Why the big downer on Shared Ownership Schemes?

Mac_Sami

And let's not forget the true saving that you make - not.

I've seen some SO flats registered as purchased by the HA at £90k each (for the entire flat). Market value if you want to buy a flat in the development is around £170k. So far the HA have saved £80k.

HA then advertise 50% shares in these flats at - wait for it - £85k, giving the flats the "going rate" market value of £170k.

If someone buys that 50% share, the HA essentially have clawed back most of the money, less £5k and any costs - yet you're paying rent on that other 50% share. Oh, and when you come to staircase (buy additional shares), they're done at market value too. So if someone buys the other 50% at another £85k, the HA have made a whopping £80k profit.

Someone's making some money in the current market, at least.

I appreciate that's an extremely simplified view - some planning applications require affordable housing to make up a percentage of a new development, not to mention the HA need liquidity to purchase off plan for other developments. Still, that's a serious amount of money to make when you're selling 10 flats at a potential £80k profit per flat (in the long run).

BiggaThanBen

mickym wrote: »

We have already been accepted for the Homebuy and Open Market Homebuy schemes, however there are two new options available to us:

MyChoiceHomeBuy

Ownhome - www.ownhome.co.uk

All the schemes you've mentioned in your post ARE NOT shared ownership. You own 100% of the property, HA just gives you a loan covering a certain share of purchase price. You buy on open market, so HA does not dictate price of the property. You do not pay any rent with these schemes.

Majority of answers in this thread refer to shared ownership scheme though ..IT IS DIFFERENT !

gabyjane

We bought ours last year and this is how we weighed up the pros and cons.

Pros:

• Our S/O is far bigger than anything we could outright own
• Far cheaper than the going rents and even more so now
• Far cheaper than an outright mortgage for say £100k to which we would never find a house anyway. We pay about a quarter of what we would have to pay outright, nevermind the bills on top!
• Has parking and garden..very hard to find in general where we are
• It is a new build, not to everyones taste but it is a lovely house as far as we are concerned!..they are virtually impossible to find in our town and the ones that do come up are way over budget anyway.
• We liked the idea that we don't HAVE to buy it all, we would like to but if the worst came to the worst we will pay the rent which isn't much.
• No deposit just solicitors costs.

Cons:

• We have to ask if we want to do anything major, we don't as it goes but still it's something you may want to look in to.
• It is hard as someone said to buy other % of it as it is revalued etc, need to pay fees etc so not an easy ride!
• They can determine the rents etc to go up but there is a min amount each year.

Can't really think of anything else tbh, like is said we love it and that's all that matters at the end of the day!

Sarahlouz_2

The thing is what one of the posters says above about only saving £130 a month compared to a £100,000, that's assuming you can get a mortgage in the first place. We have a 45% shared of our flat for £91000, full value when we brought was £202,500. Even though the monthly repayments on a full mortgage would be similar to what we pay out now (just under £1000) we would never have been able to get a mortgage for anywhere near £202,500 despite earning quite a decent combined income for our age, so other than moving up North or something we would never have been able to buy.

OUr flat is a new build in a new development ( I can hear you all saying oh god not a new build) but I don't think ours was overpriced as everyone seems to think SO is. Other flats in our development (only differences ensuite bathroom, nicer kitchens and a lift) are valued about £50,000- 60,000 more!

Richard_Webster

There's nothing wrong with shared ownership - most of of the issues are more about the inflated prices for new builds, especially flats.

Shared ownership on a second hand property at the right price would be a good idea for someone who couldn't otherwise afford to buy.

ruggedtoast

Richard_Webster wrote: »

There's nothing wrong with shared ownership - most of of the issues are more about the inflated prices for new builds, especially flats.

Shared ownership on a second hand property at the right price would be a good idea for someone who couldn't otherwise afford to buy.

Yes, except one of the reasons people cant afford to buy is down to toxic property ramping schemes, shared ownership among them.

.

gabyjane

I have said this on another thread BUT we are on a development of S/O and private, new build mixed houses but there are some like ours(townhouses)

The private houses were in the estate agents for £169k upwards when first built and all sold straight away..ours was £153k now obviously ours was cheaper i have no idea why or neither do i care! but like somone else said we could never have afforded this at £153 nevermind the £169k mark..it has given us our own home and we love it...oh and it is bigger spec than the expensive ones much to their annoyance!

hugahoodie

did you have to pay a deposit to staircase up?

Helga14 wrote: »

I would rather some of my flat be owned by a housing association than by a boyfriend or friend that I may one day fall out with. Most people buy with someone else and that can be pretty complicated too.

You need to go into it with your eyes open there are disadvantages. I can't rent my SO flat easily if I want to go travelling. I'm staircasing at the moment and it is an expensive process and slow. But then again if I had brought somewhere cheaper ( if i could have found anything) and was now having to sell and rebuy in order to go up the property ladder then that would be more expensive and more problematic.

It has given me the chance to live in a lovely flat, that I now have equity in. I had the choice buy a ex local authority flat in an estate in a bit of London I didn't want to live in or buy a percentage of a flat in an area i did want to live in. I am keen though to buy 100% as quickly as possible so that if i want to I can sell up easily.

DVardysShadow

fedupnow wrote: »

We have been overpaying for many years and now have a very small mortgage. We have stopped overpaying and are saving to move to the house we want to die in. As we are now living here virtually free I think we are in a great saving position. We can save a large deposit (or more) for the next house and so hope to be able to be mortgage free on the next one when we sell this house and retrieve our 70% worth.

Off topic I know, but why stop overpaying and start saving? Either way you are building up equity for the next place - and you are probably possibly paying a higher rate of interest on the mortgage than you are getting on your savings.

princeofpounds

Shared ownership isn't intrinsically a wrong idea, but it does come with many practical difficulties which the posters above have done a good job of highlighting.

One other major problem is that there is typically in economics no free lunch, which is the cause of the overpricing problem. Let me explain...

Shared ownership contains within it an element of extra financing. Finance comes with a cost attached. For debt, the cost is explicit as an interest rate. For equity, the cost is implicit- you forfeit investment gains on the equity you don't own and pay rent for the privilege.

The cunning thing about shared ownership is that it gives the impression that you are equity partners, but in reality it is effectively debt; there is a minimum amount you have to pay on the principal equity, and the rent payments are analogous to interest. But if the house appreciates, they still get the equity upside. That's the first financial problem.

The second is that often this extra financing is provided at subsidised rates by a govt agency. When this is done, the developers can overprice the properties, because there is a value to that financing (the flip side of financing having a cost!). Buyers tend to look at affordability of payments, and so the developers are able to extract part of the economic rent from the capital values. In effect, you pay for the extended mortgage through the price, rather than interest rates. That us why so many of these developments appear overpriced.

Would like to dothe subject more justice but writing on a phone!