SHARED OWNERSHIP- IS IT FOR ME?

There are a large number of advertisments encouraging you to apply for shared ownership housing (sometimes known as low cost home ownership).  This is housing where you buy part of the property using a mortgage or cash, and rent the rest.

The adverts tell you that this is a way to get on the home ownership ladder at low cost.  Certainly this is a way to get somewhere to live when you might not otherwise be able to.  You may also share in any increase in the value of the property.  A large number of schemes have also been set up to cater for older people or people with long term health care problems, including learning disabilities or other disabilities. The thrill of "having your own affordable home" can be a real one.

But I and other benefits experts have become very concerned about this form of tenure.  It can offer advantages, but we have seen lots of situations where people have got into trouble with these schemes.

Here are some questions that I think you ought to ask yourself before you sign up.

Will I get a share in the increase in value of my home?

Believe it or not, not all schemes allow this.  If you sell, you only get the money you paid back. This seems to be particularly common in schemes for older people or those with disabilities. You may also not get any increase in the value of the property if you are unable to meet your payments.

Will my home go up in value in line with the property market?

Shared ownership homes may increase in value at lower rates than the rest of the market, reflecting the difficulty of buyers getting mortgages, lack of confidence in the form of tenure or other reasons.  Shared ownership is too new for us to know how it will perform in long term rising and falling markets.

Will I be able to sell my home when I want to?

Apart from questions about the property market, the organisation you are buying/renting from may be able to place restrictions on who you can sell to.  They may be able to require you to sell through them and they may not be as active in marketing your home as you would like.

Will I be able to change the proportion of the property that I am buying?

You may want to buy more and rent less or buy less and rent more.  Can you do these things if you need to?

Will I be able to sub-let?

If you can sub-let this may be a solution if you want to move but can't sell, or want to move for a while and come back.  But there can be problems if other people in the development can sub-let because no one has much control over who is living in the development.

Do I understand all the costs?

You will have to pay for your mortgage (and this can go up or down). You will also have to pay rent on the the portion that you are not buying.  There will also be a service charge to cover repairs and management and possibly other costs, because the rent does not include the cost of repairs.  You will also have to pay council tax.  Do you know how much these figures will be?  Can you afford them?  Does the cost look like good value compared with renting, or buying outright?  As with anywhere, you will also have to pay gas, electricity and phone bills.

Is there a sinking fund for major repairs?  If so, how much is in it?

You need a sinking fund for major repairs.  The day to day service charge will take care of routine maintenance, like regular outside redecoration and minor repairs.  But over time all buildings need some major maintenance.  It is normal to deal with this by setting up a sinking fund.  This means that each year an amount is added to the service charge and it put away for major repairs.  When the time comes this money is used to pay for those repairs.

The alternative is not to set up a sinking fund and to demand large sums of money as and when the repairs are needed.  In the past demands of £20,000 have not been uncommon.  Many people would not be able to afford this although you could save money regularly in a building society as your own "sinking fund". 

If you are buying somewhere new you will probably expect that the property will not need any big repairs for some time and to try to avoid sinking funds.  But you may be in your new home for longer than you expected and any prospective buyer will want to know that a fund exists and to know how much is in it.

Always ask how much will be put into the sinking fund each year.  If the property is not new ask how much is currently in the sinking fund.  Get advice about whether or not the amounts are likely to be enough.

(This is also an issue if you are simply buying a leasehold flat.)

Will I lose all my money and my home if I can't keep up with my payments?

A test case has ruled that in one of the standard contracts, used by a number of providers, if you get into trouble and have your home re-possessed you lose ALL of the money that you put in.  You would still owe the amount owing on any mortgage.  This is terrible positon to be in.   The people running the scheme may say that they would never do this in practice, but you can't rely on that.  Get independent legal advice. You would be  unlikely to find yourself in the same situation if you were purely buying or purely renting.

What happens if I get into financial difficulties?

You can lose your job, or get ill or injured, or you can separate from your partner.  These are never easy times, but you need to think about what would happen.  These problems are not unique to shared owners, but there are specific problems that you may run across.

You may need to sell the place or reduce the share that you are buying..  In which case make sure that you can do this.  Think about your answers to the questions above.

You may want to stay there.  You will probably need to claim benefits.  Benefits in shared ownership are extremely complicated because you need to claim through two different systems.

To get any benefit on the mortgage you need to claim means tested job seeker's allowance, means tested employment and support allowance, income support or pension guarantee credit.  You cannot normally do this if you or your partner are working more than 16 hours a week.  You will not normally get any help with your mortgage for the first 13 weeks of your claim (although this rule does not apply to some disabled people) and even then only the interest payments on the mortgage will normally be paid, not any repayment of capital.  You may be able to get help with service charges if you are not able to claim housing benefit.  If you are on job seeker's allowance you will only get help with the mortgage for a couple of years.  Many people currently on incapacity benefit are likely to be forced to claim job seekers allowance in future.

There can be problems getting these benefits to pay for major work done on the property.  The issues with these benefits also apply if you are simply buying.

To get any benefit on the rent you will have to claim housing benefit.  You can do this even if you are working and you can get housing benefit to help with the cost of some service charge. It is important that your rent is not more than the local housing allowance figure for your area, even if you live in specialist housing. Otherwise you cannot be sure that housing benefit will cover your rent in future.

If there are problems with EITHER of these benefits you may lose your home and the money you have put into it.

Is it all bad news then?

No. For some people shared ownership/low cost home ownership is a good deal. But for some others it is not. Make sure you ask the right questions to find out which group you come in. Don't rely on this web site or any one single source of information.  Get as much advice as you can.

This page last updated: 16/9/2009 12:16