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I'd quite like to be a homeowner one day, but being one of those impoverished creative types, no one would give me a £300k mortgage. I've started looking into shared ownership.
Has anyone had any experience with it? There doesn't seem to be anything in the area. I really don't want to live in a new build. A friend bought a one-bedroom in Camden. It looks like the house that Ikea built.
It's all very discouraging. -
No experience, as in i haven't done it, however..... i nearly did. The thing that bothered me about the scheme was that i had to pay rent on the proportion that wasn't mine. When you do the maths, it becomes a reasonable outlay. On the whole, new builds appear to be a terrible investment so building any equity up off your share would be very difficult, but i guess it really depends on where you're buying.
I've only ever seen shared ownership advertised as part of new build schemes, but whos to say that you couldn't do a deal with a private investor in the same way? If i had £100k in the bank, i'd prefer to put it into an established property with a proven sales and rental record. Perhaps theres a business idea...linking private investors with those seeking a home in London who can't afford the full outlay.
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I've had experience of this as I've worked in the property market in London for a few years (although that period is now behind me!).
Shared ownership is a good idea for the following reasons:
1. It's a more affordable way of getting your foot on the property ladder. But be realistic, unless you have a lot of money, choice will be limited, and most first time buyers will not purchase the ideal flat as a first step. You have to play the long game and remember that this is a first step of (hopefully) many. Shared ownership schemes mostly involve new build developments which will be small, but it won't be forever.
2. Indeed, you will have to pay rent on the portion of the property you don't own. Nevertheless, look at it this way - property prices in London have been growing at a rate that far outstrips most people's ability to save a substantial amount of money to put down on a property (obviously). BoE base rates remain pathetically low, so saving will take forever. Shared Ownership schemes allow you to build up enough equity in a property to be able to move on to the next step much quicker...
3. These schemes give you the opportunity to show mortgage lenders that you are a reliable borrower, able to balance payments on the relatively small amount you've borrowed, as well as the rental portion you will be responsible for. You are much more likely to be given a larger mortgage if you can prove, after perhaps 3 or 4 years (depending on the terms of your agreement with the lender), that you are a less risky proposition for lenders.
BUT, be wary:
If you can avoid buying a shared ownership property in a large development, this will improve your ability to be able to sell when the time comes to move on.
Something in a development of less than 50 flats is best. Look at it this way - if you buy a SE scheme flat in a large development, so are 100+ other people. You are most likely on the same terms as the other buyers. When it comes to buying your next flat, you will be selling at the same time as a lot of other people with identical properties.
Anyway, I think SE schemes are a great idea. Just be careful and considered in terms of where you buy.
Hope this was helpful. -
Defo some good points there tableturn. Hadn't thought about the reliable borrower bit, thats become an issue in the last 5 years or so.
Just on new builds....in the scheme i was originally buying into (and then didn't), i heard that as well as the shared ownership properties, the developer had sold in bulk to a private investor (say 5-10 units) at a price around 30% less than those on the scheme were paying. The investor could have sold at 20% less than me and made a profit, i on the other hand would have made a loss. Add tableturns comments about large developments and the competition to sell at the same time and you've got a nightmare on your hands. Leeds, Manchester and Liverpool are all examples where its gone wrong.
That said, get a nice niche development and its the only affordable option in London on a low-ish income. It attempts to address the issue.
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If you are not particular about which part of London you choose to live in initially, and you are looking to the future re: increasing the value of your property substantially, it might be an idea to do some research to see if any areas are scheduled for major improvements in the not too distant future. Think East End, and you know what I mean. Good Luck for the Future
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From what I’ve read, there are two basic problems with shared ownership schemes, first, is that the properties are usually new builds and tend to be overvalued.
Second, and the bigger problem in my opinion, is that though a person may buy a 25%, 50% 75% share, they are responsible for 100% of the costs of owning the property, e.g. repairs, common charges, property management fees, etc.
Since the buyer occupies 100% of the property, it’s fair that a rent should be paid on the portion that isn’t owned, but I think it’s somewhat unfair to have the burden of all the maintenance costs if you’re only a co-owner.
The benefits of the various schemes seem to be weighted in the developer’s favour. The developer gets cash upfront from the sale plus a revenue stream in terms of the rent paid on the outstanding share. I’m not sure how the buyer benefits really other than having a place to live where they won’t be evicted unless they fail to pay.
The more I read about shared ownership the less appealing I find it. Though in the end it does help a person get on the property ladder it all seems like a scam to subsidise property developers and the hype makes it all seem too good to be true.
@BrodieJ, if a developer can afford to sell flats at a 30% discount and still make a profit, it only confirms my suspicions.
http://www.guardian.co.uk/money/2011/mar/05/shared-ownership-schemes
What would really make a difference in the housing markets would be if the government reformed rental regulations and strengthened rights for tenants.
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To paraphrase tableturn's summary:
1. It'll be rubbish living there, but it's not as if you'll be trapped there forever
2. it's good because property prices always go up
3. mortgage lenders will like you if you do it
to respond:
1. but if it's a crap development, you might not be able to sell it and not what you paid for it
2. please see greece, ireland, spain.
3. there's no mortgage liquidity in the market for anyone with less than 40% equity, so whether or not you've been a goody-two-shoes, this doesn't matter
So the only thing we agree is the first part of 1 - "it will be rubbish living there". I guess you pays your money and takes your choice.
Even if this isn't a bad idea for all time, it's certainly a bad idea for right now. But I'm a pessimist and putting all my money into Swedish Krone. -
Lots of good points. Many confirm my worries.
Here's what I was thinking:
Not all shared ownership properties are new builds. Just as an example, I've found a listing for a resale property in Upper Holloway. It's a Victorian conversion. You have to buy 50%. The site quotes an estimated monthly cost of £1,329. This includes mortgage, rent and service charge. How much would it cost to rent a 2-bedroom flat in that area? I doubt it's a lot less. And this way you get to build up at least some equity.
From what I understand, the rent you pay on the portion you don't own is well below market value. In this case, it's £255 a month. You'll never find a flat in Holloway for £510 a month.
What am I missing here? It sounds like a good deal. The 'full market value' of the flat is £350,000. I don't know what sort of salary you'd need to get that kind of mortgage, but I'm never going to reach it. With shared ownership, we'd need a family income of £52k. That's much more doable. -
Be very careful on shared equity schemes.
While they are not a completely bad idea there are a number of pitfalls.
Firstly, as pointed out above, ideally you don't want to be buying into a big new build block, this causes issues when times are tough as there is a large amount of supply of properties for sale, all pretty much similar, driving down prices.
Also, there is no such thing as a developer selling at 30% off - if they have to cut the price by 30% to sell a flat, that is what it is worth. Otherwise they would sell it for more. Beware big new build service charges too.
That said, when the market is tough you can pick up good deals from developers - for example some of the Hornsey Road baths flats, which are nice properties, were sold off at essentially cost price. One bedrooms with a little outside terrace and a decent open plan kitchen/diner/lounge got flogged off for £160kish - one sold on recently for £240kish. Similarly, while nothing went that cheap at Highbury, some of the Arsenal flats were sold with big price cuts to shift them, one beds originally listed at just under £300k went for £250k.
These sales were done about a year-and-a-half to two years ago when the market was really tough, it may not seem like it now as prices are sky high again, but the market is tough right now and lots of properties are seeing price reductions and struggling to sell. Developers have done a reasonable of building in the past year as prices boomed again, potentially,there could be some cut price stuff to be had.
The different shared equity schemes from developers vary and the Government has its own equity loan one - the big catch to watch out for though is that the share is typically a percentage of the property's value so as it rises in value so does the developer or Government's stake rather than them just taking back what they lent you.
To an extent you are just delaying a problem, as when you come to buy another probably bigger and more expensive property you have only seen your gain on 70% of your former home's value, whereas the wider non-shared equity market has seen their gain on 100% of their home's value. You are at a disadvantage once more.
Mind you, prices are not guaranteed to rise anyway - and London's homes are way overpriced compared to wages, although cheap vs rental costs if you can raise a big deposit.
Sorry for the lengthy post.
PS before anyone asks, I'm not an estate agent, just know a bit about the local property market
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@Papa L - Thanks so much for the detailed info. It's much appreciated.
@Donna - The deposit isn't really the problem. I can "borrow" it from my lovely, generous parents. They desperately want grandchildren, and I'm not keen to start breeding while living in a tiny, shitty flat. But no bank will give us a large mortgage at any kind of a reasonable interest rate. Over the past four years, I've worked part-time/freelance/profit-share/unpaid. It's hard enough to get a mortgage when you're self-employed, but when your income varies as much as mine does, it's all but impossible.
Most of my friends are in the same boat. They're all creative-types (actors, directors, writers). No one can get a mortgage, even if they're not doing all that badly. -
The reason they won't give you a large mortgage is because you cannot afford to borrow that much. Save up a larger deposit and you'll be able to buy with a smaller more affordable mortgage. That is the reality of the situation - at the moment you simply cannot afford to buy. Shared ownership will not solve your problems, you will end up with the same monthly outgoings as if you had a large mortgage but you will not have full ownership of the asset. Mortgage lenders want to lend to people who can afford to pay them back, the interest rate reflects how risky you are.
I feel for you, really I do, but if I were you I would sit tight and save up until you can afford to buy without shared ownership.
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Mortgage payments aren't much higher than rent. Sometimes lower. If I can pay my rent each month, what makes you think that I can't afford to repay a mortgage?
The idea that an employee is a more reliable borrower than someone who's self-employed is outdated. It comes from a time when you had a job for life. When you take out a 30-year loan, can you guarantee that you'll be gainfully employed all that time? Are you really a safer bet than someone who's managed to find his own work year after year?
A couple of friends bought a flat (not through shared ownership) a few years back. Both are self-employed. To get the mortgage, he took a 9-5 day job just long enough for it to count on the application. He then went back to being a freelancer (pays better/more flexible). They still have the flat, so I'm assuming they've kept up with the payments.
When you say that I should save up for a bigger deposit, how much are we talking about? What would I need to put down to get a mortgage on a £250k property? 10%? 20%? 30%? That's not easy to do while making rent payments that cost almost as much as a mortgage. By the time I've saved up £50k (ha!), the same flat will cost £400k.
Shared ownership clearly has a whole lot of drawbacks. It's probably not a brilliant investment. But you can't expect someone to just give you a flat for a fraction of what it costs. There's always going to be a catch. But if the monthly costs are less than what it would cost to rent, it still sounds like a reasonably good deal.
If only the new builds weren't so damn hideous... -
Some good points.
The point that hasnt been raised is that if the flat goes up in in value so does the value of the % owned by the builder/housing association.
eg flat bought for £200k own 50% = £100k. Flat doubles in value six years from now to £400k you own 50% = £200k but the builder/HA is owed £200k if you want to sell up or increase your % share.
I know its hard to save for a deposit with day to day living costs but that really is the best way to then obtain a mortgage and buy outright.
Good luck rainbow c with whatever decision you make. -
When I went past the old Action for Children building in Highbury I noticed that they're going to have some shared ownership places - that would be a gorgeous building to live in (although it's unclear whether the building conversion itself will have shared ownership apartments, or whether those will be restricted to the new builds on the site).
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@Emma - I saw that sign, too. That may have been what got me thinking about it.
Thank you, again, to everyone who took the time to give advice. You guys rock. -
Hi,
I read about a scheme the other day that via a private equity firm allows investors to take a stake in your house so that they lend you part of the deposit in exchange for it's return on sale of your house coupled with a % of any of the on sale profit.
You still need some equity yourself but may help get you onto a better term mortgage. check out http://www.castletrust.co.uk/ for more details.
Good luck.
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@Rainbow Carnage - now worries, glad it was of some help.
It's a difficult one as while it helps people buy, my view overall is that the problem with the shared ownership approach on a national level is that it is a sticking plaster and it exacerbates rather than solves the problem, which is that property is too expensive - driven up by a decade-long credit boom and now supported by low interest rates because we're so deep in the crap that the nation can't afford to have the bubble burst.
That said, in popular London areas like where we live, in a decent development, it could work out well. That development in Highbury in the Action for Children place would be the kind of place I'd say it would be worth considering, if you can get a reasonable price.
If you do consider it, just don't get pressured in to signing up with any 'if you don't do it today it will be gone' tactics and ask about service charges and the exact situation of how the percentage share is paid back, any early repayment charges, or valuation charges when you want to do so.
Might also be worth asking what the policy is on you letting out the flat. This is essentially the get out jail card if things go wrong for you and you end up in an unaffordable situation. Most flats round here will rent for a bit more than monthly payments on a repayment mortgage and substantially more than an interest-only mortgage. So if the worst comes to the worst, you move out rent it to someone else, and go live somewhere cheaper yourself.
Good luck
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Great point reference policy on letting. Another of the reasons i didn't proceed was because i wasn't allowed to let a spare room as that broke the lease terms, and i certainly wasn't allowed to let the whole place which was fair enough given the reasoning for the scheme. In my case, a lodger would have made the numbers work for me.
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You should look at Castle Trust, they have a shared ownership scheme and lend money for deposits. If you have a 20% sum to put down they will match it to make a 40% deposit possible - this means you only need a 60% loan. No monthly repayments on the trust's 'share' of the property but they take a pro rata share of any increase in property value when you sell it. Interestingly if the property decreases in value they accept their share of that loss and don't expect to you to compensate them. A scheme that works well provided you choose somewhere you want to live for few years -i.e so the value increases - but if you want to move every 18months the this is not for you.
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@Arkady - I'm not suggesting buy-to-let, but checking that if you have to move out then you are allowed to let it. A fallback option, ie you suddenly end up with a job in Newcastle and you can't sell, you lose your job and can't get another, and so on.
It's safeguarding your personal investment in a home by ensuring it will pay its way if you can't.
Prudence, if you will.
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In this Discussion
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