Is shared ownership a good deal for the buyer?

October 13, 2010 8:24 AM

Is shared ownership a good deal for the buyer?

I'm hoping fellow MeFites will be able to educate me on the dark arts of shared ownership. I'm talking specifically about schemes run by housing associations or private enterprises (rather than just clubbing together with your mates). Not sure if this is a peculiarly British phenomenon or if you find it all over the world.

Are they financially a good deal for the buyer? I'm rather suspicious that they look far more affordable than they really are. When you factor in rental and, typically, ground charges on top of mortgage repayments, you're basically paying out something in the region of what a full mortgage would set you back (which the banks think you can't afford to pay or else they'd happily lend you it to start with, surely?)

Also, once you're involved in a shared ownership property, how easy is it to sell and move on? Are the costs involved with selling typical? Do shared ownership properties accrue value at the same rate as the broader market? And do they sell as easily?

Basically, should I consider shared ownership or wait until I’m in a position (and location) to buy outright?

posted by londonmark to Home & Garden (3 answers total)

I bought mine because I needed somewhere to live, it was in the location I wanted, it was pretty much the same price as renting and I couldn't have afforded to buy outright.

If I wanted to sell my shared ownership flat I have to give the housing association 12 weeks first refusal for them to find a buyer. They will charge 1% for this. If they don't find a buyer within 12 weeks I can then put it on the open market. I think it is probably very unlikely they would fail to find a buyer as demand is high and I know they have waiting lists.

My suspicion is that they don't accrue value at market rate. I recently had my flat valued and it is substantially less other private flats in the area. Then again estate agents have been know to inflate the prices of their properties. Regardless, I definitely wouldn't recomend shared ownership as an investment opportunity but then that is hardly the idea. And the reverse of this is that they tend to me cheaper to buy (and often bigger) than comparable private flats.
posted by ninebelow at 9:00 AM on October 13, 2010

I've been approached by folks asking about shared ownership in the past, and I've (gently) steered them away if at all possible. Here are a few of the concerns I've raised - keep in mind that this part of the market (i.e., shared or fractional ownership) isn't tightly regulated, so some of issues may or may not apply:

• You're the owner, so you're obliged to carry out and pay for maintenance. Don't be surprised if there are restrictive covenants requiring you to carry out repairs in a timely way; after all, you've got to look out for the interests of your (silent) partner. Almost always this partner won't contribute to maintenance costs.
 
• If you acquire a mortgage and it comes with repayment protection - or if you purchase this insurance separately - it generally won't cover the rental component of your shared ownership.
 
• As you noticed, upside potential is capped as you are acquiring a partnership interest not free title to a property.
 
• Depending upon the specifics of your arrangement, purchasing the full equity stake may cost more than 100% of the fractional price. There also may be time dependent schedules in place which will may transparent valuation difficult. This impact upside potential.
 
• What are your rights should the Housing Association be wound up? Could you lose your share because your partner defaulted? The last time I looked at one of these deals for a friend, this wasn't clear. Again, this impact valuation and upside potential.

Whitehead (2010) evaluated the issue in more detail in The Social Policy Digest; see Shared Ownership and Shared Equity: Reducing the risks of home-ownership? [ .pdf ]

Abstract:

Shared ownership and shared equity schemes are seen as a way of increasing home- ownership by reducing initial entry costs. However, these policies have been implemented in such a way that the risks to home-owners are also increased, and therefore often do not make home- ownership any more sustainable.

Hope this helps!
posted by Mutant at 2:16 PM on October 13, 2010 [1 favorite]

Response by poster: Two great answers, thanks guys. I hadn't even considered issues like insurance and maintenance (although that's possibly what the monthly ground charges are for?). Sounds like if I can put up with renting for now I'm better off waiting. Thanks again.
posted by londonmark at 1:18 AM on October 14, 2010