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Shared ownership is a popular route towards becoming a first time buyer, but it also has a bit of a negative rep. I’m friends with someone who’s been all the way through the process, so I thought it’d be helpful to hear from him how it really works.
What is the shared ownership scheme?
If you don’t know what shared ownership is, it’s where you get approved for a mortgage on a percentage of a property (usually between 25% and 75%), then you pay rent on the remainder. Your rent goes to a housing association, who’ll own the other portion of your home. They aren’t responsible for any service charge or maintenance costs, you have to pay 100% of them.
It’s aimed at first time buyers, or those who’ve owned before but now don’t qualify for a full mortgage on a property. To qualify, your total household income can’t exceed £80,000 a year (£90,000 in London). It usually has a lower monthly cost than traditional renting, and you’ll build up equity while you live there.
You can start off using the shared ownership scheme, but end up owning 100% of your flat or house. It’s called staircasing, and it allows you to buy back the remaining share of your home from the housing association. You can staircase all at once, or in chunks, however, you need to pay for a valuation each time you do it, because as the value of the property goes up or down, so does the housing association’s share.
Want to join a community of other people trying to buy their first home? Join my free Facebook group First Time Buyer Wannabes.
One of the things I hear online is that it’s impossible to staircase your way from shared ownership to having a mortgage on the full value. HOWEVER, I’ve actually been to a flat where the owner has done exactly this, and we were at school together so we’re the same age (28ish), so it didn’t take him a lifetime to do it.
What is shared ownership really like?
I asked Simon questions about how he found the scheme, after going all the way through it, and if he had any tips for anyone who was thinking about taking the plunge.
How old were you when you bought your flat, and why did you choose to use the shared ownership scheme?
When I bought my flat in Bournemouth through shared ownership I was 23. I was renting with a friend who was buying with his fiance, so I needed to move out. I had looked at properties to buy, but with my salary I would be looking at a 1 bed flat, and my savings were not large enough at the time for a deposit. So my options were either, move back in with my Mum to save for a bigger deposit on an open market property (which meant a long commute to work and losing my independence), rent somewhere (which would make it more difficult to save) or look at the shared ownership option.
It turned out there was a two-bed shared ownership property up for resale around the corner from where I was living. The monthly payments for this property with mortgage/rent/service charge would be lower than if I was to rent a 1 bed flat nearby. It seemed like the obvious choice.
What percentage share did you buy initially?
I bought a 30% share.
Do you have any tips for saving for a deposit, and how much did you save up?
I had managed to save around £6,000 which meant I could put down a 10% deposit on the share I was buying, and that helped me access cheaper interest rates. This was partially from savings from living at home for the last year of my degree (£3,000), and whilst renting I was saving £250 into a monthly saver which went in as soon as I was paid at the end of each month so I couldn’t spend it, so this added a further £3,000.
Anecdotally, I’ve heard that shared ownership properties are more expensive than similarly sized flats in the same area, did you find this? Were you able to negotiate on the price of the flat?
I think it very much depends on the scheme and the area. My flat was in a block with a mixture of open market, shared ownership and affordable rent, so it was easy to see the sold prices of the open market homes, and my flat wasn’t overpriced. It was also a resale property built in 2008 – from my experience brand new homes can demand a premium, so it may be worth investigating shared ownership resales for a better deal. In terms of size, because it comes under ‘affordable’ housing, there are minimum size standards that open market properties don’t necessarily have to comply with, so my flat is actually larger than the two-bed open market flats in the same block!
I wasn’t able to negotiate on the price, that just seems to be how the schemes work.
What was it that made you decide to staircase up to owning 100% of your flat?
From purchase, the goal was always to get to 100% ownership, and I wanted to do it as soon as possible as if house prices rise and the value of the property goes up, it potentially becomes more expensive/difficult to do. I was able to staircase to 100% just over 4 years after I moved in. For me it was an increase in salary, the equity I had built up, alongside some savings that enabled me to staircase to 100%.
How did the staircasing process work? Was it expensive?
The staircasing process I did find expensive – with the various fees I think it was around £1,000. It was okay as a one-off, however, the idea behind the scheme is that you can staircase in chunks, doing it a few times to reach 100%. If it costs £1,000 every time, it starts getting expensive. So I waited until I could go from 30% all the way to 100% in one go.
I had to do my research, as you have to pay for the valuation, which if it had been too high I wouldn’t have been able to qualify for the larger mortgage. Having looked into it, I had an idea of what it was likely to be valued at, and after speaking to a mortgage advisor, I knew it was around what I could afford.
Something I’ve heard is that you have to get permission from the housing association to do reasonably small home improvements to your shared ownership property, did you find this?
I was aware you needed to get permission for certain things, but being in a flat none of these really applied to me. I painted my flat with no problems. It’s mainly for big structural changes like extensions. Now I own 100% I have no contact with the housing association at all.
Do you have any advice for someone considering using shared ownership for their first home?
It is a really good way of getting on the property ladder, with minimal savings needed, and can allow you to buy a bigger property than you might otherwise be able to afford. I would just research the scheme, and it is worth looking at resales as well as brand new properties.
If you could go back, would you do it all again?
I definitely would!
Shared ownership top tips:
- Try and save at least a 10% deposit to access better interest rates on your mortgage.
- Look at shared ownership properties available through resale, they’re often better value than brand new homes. New builds look pretty, but they’re 10% more expensive than flats that are only a little bit older in my area.
- As the share of your property grows in value, so does the part the housing association owns. If the market is rising, the sooner you can increase the size of your share, the better.
- Staircasing costs money. If you can, try to get to 100% in as few chunks as possible.
My views on shared ownership
I looked at a shared ownership flat in 2016-ish, then decided not to go for it. And when we came to actually buy a house in 2018, it wasn’t an option I considered at all, and we ended up buying a do-er upper for £227,000.
Why? Well, shared ownership can come with a lot of pitfalls.
- Price – there isn’t a massive difference in price between my three bed house with a garden and a much smaller shared ownership one bed flat around the corner from me. Because buyers can use government schemes to help them, housebuilders seem to sell them at a premium.
- Quality – a common story I hear about shared ownership is companies cutting corners when it comes to construction. One of my friends had a shared ownership sale fall through on a flat in a relatively new building because of a persistent leak in the roof the freeholders couldn’t fix. My house might be 200+ years old, but the roof is solid and I’m allowed to get someone to fix it if it breaks, unlike shared owners who are only leaseholders.
- Affordability – when we looked at the shared ownership flat, the mortgage advisor for the housing association told us a one bed flat was “too affordable” for us. Is there really such a thing as “too affordable”? My mortgage now is affordable, but I also spend a fortune on season tickets, so it balances out. We weren’t particularly big earners back then, and certainly didn’t earn close to the £90k a year limit. Shared ownership affordability calculations are quite complicated.
- Being able to sell – shared ownership flats can be more difficult to sell than typical properties for many reasons. Not only do you need to find a shared ownership buyer who only wants to buy a share, but it’s quite common for shared ownership properties to have unsafe cladding and very high service charges that are off-putting to buyers. If I wanted to, I could move, keep my house and rent it out. This is something that’s not possible if you a housing association still owns part of your flat.
Overall, I decided it wasn’t for me. Read the comments below for the experiences of others before you make your choice about buying a shared ownership property.