The Hidden Truths Behind Shared Ownership

By Londonist Last edited 32 months ago
The Hidden Truths Behind Shared Ownership
People invested in a shared ownership often have to pay upkeep for everything from gardens to the front door. Photo by Terry Moran in the Londonist Flickr pool

The idea of planting your first foot on the housing ladder for under £100,000 might seem like a dream, but it’s one being sold as a reality to thousands of Londoners every week.

“Get on the ladder” for just under £74,000 in the “property hotspot” of Acton, read a piece in the Evening Standard’s property section this month [July].

On offer this week is the chance to buy into Platinum Riverside, a (literally) shiny new high-end development in Greenwich. The price of a one-bedroom flat begins at just under £84,000. Amazing, it seems.

There are, of course, several catches to these apparently unbelievable offers. And many are hidden away in the fine print.

The most obvious drawback is the one most clearly declared. Both the Greenwich and Acton developments — and many like them across London — are marketed and sold as ‘shared ownership’.

Under these deals, you buy a share of a flat instead of the whole thing. The seller, usually a charitable organisation known as a housing association, then charges a 'rent' for the bit left in its hands.

For the Acton apartment, for instance, your £74,000 buys you a quarter of a one-bedroom flat worth £300,000. This roughly works out as £357 in mortgage payments and £507 in rent — a total of £864 a month. Not bad, you might think.

But a deeper dig into typical shared ownership deals uncovers several hidden costs and drawbacks that are rarely spelled out in marketing material.

Shared owners are treated as if they own the whole property in a way that is unfair: they must front the entire expense of maintaining their homes.

In others, they are treated more like tenants. If you fall behind on your rent, you can be evicted. In one case, a female shared owner in arrears even lost the bit of her home that she had already bought.

Another drawback is a ban on renting your home out to anyone else in all but exceptional circumstances. While lodgers are allowed, the draconian rule on sub-lets has left some Londoners feeling like “prisoners” in their own homes.

The biggest catch comes in the form of “service charges” attached to most shared ownership homes. These cover the costs of maintaining areas outside the front door, like corridors, lifts and communal gardens.

Service charges for the flats in Acton already seem sizeable at £93 a month but are actually relatively cheap. There have been reports of charges as high as £380 a month and bills have been unexpectedly hiked by of up to 73%.

While rent increases are capped by the London Mayor for his First Steps shared ownership brand, he exerts no control over service charges. Housing associations are largely free to charge what they can.

This makes these bills an unpredictable cost that can easily push the monthly bills for homes marketed and sold as 'affordable' well out of reach.

Like all other drawbacks and catches, this hidden cost should make everyone think twice about shared ownership — and scratch well beneath the surface of the marketing material.

Buying a bit of a home might help many fulfil an otherwise impossible dream of owning a home. But it can also trap you in an unaffordable and fretful nightmare.

By Keith Cooper

Last Updated 02 August 2015

Sj

All the points above are correct and accurate however this shouldn't put people off shared ownership completely. My partner and I bought a share of a property worth £285,000 (2 bed) a couple of years ago. A few years later, thanks to a modest increase in our salaries, we were able to buy the remaining share of the property and now own 100%. As long as you fully understand the system and what you're getting yourself into, and you have a plan to 'staircase' and buy the rest of the property, then it can work really well. We only had to lay out about £7,000 for the initial purchase, and our combined mortgage, rent and service charge was reasonable - particularly as we were able to rent out the second bedroom to a lodger who covered some of these costs. To anyone thinking of buying, avoid maxing out your lending or monthly commitment capacity by buying a smaller share of a more expensive property - instead, by a share of a property that you could feasibly afford buying the rest of within the next few years. For the people who get trapped because they can't buy more or rent the place out, they can still always sell and get their money, and probably a decent profit back - sure it won't be enough to buy a new place through the standard market, but you're no worse off than you would have been had you not bought a shared ownership place.

Sj

I guess my general point is that whilst the shared ownership system can definitely be improved, the relentless negativity of the press around housing is fueling price rises and making people feel that they have absolutely no chance and so they shouldn't even bother starting to save up and that any alternative such as shared ownership is simply a scam - that's not accurate.

songday

"...a ban on renting your home out to anyone else in all
but exceptional circumstances..."

This seems disingenuous - the London housing crisis is bourne out of people buying and renting properties. So not allowing this in "affordable" properties seems like a good idea.

Koola

I'm confused - if the value of the property increases in the years after you buy a share, does the cost of the remaining shares to purchase increase, or can you buy at the original price? If the former is the case and with London market increases rising at a ridiculous pace, I'm glad I bought a property in full in Essex on a decent commuter line to the capital instead!

jamesup

Shared Ownership can be right for some and not right for others, and they are also not all created equal. I've been a shared-owner for 5 years, and here's my advice:

Service charges are a fact of life in the leasehold world, and a shared owner is no more disadvantaged by it than a full owner. In that sense blocks with management where everyone is paying for communal maintenance are better than shared ownership houses where you'll end up individually liable for the full cost of a roof repair or boiler if you need it.

Look for places with low maintenance costs - you have to pay them, so if there's complex equipment involved I'd be cautious.

Look out for reserve fund arrangements on new builds, they don't always put them in the estimates before you buy and it is important that reserve funds are collected.

The HAs have fairly poor reputations for block management, look for one in a larger place that is self managed. If other owners run the building they will look after it better than an absent property manager.

Look for low rent. Mine makes great sense because the rent on the not-owned share is FAR cheaper than private rents in the same block. Rent is normally set as a percentage of unsold value, look for below 2% and don't touch anything over 3%.

Two bed with option of a lodger is a lot more financially flexible if your circumstances change than a one bed.

Check what happens if you staircase - in mine, you'll always be a leaseholder of the housing association, even at 100%, so you're never quite rid of them and they have first refusal at sale. I'm likely not going to bother going to 100% for this reason, but would rather buy something else on a more straightforward arrangement.

Finally, far and away the best thing is that you are a secure tenant: your rent is predictable, you can stick whatever you want in the wall, and never again will I have to move at 4 weeks notice because of a rent change - that's priceless.

Linn Rafferty

Other points to remember are that not all Shared Ownership properties have a ban on subsequent letting, nor do they carry a service charge. In some cases the social landlord will not provide maintenance, instead the shared owner takes responsibility for this. This has a downside (you have to pay the cost of maintaining your home & will need the social landlord's permission for some things) but the plus side is, no service charges. Message is, it's a good idea to check these things with the social landlord before choosing a shared occupancy home.

Philip

A good article. I did shared ownership and my service charges rose by 60pc although it remained affordable for me, one neighbour had to be bought out (ie go to 0pc ownership and 100pc rent) and only 1 of 15 neighbours had managed to staircase to 100pc in 9 years. That is not a great advert for shared ownership I think. Do your sums over a 20yr period and it may make sense...

Also I got a 2 bed flat so I could get a lodger. 1 beds are inherently not a good idea unless you're a couple and both diligently save. In one nearby development my friends have experienced the service charge go up by 200pc. So ask around and do your sums!

Russell

This article is ridiculous - shared ownership is the only way to get on the ladder for anyone on a modest salary in London. All property purchases come with risks. Service charges go up (or down) in all buildings. The rent is subsidised so subletting (at a market rate) would be against the policy of providing affordable housing. As someone who has bought, sold, and bought again (all shared ownership), I couldn't disagree with this article more. Its far cheaper than renting privately and you come out with equity in the end. When I speak about the program to friends in the U.S., Paris, other places with equally inflated housing markets, they can't believe such a helpful program exists here in London. The writer should be ashamed of this article - there are no 'hidden truths' - what he mentions are all explained clearly in the leaseholder agreements. Poor journalism!

Kay

If it is part of a well balanced financial plan and if that is the only way you can get on the ladder then it is fair game. You start by owning something and you hope that your situation will continue to improve so you can eventually buy the entire thing. The moment the deal becomes non-sustainable from your side or you feel you can do something better, you sell (while most certainly making some profit) and move on.

The London property market just keeps inflating, and at pretty alarming rates. Assuming things dont crash anytime soon though, it would be a good investment to part buy a nice modern flat. The money you were using for rent now in part goes towards a mortgage, and your property is surely going to increase in value.

My problem with this scheme and all others run by councils is they seem to favour a certain persona. Preferably the medium level earning single person or new couple who are in stable safe jobs and are in this for the long haul. If however you were self employed you are immediately at a disadvantage and many time your case isn't even assessed...

SM

The first line I read made me laugh and it was only the caption to the image. Of course property owners are expected to manage upkeep on their garden and front door, they are property owners! Smh.