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Is shared ownership affordable?

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Profile photo of Claire Kielczewska Claire Kielczewska Sub-editor
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The Help to Buy mortgage guarantee, which was launched in October 2013, is set to close in December.

Since its launch, the government-backed scheme has seen over 86,000 completions, nearly four-in-five of which have been by first-time buyers. The highest number of these were in the North West, Scotland, South East and East of England.

So what does its closure mean for first-time buyers like myself? Well, there will still be other similar schemes to help us get on the property ladder, namely: equity loans on new builds; Help to Buy Isas; and shared ownership, the latter of which I’ve looked into. But just how helpful are these schemes anyway?

Well, if you’re looking into shared ownership in the current London market, as I was, not very.

Shared ownership explained

There is no way I can afford to buy a property outright in London, so I thought this scheme would help me.

I was encouraged by the fact that shared ownership properties are sold through housing associations and you buy a stake of between 25% and 75% of the property, using a deposit and a mortgage. To be eligible, you have to earn less than £80,000, or £90,000, if buying in London. You then pay a subsidised rent on the portion of the home you don’t own and a mortgage on the rest.

Priced out

So far, so good. But then I signed up for daily email alerts, which show properties available to buy through the scheme, and soon found it just wasn’t doable.

The majority of the flats I was emailed had an average starting price of £350,000, up to an eye-watering £750,000. Most were incredibly small and poky, with bedrooms that could barely squeeze in a double bed, let alone a bedside table or wardrobe.

Despite the fact the scheme is designed to help first-time buyers like myself and that I fit all the required criteria, the sky-high rent (subsidised, my foot!), mortgage repayments, plus the monthly service charge on the properties I viewed online, meant I couldn’t afford to make use of the scheme.

Even without factoring in bills or travel expenses (or, dare I be so bold, a social life), I would have been stretched to the absolute limit and would have probably got into debt in the process.

Moving forward

I know London house prices are among the highest in the country, but if I can’t take advantage of the scheme, despite having a much higher-than-average deposit saved up, there must be countless others who are struggling to make use of it, too?

Of course, I could move out of London, but things don’t seem to be much more affordable in the commuter belt, which is probably why there’s a growing trend for Londoners to move out as far afield as Birmingham, Bristol and Manchester.

For now, though, I think I’m better off renting in London and continuing to save.

Has shared ownership worked for you? What about the government’s other Help to Buy schemes? What more can be done to help first-time buyers?

Comments
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malcolm r says:
8 October 2016

Clearly if something is unaffordable you need to look elsewhere. The so-called “commuter belt” is enormous these days with people travelling from. say Northampton. Prices in many of these areas are much more affordable. The advantage of a shared ownership scheme is you should get your money back when you move, plus p proportion of any increase in value that should outstrip normal savings returns – but you have to factor in fees. Better, though, in principle than just paying all your money to a landlord.

The alternative is to work somewhere other than London. avoid high prices, higher living costs, or a long commute. You can always visit if the capital is so important.

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Monika says:
8 October 2016

If you can’t afford to buy outright don’t go down the route of Shared Ownership – the only beneficiary is the Housing Association. Shared Ownership is not for the ordinary working class person on average monies.
First of all, mortgage + rent ( at market rates) usually means the total monthly cost is greater.
If there are service charges involved then costs are greater – you might as well rent – at least you would be entitled to Housing Benefit.
All this hype about increase in value is marginal. If the property increases so does the rent and as pointed out the cost of purchasing another share (usually in multiples of 25%) also increases. It is like going up a going-down escalator. It can become a struggle.
Also what is not mentioned is that though you ‘own’ a portion of the property, you are still liable for 100% of any and all repairs – this is grossly unfair. The cards are stacked against you. Just go for a simple repayment mortgage – normally you can’t lose unless you buy at the top of a property boom and wish to move.

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Patrick Taylor says:
9 October 2016

A heart-felt response from Monika. I suspect a Which? article dealing with the actual mathematics of a real case would be instructive in confirming or refuting Monika’s view.

Regarding the author’s struggle tobuy in London it is pleasing to think Which? can take some practical action to help alleviate the problem. Remote working without a daily commute would make a substantial difference. A branch office in say Norwich or Hull …

There is a regular poll which shows consistently that supporters disapprove of charities with London based HQ’s ; taking a view that the increased costs are a waste of money. Once Which? completes the re-vamp and extension of the offices a short distance from Regents Park perhaps renting them out and a re-location to somewhere in the Midlands would allow staff to buy homes and a reduction in subscriptions.

Incidentally if all Which? staff are paid the approximately £5000 extra in London /S.E.compared to the UK [ a modest guesstimate of the increased salaries paid] the charity as a whole would be £2.5m a year better off. And the quality of life for its staff increased.

Some of that money might usefully be devoted to looking at the lock the buillding companies have buildable land in the UK and how by drip-feeding it onto the property market they are maaximising their profits whilst distorting the property market.

I have no doubt that those countries that require construction to be expedited, or where there are many builders competing [rather than colluding] then property arrives smoothly to the market.

This is not a panacea for the Londoncentricity of the UK which needs to be dealt with drastically. Announcing the abolishing of all Green Belts is drastic but would certainly drop prices overall : ).

However as that is unlikely the weapons must be more subtle in getting jobs out of the capital and spread more evenly across the towns of the UK. The removal of tax breaks for charities with any offices larger than 20 people within the M25 would lead the way in providing a substantial carrot to induce moves. Next would be firms in receipt of Govt funds … you will appreciate that in the best “nudge” tradition some firms will anticipate and leave before the event to gain first mover advantage in their new town.

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malcolm r says:
9 October 2016

Monika, “you might as well rent – at least you would be entitled to Housing Benefit.”. If you are earning sufficient in London to contemplate purchasing a property even on shared ownership is it likely you would qualify for housing benefit?

The advantage of putting money into purchasing property in one form or another is it helps build your savings instead of enriching a landlord. And do you think repairs on a new property are likely to be a significant factor?

However, Patrick and I agree on somehow getting jobs and people away from an overpriced overpopulated capital city and using more affordable parts of the country. England really has some nice places away from the dirt, crowds and pollution.

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John Ward says:
10 October 2016

I go along with that too. I cannot think of a single reason why Which? needs to be headquartered in central London. There are plenty of towns and cities within 1-2 hours of London with vacant premises suitable for all manner of uses, sometimes with basement or on-site parking and other benefits. Patrick mentioned Norwich and I couldn’t make a better recommendation. You can buy a semi-detached three-bedroom house within ten minutes walk of the city centre with its excellent facilities for under £300,000 or a modern two-bedroom apartment with good-sized rooms in a smart block for under £200,000. Saving on housing expenses, travel-to-work costs, and gaining quality time outside of work – I don’t understand why staff are not putting more pressure on their employers to start making moves away from the metropolis. People with a house to sell in Greater London and the home counties can improve their quality of life enormously if they reinvest their equity in a provincial property.

I don’t think firms can make an entire long-distance relocation in one move – it is too disruptive to other members of employee’s families who also have roots, workplaces, schools, and connexions in the capital; but they can set up a satellite location and progressively move staff across as opportunities present as well as hiring local staff to fill gaps if HQ staff decide not to move. Spreading it out over two or three years gives people a chance to organise their move and plan their futures. One problem is that the employee’s salary might remain the same [excluding a London supplement] but their partners or grown up kids sharing their home might find it more difficult to get a job with the same pay as they are used to in London, which is why more time is needed. But the savings in living costs soon compensate for those differences. It sounds like a frightening logistical nightmare but with good planning, consultation, clear objectives and support it can be done successfully. The staff benefit, and the organisation benefits as well.

Unless there are substantial relocations of employment away from the capital there will be two adverse consequences: (1) the transport infrastructure, which is already nearly at breaking point in the peaks, will seize up despite all the new investment and new rail lines going in. Will the UK be able to afford £4-5 billion a year in new transport provision just to keep London in a steady state? (2) people are already paying whopping sums to live in ever smaller accommodation and this kind of housing is trickling out to the inner and the outer suburbs as the larger properties get spit into flats. Claire has described the miserable conditions that you have to endure for a quarter of a million pounds or more. This is not good for people, nor for their social and family life.

Where does renting leave people when they retire from full-time work? Because it might be thirty years away doesn’t mean people can ignore it. Rents never stop rising but with a repayment mortgage what you usually owe reduces year on year and the repayments become a lesser percentage of income so you can start increasing your equity and building up savings. Mortgage rates can go up as well as down, however.

I haven’t addressed the issue of shared-ownership because Monika has given all the health warnings, but I think shared ownership can work for some people if they integrate it within their long-term housing plans with a target exit date. Not all parts of the country experience the same price trajectory as London and the South East so it can provide price stability while people build up their savings to increase their equity or move out to a wholly-owned home. Each case will have its own factors to take into consideration so there is no blanket answer for everyone. I certainly think it is better than paying a high rent to a landlord for ever with little security of tenure. I share Malcolm’s reservations over benefits payments: they are not guaranteed to last forever, and the eligibility criteria can be changed at any time, so it is probably not a good idea to base the economics of one’s housing accommodation at the outset on state subsidies.

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