In April, a new era for shared ownership begins, with the government relaxing the rules on eligibility and opening it to anyone with a household income of less than £80,000, or £90,000 if you are buying in London. The change will mean 175,000 more people across the country will be able to buy.
For some, shared ownership is a bonanza: buyers only have to stump up 25%-75% of the price of a property, pay only a small deposit, and are charged a subsidised rent on the portion of the home they don’t own. When they are in better shape financially they can “staircase” up to full ownership.
In high-price areas such as London it is the only chance for many wanting to escape private rentals and have a place to call their own. But at current prices, even shared ownership is out of reach for people on average incomes.
For example, a housing association on the First Steps website is offering a 30% share in a two-bed flat in Hackney, east London, where the full price is £768,000 and the buyer must be able to pay £2,423 a month in mortgage, rent and service charge – or half the take-home pay of someone on a £90,000-a-year salary. But it says something about the frenzied nature of the market that they’ve all been snapped up. Others are far more affordable. For example, Wyre Forest Community Housing has three-bed homes where a 50% share will cost just £772 a month.
Consumer group Which? says the advantages of shared ownership is that “it can enable you to get on to the property ladder more quickly than you might if you wanted to buy a home outright; it may be cheaper than renting; and you can sell a shared ownership property at any time and will benefit from any increase in value it’s seen since you bought.” But mortgage adviser Simon Tyler, of Tyler Mortgage Management, warns that a shared ownership mortgage usually comes with higher rates than mainstream home loans. Giles Peaker, a housing solicitor at Anthony Gold solicitors, also has some reservations. “Despite owning 25% or 50% of the property, buyers have responsibility for 100% of the service charges,” he explains. “These can be variable and have to be paid on top of rent and mortgage. Repairs are often a big issue.”
Unlike full owners of leasehold properties who are unhappy with the firm running their block, shared owners cannot exercise the “right to manage” their building – it will always be run by the housing association. Another downside is that you could potentially lose your property if you fall behind on rent payments. “Although repossessions are rare, the owner would lose everything, including their deposit,” says Peaker.
Potential problems could also arise further down the line. In some cases, even if you own 100% the housing association will have first refusal to buy or will want to find a vetted purchaser. If you want to let it out, you may not be able to do so without permission.
“The restriction on subletting has had a particular impact,” says Lisa Gibbs of Simpson Millar Solicitors. “During the recession, when values were stagnant or fell, shared ownership owners were unable to sell, but may have needed to move for a new job. “However, the prohibition against subletting would have meant that the owners would have been in breach of the lease if they had found a tenant.”
Mick Smith* bought a shared ownership flat in east London in 2010. High house prices meant it was the only way he could get on the property ladder. He bought a 40% share of a £190,000 flat in Wisteria Apartments in Hackney in conjunction with housing association Family Mosaic. He acknowledges that the flats have shot up in price, so on paper he has done well. But he adds: “I love my home but I wish I hadn’t bought it. Often promises are not kept and issues not dealt with adequately.”
Family Mosaic said it met with residents at Wisteria Apartments in November 2014 to address concerns around heating, drainage and service charges, and that works have been completed.
Another buyer with mixed feelings is Ruth Wheatley, a 31-year-old PR executive. Again, on paper she has made big gains, but her gripe is the interest rate on the mortgage. She bought a 40% share of a £200,000 one-bed apartment in Hackney for £88,000 in 2010.
“It was quite hard to find a mortgage. Lenders don’t like shared ownership, and like new build – as my flat was – even less. I am with Leeds building society, paying a terrible rate of 6% – I was stung due to lack of choice. Saying that, shared ownership has been amazing. But high prices mean it’s much harder for other people to do the same thing.”
Sharetobuy.com hosts most shared ownership properties, allowing you to search for ones in your area. First Steps is the official intermediate housing programme from the mayor of London, helping low and modest income Londoners to buy or rent at a price they can afford. You can also register at individual housing associations, although eligibility restrictions apply: many housing associations outside London have a £60,000 income limit, and may require you to have local connections. You will also have to prove you are unable to purchase a suitable home to meet your housing needs on the open market, and that you do not already own a home.
*Mick Smith is not his real name
