Shared Ownership vs. Renting vs. Moving back with Mum!

ajbrown141

My wife and I are facing something of a crossroads, and I'd appreciate some advice, specifically on shared ownership schemes but also on our wider situation.

Background: my wife is a primary school teacher on £28k, I am a student on £0k until at least Oct 2009 when I might be on around £30-35k. We have around £10k in savings (technically £14k in ISAs, minus £4k in CC debt). We are currently renting for £700 a month a crummy 1-bed flat in North London (Edgware).

Our lease runs out at the end of July and we have three basic options:

1) Buy into a shared ownership scheme
2) Continue renting
3) Move back in with my Mum


Option 1 - Shared Ownership Scheme

We have recently investigated a nearby shared ownership development (in Kenton). This is for a 2-bed, new build flat on the ground floor. It is much, much nicer than our current flat. The flat is valued at £240k, and we would be buying a 25% share (60k).

The rent on the 75% share will be £402
The mortgage payments will be around £333
The service charge will be £65
Total monthly cost - £800

This option seems really attractive to us, as we finally get a small step on the property ladder. We can put down a 10% deposit on our 25% share, so get a decent mortgage. My understanding is that if prices go down (as expected) then this won't actually be too bad as we can then buy up the other 75% for cheap (once I have a job), and we won't lose out too much on the 25% share we have. And if prices go up (unlikely) then our share will have increased in value and we don't have to buy the 75%.

I've searched on this forum and people seem to dislike shared ownership schemes quite a bit. I can't really understand why and that's pretty much what I'm trying to find out. Is there something I'm missing with this option? Do you agree that this seems to make sense or am I fooling myself?


Option 2 - Continue Renting

We really don't want to continue renting, as we can only afford £800 a month, and in North London that gets you a crummy 1-bed flat. I'd much prefer to pay £800 a month and be living in a nice 2-bed flat and be gaining a small amount of equity.


Option 3 - Move back in with my Mum

This is the other viable option for us. My Mum would only charge us a nominal rent, so we could live with her and save up a lot of money (probably £500 a month or maybe more). However, there are two problems with this:
a) Even after a year we'd probably only have £16k in savings, and this is not going to be enough to buy outright. So although we'd manage to save this wouldn't actually help us that much unless we were willing to live there for a couple of years and save up even more.
b) It feels like we'd be taking a big step backwards and whilst we have a good relationship with my Mum it would be especially hard on my wife having to live in someone else's house.

Conclusion:

Sorry for the very detailed description and analysis of our position. It's partly been for my own benefit to think through the issue, but I would also really appreciate any advice anyone has. Specifically, I am interested in shared ownership schemes and any knowledge/experience anyone has about them, especially in the current market.

To us, it seems like paying £800 a month for a much nicer flat than we could get renting, gaining a small amount of equity and having the option to buy more shares in the future (when I have a job) are all very positive factors and so Option 1 is the best, but have I missed something?

Thank you in advance to any comments or advice you can give me. If you need any more information please ask!

PasturesNew

Option 2. House prices are falling, so if you can just hang on until 2009 when you've got a job and cleared your debt, you can start saving a bigger deposit and buy a whole place of your own in 2010.

Guessing this is the right place, see how prices are falling:
http://www.propertysnake.co.uk/site/postcode/ha8

And if you get Firefox and the Property Bee add in at http://www.property-bee.com then you can surf rightmove and see the falls happen on a daily basis.

neverdespairgirl

ajbrown141 wrote: »

I've searched on this forum and people seem to dislike shared ownership schemes quite a bit. I can't really understand why and that's pretty much what I'm trying to find out. Is there something I'm missing with this option? Do you agree that this seems to make sense or am I fooling myself?

There are several reasons why I am worried about such schemes at hte moment.

Firstly, it's a newbuild flat. That makes it pretty vulnerable to price falls, more so than an older house, for example.

Secondly, it can be much, much harder to sell. You can often only sell to an approved buyer, who has a much smaller range of mortgages available. In a downturn, with prices dropping, shared ownership places are very much at risk. If prices are lower, people who would have gone for them go for wholly-owned instead.

Could you consider house sharing as option 4?

happytails

We we torn between continuing to rent or get a 50% shared ownership mortgage, unfortunately we cannot move in with family as we have 4 dogs

So we planned to save for a deposit for SO but have now decided with house prices falling and new builds loosing their value quickly it is more sensible to continue renting and save save save. Our aim is 15K within 2years. Once we are nearing 10K mark we will start properly looking at houses.

Really hope you make the right decision for you and your wife

Mac_Sami

You need to consider the cost of purchasing a property. As well as the mortgage payments, ground rent, service charge, management charge and rent on the 75%, there's also the bills, council tax, repairs etc. to consider. This will make shared ownership more expensive than renting - but you must do the hard maths, and not quote "fluffy" figures. Failing to do this now will prove costly later on.

You are right in that if property prices go down, you can buy the rest at a lower market value. You can also negotiate a price, and please don't think that you can't - regardless of what people say.

If property prices go up (somehow!), you can try to sell your share. It will need to be to an approved buyer at market value or less. Bear in mind the difficulty in getting mortgages, I think it will be difficult to sell your share.

An important question to ask is how long you see yourselves staying in the property. If it's a long term thing, then great - if not, then it might not be the solution for you both.

Good luck.

Mac_Sami

neverdespairgirl wrote: »

There are several reasons why I am worried about such schemes at hte moment.

Firstly, it's a newbuild flat. That makes it pretty vulnerable to price falls, more so than an older house, for example.

Secondly, it can be much, much harder to sell. You can often only sell to an approved buyer, who has a much smaller range of mortgages available. In a downturn, with prices dropping, shared ownership places are very much at risk. If prices are lower, people who would have gone for them go for wholly-owned instead.

Could you consider house sharing as option 4?

Agreed - you have to sell to an approved buyer, unless you own the property outright i.e. 100% ownership by staircasing.

Not sure what you mean by shared ownership places are very much at risk. If prices are lower, the OP would buy more of the property (as mentioned), rather than sell the share to buyers who (you assume) would buy outright. Even then, buyers may not be able to afford to buy outright.

When it comes to selling, if the OP is in a position to staircase to 100% i.e. he has 80 or 90% of the property owned, with a small bit to go, he may be better off staircasing to the final 100% to then have more of the market available to him to sell to.

trudiha

Shared ownership properties always seem to be the most expensive places available. If the ones you are looking at are the ones at Albany Place, they are the third most expensive 2 bed flats in that area listed on Rightmove. It seems very odd to me to offer a proportion of the most expensive flats to people least able to afford.

I know that the HomeBuy scheme has been changed a bit but it still seems like much better value for money for someone in your position.

Here are some details:

http://www.homebuy.co.uk/homebuy/product_open_market.asp

ixwood

Shared Ownership is just a big con to let greedy developers continue selling their overpriced, oversupplied, shoddy, ugly boxes at a huge premium IMO.

Whoever came up with it is a genius. "People can't afford our rip off prices any more, so instead of having the price naturally set by demand, let's just sell them a fraction of the overvalued box instead!"

Save up and get a good deal on a real house in a year or 2 is the best choice IMHO.

mitchaa

Simple.

Option 3 is a step in the wrong direction, no matter what way you look at it
Option 2 is obviously not for you, the crummy 1 bed flat that is taking up the same amount of money if you were to mortgage as detailed in option1.

Leaving only option 1

I think its a safe gamble at 25%, it gives you that step onto the ladder yes and if house prices do fall it has a more positive effect on you than what it does negative as you'll be able to purchase the remainder cheaper.

Whats the alternative? Stay in the crummy 1 bed cramped flat and waste that £700 or spend the £800 and have something that is your own (well partly) along with the additional space and 2nd bedroom.

O.P..This is the most scaremongering site i have come across. Its unbelievable at times, some people think houses are going to lose 60/70/80% of their values for example. Complete ludicrous.

I wouldn't listen much to people on here, its just another person with an opinion. Go with your heart, and to me it reads like heart says number 1.

Some have been rabbitting on about HPC from way back in 2002 for example. In 2008, we are still to see this crash. Yes there is a slowdown and a little dip under, but certainly not a crash that some people would like you to believe.

Make your own mind up, dont be influenced by a bunch of strangers on 1 individual internet forum site.

MissMoneypenny

mitchaa wrote: »

Simple.

Option 3 is a step in the wrong direction, no matter what way you look at it

Only if they don't get on with his mum. If you get on with your mother OP, I would do that. You can live in a nice place, with no worries about a falling house market, finish your education and save for a deposit. Seems like a win, win situation to me.

mitchaa

MissMoneypenny wrote: »

Only if they don't get on with his mum. If you get on with your mother OP, I would do that. You can live in a nice place, with no worries about a falling house market, finish your education and save for a deposit. Seems like a win, win situation to me.

Privacy surely? I'd personally hate to stay with parents at any age over about 21.

Simple things like walking about in the nude, lying on the setee in just your boxer shorts, not being able to have sex etc....sod that for a laugh :rotfl:

This may be totally wrong, i know nothing about SO properties so please correct me if im wrong...

Today House valued at £240k, 25% share = £60k (£180k difference)

1 year on, May 09 House prices have dropped by 25%

House now valued at £180k, 25% share now at £45k (£135k difference)

You've gained/saved £45k

You gain by properties slumping, or have i missed something blindingly obvious

Factor in the 12 x £700 rental also that you are currently wasting (£8400pa)

Then surely you can factor this in or offset against the £15,000 you've just lost by property slumping by 25%, so real loss to you only £6600, more the longer you carry on renting, but yet you get to buy your property £45000 cheaper.

Thats my thinking of it anyway, i may of course be talking complete bol*ocks as i know absoloutly nothing about how SO schemes work.