Could shared ownership properties be the key to getting on the London property ladder? Charlotte Duck further investigates the scheme, as well as the benefits and drawbacks.
With the rising cost of living, buying a property in London is looking less and less likely for the vast majority of people. Luckily, there are a number of government-led schemes out there that could offer a solution for those looking to get on the ladder.
Shared ownership is one of them. Shared ownership is when you buy a percentage of a property, with a deposit and mortgage, and pay a service charge and rent to a housing association on the remainder. The idea is that you then ‘staircase’ the percentage you own, buying more as and when you can afford it. The scheme was introduced in the 1980s but has become increasingly popular, especially in London, due to the rising costs associated with buying property. But, if you’re thinking of shared ownership, what should you be aware of?
The pros of shared ownership
The main advantage shared ownership offers is a chance to get on the housing ladder earlier than you typically would. “Being able to get on the property ladder was a big selling point for me, and there’s no way I could have done that in London without shared ownership,” says Louise Smith, a policy adviser who owns a 35% share in a two-bedroom flat in Bow. “I was also really keen to live on my own and even paying the mortgage, rent and service charge was cheaper than renting a flat by myself.”
Another unexpected plus for Louise has been the sense of community she’s encountered. “Moving into a block that’s almost entirely SO means that lots of my neighbours are of a similar age and life stage to me, so I’ve made some really good friends, which can be
difficult in a city like London.”
New legislation means that you can now purchase as little as 10% of a flat’s value. Although, it’s obviously important to remember the smaller your share, the more rent you’ll pay. With shared ownership, you’re buying a long lease and the good news is that these leases are now for 990 years, when they were previously 125 years.
The cons of shared ownership
While shared ownership offers a route to home ownership, there are negatives too. “Mortgage options are fairly limited when compared to standard home ownership,” says Mark Humphrey of MHC Mortgages. “You also need to factor in all the monthly costs. You may also be required to contribute to maintenance work.”
Louise agrees, saying that one of the biggest drawbacks is that you have to pay in full for any issues. “Also, check the lease as early as you can in case there are any clauses that will impact your plans. I didn’t know until we were really close to exchange that I wouldn’t be able to have pets, for example.”
Meanwhile, Louise’s rent and mortgage have both increased this year. “Make sure you’ve worked out whether you can afford a fairly large rise and be aware the rent will go up by inflation every year.” And when the time comes, shared ownership properties can be difficult to sell on as, according to Mark, they can prove more expensive and take longer than a standard sale. Your pool of potential buyers may be limited, as they have to fit with the housing association’s eligibility rules.
“Shared ownership should be viewed as a leg-up onto the housing market,” says Mark, “rather than a long-term option as it’s a halfway house between renting and owning.”
Read more: How to save money around the house