionate to the value of a whole house. But there was no way I could ever buy a whole house. So I was happy to buy it just to have somewhere that was mine so long as I kept paying the mortgage/rent.

With the market changing, how saleable will these houses be in the coming 5-10 years? What happens if you are in negative equity?

After owning mine 7 years, I decided to move 350 miles within a week. It was good as I could simply sell my half back, so no need to find a buyer. But I did have to pay out 4.6% of the original value to buy myself out of negative equity.

lucy_w86

I am quite worried.

My partner and I are looking into renting but its going to cost at least £700+ excl. bills. If you look into shared ownership, we could be paying around the same.

What do people think?

dannyboycey

Work out the full cost of the house based on the percentage and compare it to others in the same street - does it stack up? In many cases, these houses are well over valued. Also steer clear of anyone asking for a big 'premium' as this is just money down the drain.

Finally, watch out for potential hidden costs like management / upkeep fees (usually applies more to new builds and appartments).

RoxieW

We live in a shared ownership and its been fantastic for us. House was valued £120K - same as other private houses on street so no mark up there - and we bought a 50% share. We pay rent of £120 on other 50% which is 1/4 of the price of our mortgage and very good value I think.
When we were looking in our price range we could either afford something on a grim council estate or a tiny terrace with tiny/no garden. Shared ownership let us afford a lovely 3 bed home with garden in a nice area.
The house has since gone up by about 20K in value which we would obviously only see half of the profit - but the way I see it is that its also only half of the risk. Should the worst happen and house prices drop we're not shouldering the whole burden.
As our incomes improved we had he option to purchase the remaining 50% share but we've decided to stay as we are. Our low mortgage payment means that we're able to save each month for deposit on the 'next' house and also afford a nice lifestyle.
Being shared ownership also makes it easier to sell as your catering to a huge market of buyers who cant quite afford that first step on the rung. We also recently looled into selling and the Housing !!! had a database of 3000 potential buyers who'd put their names down for a hared ownership.

PasturesNew

RoxieW wrote: »

We live in a shared ownership and its been fantastic for us. House was valued £120K - same as other private houses on street so no mark up there - and we bought a 50% share. We pay rent of £120 on other 50% which is 1/4 of the price of our mortgage and very good value I think.

From other figures I've seen/experienced, your rent is very cheap.

Most rent is set at about the same as the mortgage interest only portion.

Somebody on another thread here this week was linking to one and his rent would have been about £350/month.

Overall, anybody looking into SO needs to add up the mortgage cost, the rent cost and any other service/similar charges. At the end of the day you do have to pay all of them.

Mac_Sami

PasturesNew,

If I may ask a few further questions...

PasturesNew wrote:

It can be a rip off because the whole value of the house is so much more than similar houses available close by to buy outright.

I'm not seeing this in my area. Most SO properties are new build apartments, and looking at estate agents selling apartments in the same building with similar, if not the same spec, the SO option is at market value. Unless what you're saying is that the asking price for these properties, SO or not, is too high (in which case I can see your point).

PasturesNew wrote:

Although you own a portion, you are responsible for all the maintenance of the house.

But it's not like you're only living in part of the house, so how does this matter? Sure, if I only used part of it, then I'd be annoyed having to shell out on maintenance on other parts. For new build apartments, what sort of maintenance would be needed, and would the NHBC guarantee mean anything?

PasturesNew wrote:

In my opinion these schemes are best for people who can never see themselves getting a house entirely of their own. They can buy a stake in it and once the mortgage is paid just keep paying the rent for life. That way they get security of tenure.

If people are buying them to get a foot on the ladder, they might find they still can't afford the next one up, the restrictions on selling it (who you can sell it to for example) are prohibitive.

Fair point. I understand that the properties I am looking at have an option for the HA to have first refusal on purchasing back the share when I come to sell it (but this option is time limited, so they can't take forever).

PasturesNew wrote:

With the market changing, how saleable will these houses be in the coming 5-10 years? What happens if you are in negative equity?

True, with apartments being built left, right and centre, these properties would be harder to sell years down the line. But if you're only purchasing say 50% of the property, whilst negative equity is still possible, surely the effect of it isn't as bad, given that haven't paid for 100% of the property (unless I've misunderstood the concept). But if the area in question is a good location, and there are no future planning applications to develop residential property, could this be helpful?

Sorry if it seems like a dig - I think what you say is true on the whole, and it's nothing personal - I'm just keen to dig out the arguments for and against SO to make an informed decision.

zappomatic

Where I've bought, my apartment is almost £100,000 cheaper than the open market portion of the development. They have bigger balconies and the second bedroom is a little bigger, and are to a higher spec (better flooring, dishwasher) but otherwise are very similar. Wood flooring and a dishwasher (fitted kitchens are otherwise identical and very good quality) to me do not account for such a price difference. The open market flats are very much in demand from buyers and renters. Out of 23 shared ownership flats there are two left untaken because they have a bad layout and oddly shaped rooms yet aren't any cheaper to account for this.

We moved in just before Christmas and gradually other residents are moving in.

Compared with the cost of renting a similar (or smaller!) property in the area we are actually saving money (or breaking even for the first year when taking into account the cost of furnishings) and at least making something of 30% of our housing costs.

As others have said, shared ownership is sometimes excellent value, sometimes a disaster. Just be very very careful and research every detail.

brit1234

There is a lot of hidden costs and regulations. From calculations I have done over the years it has always worked out better to get a full price property.

Many builders and the government like them as they help to keep prices overall high for everyone. The problem now is property prices are reverting back to sustainable levels canceling the need for them. I also believe they will be a complete nightmare to sell in a downturn market due to the extra conditions and competition from investors off loading flats.

If you are looking at them visit a wide range of companies and sit down and discuss all the costs and conditions. Some are a lot better than others but you need to compare to make the best decision. Some I have visited are just pure leaches.