In the UK we have these "shared ownership" schemes. They're provided by Housing Associations and they're meant to make homebuying more affordable for people who can't get on the housing ladder. The thing is, I do have some savings so I could afford to get a flat the "normal" way, but I saw this shared-ownership flat and it was so ideal - very close to work, etc etc. No way I could have afforded that if I was buying it outright.
So I went for it. But after spending thousands of pounds, two months and many sleepless nights, I had to conclude it wasn't as affordable as it had looked - and after some gnashing of teeth I had to pull out, go back to square one, and start looking all over again. I don't want other people to have to do that. So here's my advice:
- If you can afford to buy outright, you should definitely do that instead (even if the shared-ownership homes are more attractive). Only go for shared ownership if you can't get a "normal" place. (In that case, though, renting might still be better. Plus there are currently schemes like help-to-buy which might sort you out.)
Shared ownership is more complex than normal homebuying, in many ways. First because you have to work out your mortgage costs for the share that you'll be buying, AND your rent costs for the bit that you'll not be buying, plus the other costs (service charges etc) - and how all those things will change over time. I wish the people selling me their shared-ownership flat had put all the costs up-front, or they wouldn't have had the cost and hassle of a sale falling through.
Here are some of the reasons shared ownership was not for me:
- The rent that you'll pay is cheap compared to market rates - so the monthly costs will probably be lower than if you were renting an equivalent place privately - BUT the rent is typically locked in to increase annually, faster than inflation (RPI+0.5%). This is very poor compared against a mortgage, whose monthly payments don't increase. And many people's wages haven't been keeping up with inflation recently, so you might find yourself locked in to paying rents (and service charges) you can't afford. Plus, unlike renting you can't just leave with a few weeks' notice, so if it's near the edge of your affordability you really need to be mega-careful.
- Selling/buying shared-ownership is slow - first of all the vendor has to give 8 weeks' notice to the Housing Association, who gets to decide if they want to buy it first. Then once a sale is agreed the contractual stuff is more complicated (and there's one more set of solicitors involved than normal!), so the conveyancing process is slower. Plus there are extra little fees here and there: e.g. the Housing Association charged a hefty little fee to check my identity, i.e. for someone to photocopy my passport, which I thought was cheeky.
- "Staircasing" is the right for shared owners to buy more portions, until they own the whole thing. But it's extremely unlikely staircasing will be worth it for you - you'd be better to sell up and buy a normal place, rather than staircasing. For a start, if your first share is 50%, then in practical terms it's "worth" more than 50% to you, because it brings benefits such as "access" to the below-market rent offer. This means than in practical terms the remaining chunk is worth less than 50% to you. You'd only want to buy it if you were sure you wanted to stay put, and if house prices had slumped. (Note: even after you buy outright, the Housing Association still has some first-dibs rights to buy it back off you when you want to sell.)
- Quite a few things make shared-ownership the "worst of both worlds" versus buying or renting. I've already mentioned that the rent can fluctuate yet you're just as tied-down as if you'd bought (or more so). Another example: you're responsible for the upkeep of the flat just as if you'd bought leasehold, yet you have to apply for permission for any non-trivial modifications, just as if you were renting.
I've nothing against Housing Associations and I think they're providing a useful service. They provide some of the role that council house-building programmes used to, and especially now that the coalition government has revved up right-to-buy again, there's a shortage of social housing, so at least these "affordable" housing options are there for people who can't get a place on a mortgage. But shared ownership can easily look like a better deal than it really is.