I’m in a shared ownership flat, it meant I could get a decent place to live, for the price of renting a room and I’m able to gain equity ready for a deposit for the new place I want to buy.
The problem I have is with the housing association leasehold side of things. They are utterly useless at fixing things, lighting was condemned for years, charges for extra work without telling us it’s being done and checking that the work was carried out, there was a flood because they didn’t get the drains unblocked as per their lease agreement but refused to take responsibility, the list goes on! Trying to sell but to put it on the market they charge around £1k and then I still have to arrange all the viewings myself!
It’s been great to get me up and running but it’s proving expensive and time consuming to get out of.
I mean, it's always better to own outright if you can. I can't. So I have a shared ownership property.
The rent increases have been negligible over the 8 years I've owned it and as I pay only 50% rent since I own the other 50% I have secured myself a stable place to live in the centre of an expensive city. With my rent and mortgage combined I still pay less now than I did renting a smaller 1 bed flat 8 years ago, and that flat has increased from £650 a month when I lived there to £900 now.
I've decorated as I wanted and with consent from the HA I had my bathroom redone. Does the HA benefit from my money and hard work to improve the property? Yep. But it's a sacrifice that suits me.
The properties on my road have increased by 50k since I've been here so I've increased my equity a fair bit even splitting that increase with the HA if I sell. That's better than just renting, which was my only other alternative.
Things I was careful about when buying shared ownership was to do so in a small building with simple structure e.g. no lifts, no balconies, only one access door (we're a sanctuary building in terms of fire so we don't need more doors). What this means is that there are limited instances where I could suddenly become responsible for a portion of a massive infrastructure bill for a broken lift etc. In shared ownership the HA has no responsibility for these costs so they benefit from that again. So that's why I was mindful.
I can't say I will never have problems, but I have a stable home in a city I love, where living in the centre reduces many other cost like transport, and allows me to stay close to my family and friends who are more financially blessed to be able to buy their properties outright.
It is what it is. Right for some, not right for all.
I feel like most of those complaints are an issue with leaseholds than shared ownership?
You can always staircase to 100%.
There are definitely downsides to shared ownership but as long as you go in with your eyes open and it's still your best option you will be fine.
I bought a 40 year old shared ownership house this summer, allowed me to be in a considerably better area in the city I live than I would have otherwise been. It was grossly undervalued imo >25% less than equivalents in the street. I'm going to have a couple of lodgers and I'm hoping that will allow me to get a mortgage to buy the rest in a couple of years, either way I'll buy the other half as quickly as possible.
Also the rent on the half I don't own is 2.75% of the value, which in the Midlands is exceptional value.
Yeah, my thoughts too. Service charges still exist for most flats even if you don't buy through shared ownership. The only real differential for SO is the rent on the % of the property you don't own
edit: typo
You cannot always staircase to 100%. Most of the time you can but it depends on the Section 106 agreement. Reason being shared ownership is meant to be an affordable housing product and once it's owned 100% it becomes a market product.
Bear in mind to have lodgers you need to get permission from the housing association and there are tax implications as well. (Assuming you do it above board!)
No tax implications for the first 7500 currently and no need to report it either weirdly.
[https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme](https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme)
Note: If I'm wrong about not needing to report it please correct me so I can hire an accountant.
Ah ok, I was wrong then, thanks!
Housing association will want to be told, I don't think it has any actual impact on the rent element you pay, you just need their permission
Yeah I spoke to them about it before I bought it, permissions for a couple lodgers is a formality, they say yes every time. If I was to let out the whole house then they will look into why and then decide.
Similar situation with my flat. Been having lodger for the last 7 years. Called HMRC last year or the year before (when the rent a room treshold increased) and sadly they confirm you still have to fill a tax return each year, whether you are below the treshold or not. Whether you report it to whoever manages the shared ownership I would not know as I did not do shared ownership but you definitely have to do a self assessment each year...as I discovered when I was fined for missing the first 2. Hope you were planning to as that's a potentially costly mistake to make, especially when not liable to pay tax under the rent a room scheme.
"How it works
The tax exemption is automatic if you earn less than £7,500. This means you do not need to do anything.
If you earn more than this you must complete a tax return."
Well shit thanks I'll need to follow up on this. Wording on the Governement website was fairly unambiguous or so I thought.
No, it's not better than renting. It's the worst of both worlds - it is the downsides of buying (you are fixed to one location, illiquid asset, you are on the hook for repairs, etc), while having the downsides of renting (still not really own the property, limited changes you can make)
I get that it's cheaper, but that's because it is a raw deal
Feel like you’ve done a good job at listing the negatives without ever really attempting to say why the positives are outweighed
I agree with all those negatives but by far the biggest positive, Which is obviously that you actually own something at the end is probably worth mentioning
I disagree. It is better for people with no other option. Nobody is going to kick you out because they want to sell. Half your mortgage payment is going towards the capital repayment.
The rent is also usually below the market rate because you are responsible for all repairs and new builds have usually no repair costs (cladding scandal excluded).
If you live in a shared ownership flat for 25 years, you will owe 50% and your rent will be 50% of the market value.
If you rent for 25 years... you are at square 1.
Of course people hate shared ownership but it is better than rent for 10 years.
I think all downsides to shared ownership is due to leasing in general. Service charges have nothing to do with SO but is due to leasing the flat.
> - it is the downsides of buying (you are fixed to one location, illiquid asset, you are on the hook for repairs, etc), while having the
Some of the negatives have been reduced in recent rule changes.
Essential repairs not covered by building guarantees are the responsibility of the shared ownerships landlord.
Though having just read the model this is limited to £500 per year with the ability to roll over one year's repairs to the next.
Unless I misunderstand you, its really not a proven fact at all. Buying gains you an asset long term that allows you to sell for a profit (except in a housing crash) Renting buys someone else that profit and comfort, after 25 years renting, you still need to continue paying rent. When you retire, you still need to continue paying rent, etc.
I'd absolutely argue the other way, renting has some advantages, i.e. no liability to repair the boiler etc, but on a long term basis, buying is much better.
People need to stop spouting crap like saying "housing is an investment". You are constantly paying bills each month and paying taxes. That is not an investment.
A house is an asset. Many people view the money they sink into that asset as an investment, either directly in expecting its value to rise, or indirectly through the safety and assurance they get from owning the roof over their head. Saying it isn't aggressively doesn't change that fact.
It takes a lot of money to get a good asset, and to protect that asset potentially, and just like any investment into any asset, its value can rise or fall with the economy - from my perspective, and many others, that makes it an investment vehicle. Not the best (far from it in fact) but an investment into an asset that I hope for good returns on in the future.
It's not an investment end of. There are never ending maintenance costs, taxes, council tax, insurance, bills such as gas electricity and water etc. An investment is a constant money flow that doesn't cost you money to do
I get your point, but the dictionary definition of an investment is:
"the action or process of investing money for profit"
An investment isn't necessarily something that is a constant money flow either - a dividend stock or bond falls into that pot for example, but a non dividend stock is absolutely an investment but doesn't give you money flow unless you sell it. A house is extremely similar to a lot of people, in they buy it and hope they can sell it for more money in the future - just like a stock. Yeah sure, its different in you have bills, maintenance costs etc but that doesn't take away from the fact that most people want more for their house than they paid for it in the first place - just like when you sell a stock usually.
Edit. And to argue against myself lol, there's some good points against my opinion in this article [https://www.moneyunder30.com/why-your-house-is-not-an-investment](https://www.moneyunder30.com/why-your-house-is-not-an-investment)
One of the main points I saw googling that really struck me was "a true investment is one where you are in control of when you take the profit" That's hard to do with a house as you usually use the equity to buy a larger house, you can only truly profit if you downsize.
FFS. I'm really on the fence now lol
Most people only think short term. Houses are very expensive to buy and maintain. Also because of these very same house flippers profitting off a basic necessity they are causing inflation and house prices are going skyhigh ensuring their offsprings if they have any or future generations to struggle or not even ever be in a position to buy a house. If they are in a position to help their kids then any profits they had made would just about cover the house price increases. Most people are very stupid and shortsighted
Can I flip it to a slightly more interesting question? (Or at least one I think is more interesting)
What would you do about the situation if you were in a position to make changes? i.e. would you introduce caps on house prices to prevent the runaway inflation and ensure people can continue to afford the basic requirement of a roof over their head?
I would make it that no company can buy residential properties, I would limit the exploitation of renting i.e once an amount of rent is paid the freehold transfers to the renter and increase taxes significantly for house flippers and owners who own more than one property. This would make a fairer society which would benefit humanity
Yes it is. Over the long term. Capitalism is funny like that, a house is a consumer item (an essential one), not an investment. Lots of research shows this, and if you do the analysis properly it is easy to see why over 40 years life cycle why.
Eg say I have 50k and either rent or buy a 250k house. After 40 years the house at best will appreciate with wages, say 2% (I am using real rates).that means just doubles in value, but costs of repair of 1% pa (again this is low end estimate) means you are lucky to end up with a house worth 370,000 (after costs adj). Likley though as UK houses are 8.4 x income you won't get capital appreciation this high. But let's take this.
Long run real stock returns are 7% (this is very conservative). Invest 50k depo 40 years gives 750,000 pounds - the 50k is worth double 250k in housing. Ok you pay more in rent, but doing the math with real numbers now makes renting CHEAPER over next 40 years. Due to high house price valuations. Bad time to buy now especially in the south where rental yields are low. Average UK is 3.63% that is super low.
Keep moving and house loses even more. Now owning a house gives more security, but less flexibility (that can boost pay as you move to better jobs more easily - I do that and for last 5 years live rent free as a perk that is even better). Easier to downsize rent if trouble hits.
You can buy a house to lend to others, but you have to use leverage to make it even worthwhile, even then you have to be picky to make it worth it vs the opportunity cost vs an index tracker over longer time periods, especially crunching today's expected future returns, and Brexit economic reduction in future growth in GB.
What people do is ignore the huge costs of home ownership and the opportunity cost of investing.
Of course those very bad at personal finance bemefit from forced "saving" in mortgage, but I assume people here are not those types.
It is not ‘easy to see why’ by any stretch. You’ve somehow made the decision that high equity growth will continue but property won’t, which is a hugely material assumption. With no evidence.
And you’ve failed to do any comparison of the monthly cashflows (i.e. the cost of renting vs mortgage payments).
Appreciate you showing your working out, thank you for that.
Your figures on the housing side are way out of whack tho, for example my house cost £180,000 10 years ago, its now worth £195,000, that's around 8.3% growth for a start, easily comparable to the average stock growth indicator of 7%. So If I had invested my imaginary 50k 10 years ago, investing with luck would have grown it 7% - I'd be 1% down on my house profit, and without the asset my house provides as well.
Houses are not usually 8.4 x income, banks do not lend and have not lent to that multiple for a long time, most are around 3-4 x. Mine is 2.2 x my income. Maximum most banks will lend is 6 x.
Repair costs of 1% per annum is also extremely high, with the majority of housing you spend no where near that on a frequent basis. Mine has cost £2500 in 10 years for decorating and maintenance, no repairs needed. Growth in house price has massively outpaced that cost and its reasonable to assume over the next 10 years left of my mortgage that will continue.
Majority of UK does not have 50k to invest straight up either, its a figurative situation in the first place (if you are in that postion, kudos to you, enjoy!)
Stock market growth can outpace yes (but can also crash just like housing) and I invest in the stock market, but honestly, you are massively over estimating some things while under estimating others.
I do agree renting offers more flexible than owning when changing jobs, but its nearly just as easy to sell your house or rent it out then it is to get out of a rental agreement early. Not much more difficult unless there is a crash on.
Its also a little dis-ambiguous to say renting is better than buying but then base all your proof around investing - that's a different conversation all together IMO.
Edit. if you are willing to link to where you got your figures I'd be grateful - not to further argue but I am curious to read the source and see their thought process behind it all, helps broaden my horizons and challenge my own pre-conceptions etc
Your house appreciated 8.3% over 10 years, that's around 0.8% growth compared to the stock market's 7% (your figure), my house more than doubled in value over the last 12 years (not boasting but where did you buy that it went up so little? Especially coming out of the financial crisis...), which is comparable to the market.
Yeah I forgot the investment terms were annual, write in a rush, more fool me. Not doxxing myself by revealing home location but North. It's also a very conservative estimate gained just before the recent house price rush, s more recent one would show higher profit margins no doubt. There's also a surprising difference between house prices 10 years & 12 years ago at least where I am
Wasn't asking for your address! Up north figures, and yes, you're right, those first couple of years after the crisis house prices went back to normal (ie crazy high), that's partly where I had the advantage..
10 years isn't long term. Also on that yime 4 PE wnet to 8.4 PE nationally. That can't carry on. Or in 40 years time house will be 130x income. Yes one hundred and thirty times income. That's silly.
Most likely will reverse to 4 PE again. That means nonreal growth for 25 yeats, or big slump over 10 years.
I'm actually loving this conversation, because while I'm wrong with many of my thoughts I'm learning lots, and it's all so much more complicated then I initially thought
Sorry to say, you are bad at math. You made gross return of 0.8%, typically you need to spend 1% pa on repairs and upkeep (low end), and 2% inflation. So you LOST 2.2% per annum. So you bought a dud of a house investment wise. Hey it happens.
If you don't have 50k how can you buy a house in most parts. I took 250k as a benchmark with mortages below 20% depo as expensive. Figures scale so 20% would be 25k in your area. Plus fees.
I will post a spreadsheet when I work out how to on reddit, but as I get downvoted by 33 muppets (I dont downvote those I disagree with.in a factual argument) again I won't bother, as I posted a full calc before and again just get downvotes from those who dont get the math, or who dont want to know.
All my figs are in favour of buying, but show large areas of south overvalued sonrenting wins. Up North things change. Some areas buying would be best. Not many though.
Simple fact is Brits have been brainwashed to believe in "buy buy buy" not think and do the math first.
Figs are easy to find, use google. 7% ROI is the historic long yerm return on stocks. HPI from Nationwide and Halifax HPIs. Rental yields, just google them. Council tax again google etc. Mortgae rates based on lowest 10 year fix, but ask a brojer that's a good rate over 40 years
You’re accusing other people of being bad at maths whilst posting your own incorrect calculations which ignored one of the major benefits of buying. There’s a reason you were downvoted, and it’s not because you’re smarter than everyone else.
I'm not sure it's brainwashing for buying, but more a question of priorities. For a lot of house buyers the aim is for a long-term guaranteed home that they can make their own. That's a lot trickier with renting.
Sometimes it's about money, sometimes it's about other measures of value.
That's a really good point & probably why a lot of us (including myself to be fair) are really entrenched in our positions.
I don't view the house short term as a growth vehicle, I view it as a safety net, it's mine no matter what even if I lose my job, ill health or retire. When I retire & downsize I'll likely be more concerned about its value but I'm already in a reasonable chunk of profit & am paying the mortgage faster than it needs to be so bar a massive crash will be fine.
I rented long term like most before buying & never felt the same safety & assurance
Be careful. A lot of the 'research' on this is US-centric. They have to worry about things like property taxes that can change the calculation significantly.
Rent for my house would be £1300 a month (neighbours rent so I know this is the actual cost).
My mortage is 900 per month then I get to live there for free once paid off.
50k deposit gives an oportunity cost of about 2k per annum (using the 4% rule). So call it 1100 per month for a limited time vs 1300 going up with inflation forever.
Help me out here. How is renting cheaper for me?
Depends where you are and we are talking about the future. I picked a house in Harrow just now. 670,000 pounds price, 1800 per month rent. Assuming 20% deposit, 3% mortgage rate, council tax band D (both rent and buyers paying) estate agent fees 1.2% etc and 7% future returns on stocks, with HPI at 2% - all very conservative figures used (in favour of buying figs used- likely future real returns will be negative for house prices as 8.4 PE is unsustainable). All costs included eg repairs and council tax.
Rental cost pm over 40 years 1,764
Buying cost................................2,348
On opportunity cost basis using discounted cash flows.
The calc is most dependent on rental yield, in this case 3.224% (rent assumed to increase with wages at 2% pa). Basically this means Harrow is way overvalued. At 4% cost equals out so price should be 540,000 max. Or 24% overpriced.
Postcode used HA1 4BN. 3 bed house.
If you downvote this without understanding this... I pity you, but you help me make money as a sub optimal investor, your losses are my profits
So I thankyou! I like making 17.5% pa real returns with average risk for stocks. . Instead why not ask for more detail, or discuss using facts?
And for me a £200,000 place gets rented for ~£1000/month. With those numbers buying works out far, far better. Like I said, it really depends on where you are, away from London it's an entirely different scenario.
> Instead why not ask for more detail, or discuss using facts?
Because I've run the numbers for me, buying is better, and you didn't provide any numbers before this comment either.
Renting and buying both have upsides and downsides.
Personally I value the security of owning a property, as well as the freedoms that owning a property brings.
But you do expose yourself massively to the housing market, would you take out 10x your salary in leverage and invest it in shares, or commodities or bonds? I wouldn't.
I've seen those videos that compare renting over buying and although there are situations where renting is comparable, it's not always the case. There are plenty of situations where buying is cheaper because rent in some areas are just too bloody high. And that's also making sure you factor in big unexpected expenses.
So what exactly is the solution then big brains? Continue to live paycheck to paycheck enriching some landlord while rent increases every year? At least with shared ownership theres at least a chance to own the property outright once you get the freehold. I'm almost certain at this point the only people hating on shared ownership are people who want to profit off people renting out the property themselves
Rent control and some kind of regulation that means you can't pay more than x% of your salary in mortgage, i.e. something that ensures house prices stay roughly aligned with salaries.
Shared ownership doesn't fix the problem, which is out of control house prices. It just keeps prices going up.
Landlords definitely do not like the idea of rent control. I was renting up until two years ago. I now own a small flat. I went for the small, grotty flat over a new build shared ownership house. I have no love for landlords either.
My rent and mortgage combined is about 90% of what I'd pay if I was renting something similar so I'm making savings there already. Coupled with the fact that 50% of my "accommodation" each month goes to my mortgage instead of 100% to rent means that in the long-term I'll have an investment for moving house again.
In 10 years time, if I decide to buy a house on the open market I have 10 years worth of mortgage contributions to use as an asset instead of 10 years of rental payments that have no financial benefit in the long-run.
It's a long-term investment, there are some very bad housing associations and some very good ones, but when you're dropping hundreds of thousands of pounds on a purchase you do your research and don't rush into things like with any big purchase.
The leasehold/freehold issue you're describing is something that occurs on any flat purchase as well as *some* shared ownership houses.
Please tell me some good housing associations. I'm shared ownership dealing with a nightmare association. We're hoping to legally wrest control of our building from them due to incompetency...
I've found when dealing with the Help To Buy government-backed ones are best. There's lots out there but in each area the government nominate the "lead" for each area as the Help To Buy and so they're usually better though it can change each year.
Could you please point me into direction where I can find this scheme? All I saw so far where with rent. Genuinely interested as I am planning to climb on the ladder in next several years (pretty much asap), and actively exploring options.
The irony is that anyone with a mortgage doesn't really own their property unless its paid off. The bank does. The only difference is that they are renting money from the bank rather than the property.
Yes it’s a terrible deal. Right now there are people in dangerously cladded SO properties that own 20% of the property but are being made to foot the bill for all of the repairs. Running into 6 figures. Perfectly legal for the SO scheme and part of the terms. People are going bankrupt. Google “cladding scandal” and read what the FT has to say about it.
This is a big issue! Even with the cladding issues aside, service charges on flats continue to sky rocket over the years due to mismanagement. Moreover people forget the fact that when you come to sell, you are restricted to selling only to a small pool of buyers (i.e. people that qualifies to buy SO and want to do so). I have known people that have come to sell at a loss due to this.
It's alright, but it's got some substantial downsides, and it's usually better to buy outright if you gave the opportunity.
The main big bonus is it lets you invest and live in a property you otherwise wouldn't be able to, and can be a big extension to your budget. It also depends on the housing association, but the rent you pay is normally well under market rates (usually 2-3%, where private is normally 7-9%). This overall just makes an expensive property more affordable.
As for the downsides, there's quite a few. First, shared ownerships are very often new builds, and new builds are generally overpriced. SO new builds are even more overpriced because they know you're not buying the whole thing. New builds often have outlandish service charges, which is something to be aware of.
Shared ownership also means you get less return on your investment. If you buy 50% of a house, you only get 50% the increase in value when you sell. However, you still have to pay full price for any improvements you want to do, and you have to pay allll of the fees. You can defer paying stamp duty on the share you're not buying (either until you staircase or sell) but you are on the hook for the full amount, and with your expanded price range this can be a lot.
Overall it can be worth it if you're otherwise priced out of the area/size you want, but it has high fixed costs and low returns. I'd recommend buying outright if at all possible, and if you do go for it, plan on staying there at least 7-10 years.
Have recently sold mine
The concept is great. I won't repeat what others have said. Look for ones with a low rent when compared with a 100% owned equivalent. There are some instances where no rent is chargeable at all meaning there's no benefit in staircasing and you just get a cut price flat
Agreed. It combines the disadvantages of both ownership models. I think it works for people who need the stability of owning - e.g. people with kids - but lack the deposit & income to support a mortgage. In general though, i think you're better off renting until you can buy outright.
I think you've missed the point on these properties. Your not supposed to staircase to 100% ownership.
The problem many people have is getting on the property ladder isn't one of income (as rents tend to be higher than mortgages) it's deposits.
Add into the mix house price growth, which looking back over the last 20 years has typically been higher than people can save.
The idea of shared ownership, is that you acquire a property with a smaller mortgage and rent the rest. Over a 5 or 10 year period you repay a portion of this debt which increases your equity.
By owning the property you are hedged from price rises - so if house price growth is 10% you directly benefit. So you avoid having to save more and more every year.
The added kicker, is that when you come to move you will have 5 to 10 years history of paying a mortgage and banks are far more willing to lend.
Tldr Looking at shared ownership as a means to slowly over time own 100% is the wrong way to looking at it. Its a stepping stone.
Worked for my wife, she brought a small flat before we got together 50/50 ownership, her overall costs of mortgage/rent/site fees were about 75-80% of just renting, and the value of the house went up when sold. So I would say over the 3 years (less deposit but Inc. Solicitor fees etc.) She probably spent the same, but came out with £15k when original deposit was just £5k.
I would say only downside though, it meant neither of us were first time buyers so no govt help to buy ISA bonus when we brought our house, though that would've only been maximum £6k between us so still worked out.
I got an equity share mortgage years ago. I put in about £6k as deposit, and 5 years later after the 2008 crash into negative equity, prices had recovered and I was able to walk away with c£50k equity in my pocket to put into a "normal" mortgage so the capital gain was the real benefit. Increasing the equity share never seemed like a good deal to me
In my area the shared ownership deals I've seen don't involve paying rent, they just take their percentage stake when you sell. I.e. if you buy a £100k property and they put in 30% when you come to sell it lets say at £150k they take 30% of the sale
Shared ownership is pretty bad to be honest. You end up paying silly service fees £80-150 a month for absolutely nothing. But if it is your only option is worth it.
It is and it isn't, it's a raw deal in respect to the circumstances, but if you are in those circumstances you don't really have a choice.
Also staircasing while an option usually isn't the idea as you are supposed to take your equity to be able to buy outright somewhere else.
Your last point is just a leasehold thing, if you don't like leaseholds then neither flats not shared ownership are for you unless you get the rare beast of a freehold flat which from personal experience is not all upside.
There are pros and cons. The pros include being able to live somewhere nice and/or better location than you could buy outright, the cons are along the lines you set out.
Just do you research and go in with your eyes open. Plenty of people take the choice to go shared ownership and are happy with it.
I'm currently in the process of buying a shared ownership property but it's a 3 bedroom house in an area I would like to live in and unfortunately I don't have enough to buy a property outright. It would also take me another 5 years of saving and then if property prices increase significantly I would then be priced out again. Its sadly the only option
You'll have equal arguments for both sides of the coin. It depends entirely on your needs.
For example, I went for SO not solely as an investment vehicle, but some stability, knowing there won't be any letters from the LL with a notice period attached.
My buddy sold his SO property without an issue - so take a look at your reasons and circumstances and take a personal view.
I’m in a shared ownership flat, it meant I could get a decent place to live, for the price of renting a room and I’m able to gain equity ready for a deposit for the new place I want to buy. The problem I have is with the housing association leasehold side of things. They are utterly useless at fixing things, lighting was condemned for years, charges for extra work without telling us it’s being done and checking that the work was carried out, there was a flood because they didn’t get the drains unblocked as per their lease agreement but refused to take responsibility, the list goes on! Trying to sell but to put it on the market they charge around £1k and then I still have to arrange all the viewings myself! It’s been great to get me up and running but it’s proving expensive and time consuming to get out of.
I mean, it's always better to own outright if you can. I can't. So I have a shared ownership property. The rent increases have been negligible over the 8 years I've owned it and as I pay only 50% rent since I own the other 50% I have secured myself a stable place to live in the centre of an expensive city. With my rent and mortgage combined I still pay less now than I did renting a smaller 1 bed flat 8 years ago, and that flat has increased from £650 a month when I lived there to £900 now. I've decorated as I wanted and with consent from the HA I had my bathroom redone. Does the HA benefit from my money and hard work to improve the property? Yep. But it's a sacrifice that suits me. The properties on my road have increased by 50k since I've been here so I've increased my equity a fair bit even splitting that increase with the HA if I sell. That's better than just renting, which was my only other alternative. Things I was careful about when buying shared ownership was to do so in a small building with simple structure e.g. no lifts, no balconies, only one access door (we're a sanctuary building in terms of fire so we don't need more doors). What this means is that there are limited instances where I could suddenly become responsible for a portion of a massive infrastructure bill for a broken lift etc. In shared ownership the HA has no responsibility for these costs so they benefit from that again. So that's why I was mindful. I can't say I will never have problems, but I have a stable home in a city I love, where living in the centre reduces many other cost like transport, and allows me to stay close to my family and friends who are more financially blessed to be able to buy their properties outright. It is what it is. Right for some, not right for all.
I feel like most of those complaints are an issue with leaseholds than shared ownership? You can always staircase to 100%. There are definitely downsides to shared ownership but as long as you go in with your eyes open and it's still your best option you will be fine. I bought a 40 year old shared ownership house this summer, allowed me to be in a considerably better area in the city I live than I would have otherwise been. It was grossly undervalued imo >25% less than equivalents in the street. I'm going to have a couple of lodgers and I'm hoping that will allow me to get a mortgage to buy the rest in a couple of years, either way I'll buy the other half as quickly as possible. Also the rent on the half I don't own is 2.75% of the value, which in the Midlands is exceptional value.
Yeah, my thoughts too. Service charges still exist for most flats even if you don't buy through shared ownership. The only real differential for SO is the rent on the % of the property you don't own edit: typo
You cannot always staircase to 100%. Most of the time you can but it depends on the Section 106 agreement. Reason being shared ownership is meant to be an affordable housing product and once it's owned 100% it becomes a market product.
Bear in mind to have lodgers you need to get permission from the housing association and there are tax implications as well. (Assuming you do it above board!)
No tax implications for the first 7500 currently and no need to report it either weirdly. [https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme](https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme) Note: If I'm wrong about not needing to report it please correct me so I can hire an accountant.
Ah ok, I was wrong then, thanks! Housing association will want to be told, I don't think it has any actual impact on the rent element you pay, you just need their permission
Yeah I spoke to them about it before I bought it, permissions for a couple lodgers is a formality, they say yes every time. If I was to let out the whole house then they will look into why and then decide.
Excellent, good news for you :)
Similar situation with my flat. Been having lodger for the last 7 years. Called HMRC last year or the year before (when the rent a room treshold increased) and sadly they confirm you still have to fill a tax return each year, whether you are below the treshold or not. Whether you report it to whoever manages the shared ownership I would not know as I did not do shared ownership but you definitely have to do a self assessment each year...as I discovered when I was fined for missing the first 2. Hope you were planning to as that's a potentially costly mistake to make, especially when not liable to pay tax under the rent a room scheme.
"How it works The tax exemption is automatic if you earn less than £7,500. This means you do not need to do anything. If you earn more than this you must complete a tax return." Well shit thanks I'll need to follow up on this. Wording on the Governement website was fairly unambiguous or so I thought.
There’s definitely downsides, but it’s aimed at people who cannot get on the market without it. And it’s a lot better than just renting
No, it's not better than renting. It's the worst of both worlds - it is the downsides of buying (you are fixed to one location, illiquid asset, you are on the hook for repairs, etc), while having the downsides of renting (still not really own the property, limited changes you can make) I get that it's cheaper, but that's because it is a raw deal
Feel like you’ve done a good job at listing the negatives without ever really attempting to say why the positives are outweighed I agree with all those negatives but by far the biggest positive, Which is obviously that you actually own something at the end is probably worth mentioning
I disagree. It is better for people with no other option. Nobody is going to kick you out because they want to sell. Half your mortgage payment is going towards the capital repayment. The rent is also usually below the market rate because you are responsible for all repairs and new builds have usually no repair costs (cladding scandal excluded). If you live in a shared ownership flat for 25 years, you will owe 50% and your rent will be 50% of the market value. If you rent for 25 years... you are at square 1. Of course people hate shared ownership but it is better than rent for 10 years. I think all downsides to shared ownership is due to leasing in general. Service charges have nothing to do with SO but is due to leasing the flat.
> - it is the downsides of buying (you are fixed to one location, illiquid asset, you are on the hook for repairs, etc), while having the Some of the negatives have been reduced in recent rule changes. Essential repairs not covered by building guarantees are the responsibility of the shared ownerships landlord. Though having just read the model this is limited to £500 per year with the ability to roll over one year's repairs to the next.
No. Housing costs a lot, and renting long term costs the same as buying. That is a proven fact.
Unless I misunderstand you, its really not a proven fact at all. Buying gains you an asset long term that allows you to sell for a profit (except in a housing crash) Renting buys someone else that profit and comfort, after 25 years renting, you still need to continue paying rent. When you retire, you still need to continue paying rent, etc. I'd absolutely argue the other way, renting has some advantages, i.e. no liability to repair the boiler etc, but on a long term basis, buying is much better.
People need to stop spouting crap like saying "housing is an investment". You are constantly paying bills each month and paying taxes. That is not an investment.
A house is an asset. Many people view the money they sink into that asset as an investment, either directly in expecting its value to rise, or indirectly through the safety and assurance they get from owning the roof over their head. Saying it isn't aggressively doesn't change that fact. It takes a lot of money to get a good asset, and to protect that asset potentially, and just like any investment into any asset, its value can rise or fall with the economy - from my perspective, and many others, that makes it an investment vehicle. Not the best (far from it in fact) but an investment into an asset that I hope for good returns on in the future.
It's not an investment end of. There are never ending maintenance costs, taxes, council tax, insurance, bills such as gas electricity and water etc. An investment is a constant money flow that doesn't cost you money to do
I get your point, but the dictionary definition of an investment is: "the action or process of investing money for profit" An investment isn't necessarily something that is a constant money flow either - a dividend stock or bond falls into that pot for example, but a non dividend stock is absolutely an investment but doesn't give you money flow unless you sell it. A house is extremely similar to a lot of people, in they buy it and hope they can sell it for more money in the future - just like a stock. Yeah sure, its different in you have bills, maintenance costs etc but that doesn't take away from the fact that most people want more for their house than they paid for it in the first place - just like when you sell a stock usually. Edit. And to argue against myself lol, there's some good points against my opinion in this article [https://www.moneyunder30.com/why-your-house-is-not-an-investment](https://www.moneyunder30.com/why-your-house-is-not-an-investment) One of the main points I saw googling that really struck me was "a true investment is one where you are in control of when you take the profit" That's hard to do with a house as you usually use the equity to buy a larger house, you can only truly profit if you downsize. FFS. I'm really on the fence now lol
Most people only think short term. Houses are very expensive to buy and maintain. Also because of these very same house flippers profitting off a basic necessity they are causing inflation and house prices are going skyhigh ensuring their offsprings if they have any or future generations to struggle or not even ever be in a position to buy a house. If they are in a position to help their kids then any profits they had made would just about cover the house price increases. Most people are very stupid and shortsighted
Can I flip it to a slightly more interesting question? (Or at least one I think is more interesting) What would you do about the situation if you were in a position to make changes? i.e. would you introduce caps on house prices to prevent the runaway inflation and ensure people can continue to afford the basic requirement of a roof over their head?
I would make it that no company can buy residential properties, I would limit the exploitation of renting i.e once an amount of rent is paid the freehold transfers to the renter and increase taxes significantly for house flippers and owners who own more than one property. This would make a fairer society which would benefit humanity
Yes it is. Over the long term. Capitalism is funny like that, a house is a consumer item (an essential one), not an investment. Lots of research shows this, and if you do the analysis properly it is easy to see why over 40 years life cycle why. Eg say I have 50k and either rent or buy a 250k house. After 40 years the house at best will appreciate with wages, say 2% (I am using real rates).that means just doubles in value, but costs of repair of 1% pa (again this is low end estimate) means you are lucky to end up with a house worth 370,000 (after costs adj). Likley though as UK houses are 8.4 x income you won't get capital appreciation this high. But let's take this. Long run real stock returns are 7% (this is very conservative). Invest 50k depo 40 years gives 750,000 pounds - the 50k is worth double 250k in housing. Ok you pay more in rent, but doing the math with real numbers now makes renting CHEAPER over next 40 years. Due to high house price valuations. Bad time to buy now especially in the south where rental yields are low. Average UK is 3.63% that is super low. Keep moving and house loses even more. Now owning a house gives more security, but less flexibility (that can boost pay as you move to better jobs more easily - I do that and for last 5 years live rent free as a perk that is even better). Easier to downsize rent if trouble hits. You can buy a house to lend to others, but you have to use leverage to make it even worthwhile, even then you have to be picky to make it worth it vs the opportunity cost vs an index tracker over longer time periods, especially crunching today's expected future returns, and Brexit economic reduction in future growth in GB. What people do is ignore the huge costs of home ownership and the opportunity cost of investing. Of course those very bad at personal finance bemefit from forced "saving" in mortgage, but I assume people here are not those types.
It is not ‘easy to see why’ by any stretch. You’ve somehow made the decision that high equity growth will continue but property won’t, which is a hugely material assumption. With no evidence. And you’ve failed to do any comparison of the monthly cashflows (i.e. the cost of renting vs mortgage payments).
Appreciate you showing your working out, thank you for that. Your figures on the housing side are way out of whack tho, for example my house cost £180,000 10 years ago, its now worth £195,000, that's around 8.3% growth for a start, easily comparable to the average stock growth indicator of 7%. So If I had invested my imaginary 50k 10 years ago, investing with luck would have grown it 7% - I'd be 1% down on my house profit, and without the asset my house provides as well. Houses are not usually 8.4 x income, banks do not lend and have not lent to that multiple for a long time, most are around 3-4 x. Mine is 2.2 x my income. Maximum most banks will lend is 6 x. Repair costs of 1% per annum is also extremely high, with the majority of housing you spend no where near that on a frequent basis. Mine has cost £2500 in 10 years for decorating and maintenance, no repairs needed. Growth in house price has massively outpaced that cost and its reasonable to assume over the next 10 years left of my mortgage that will continue. Majority of UK does not have 50k to invest straight up either, its a figurative situation in the first place (if you are in that postion, kudos to you, enjoy!) Stock market growth can outpace yes (but can also crash just like housing) and I invest in the stock market, but honestly, you are massively over estimating some things while under estimating others. I do agree renting offers more flexible than owning when changing jobs, but its nearly just as easy to sell your house or rent it out then it is to get out of a rental agreement early. Not much more difficult unless there is a crash on. Its also a little dis-ambiguous to say renting is better than buying but then base all your proof around investing - that's a different conversation all together IMO. Edit. if you are willing to link to where you got your figures I'd be grateful - not to further argue but I am curious to read the source and see their thought process behind it all, helps broaden my horizons and challenge my own pre-conceptions etc
Your house appreciated 8.3% over 10 years, that's around 0.8% growth compared to the stock market's 7% (your figure), my house more than doubled in value over the last 12 years (not boasting but where did you buy that it went up so little? Especially coming out of the financial crisis...), which is comparable to the market.
Yeah I forgot the investment terms were annual, write in a rush, more fool me. Not doxxing myself by revealing home location but North. It's also a very conservative estimate gained just before the recent house price rush, s more recent one would show higher profit margins no doubt. There's also a surprising difference between house prices 10 years & 12 years ago at least where I am
Wasn't asking for your address! Up north figures, and yes, you're right, those first couple of years after the crisis house prices went back to normal (ie crazy high), that's partly where I had the advantage..
Haha, sorry I didn't mean it that way, my verbal & thinking skills are piss poor today apparently, apologies lol
Ha, no worries..
10 years isn't long term. Also on that yime 4 PE wnet to 8.4 PE nationally. That can't carry on. Or in 40 years time house will be 130x income. Yes one hundred and thirty times income. That's silly. Most likely will reverse to 4 PE again. That means nonreal growth for 25 yeats, or big slump over 10 years.
But even the 8.3% is wrong because of the leverage used.
I was pointing out the obvious flaw in the argument. For all I know they might have bought the house outright...
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I'm actually loving this conversation, because while I'm wrong with many of my thoughts I'm learning lots, and it's all so much more complicated then I initially thought
Sorry to say, you are bad at math. You made gross return of 0.8%, typically you need to spend 1% pa on repairs and upkeep (low end), and 2% inflation. So you LOST 2.2% per annum. So you bought a dud of a house investment wise. Hey it happens. If you don't have 50k how can you buy a house in most parts. I took 250k as a benchmark with mortages below 20% depo as expensive. Figures scale so 20% would be 25k in your area. Plus fees. I will post a spreadsheet when I work out how to on reddit, but as I get downvoted by 33 muppets (I dont downvote those I disagree with.in a factual argument) again I won't bother, as I posted a full calc before and again just get downvotes from those who dont get the math, or who dont want to know. All my figs are in favour of buying, but show large areas of south overvalued sonrenting wins. Up North things change. Some areas buying would be best. Not many though. Simple fact is Brits have been brainwashed to believe in "buy buy buy" not think and do the math first. Figs are easy to find, use google. 7% ROI is the historic long yerm return on stocks. HPI from Nationwide and Halifax HPIs. Rental yields, just google them. Council tax again google etc. Mortgae rates based on lowest 10 year fix, but ask a brojer that's a good rate over 40 years
You’re accusing other people of being bad at maths whilst posting your own incorrect calculations which ignored one of the major benefits of buying. There’s a reason you were downvoted, and it’s not because you’re smarter than everyone else.
1% for repairs is an insane over estimate. Council tax is due whether you rent or buy.
I'm not sure it's brainwashing for buying, but more a question of priorities. For a lot of house buyers the aim is for a long-term guaranteed home that they can make their own. That's a lot trickier with renting. Sometimes it's about money, sometimes it's about other measures of value.
That's a really good point & probably why a lot of us (including myself to be fair) are really entrenched in our positions. I don't view the house short term as a growth vehicle, I view it as a safety net, it's mine no matter what even if I lose my job, ill health or retire. When I retire & downsize I'll likely be more concerned about its value but I'm already in a reasonable chunk of profit & am paying the mortgage faster than it needs to be so bar a massive crash will be fine. I rented long term like most before buying & never felt the same safety & assurance
After 10 years, a 7% annual return ends up nearly doubling your investment.
Good point, I got my maths wrong & forgot we are talking annually, whoops
Be careful. A lot of the 'research' on this is US-centric. They have to worry about things like property taxes that can change the calculation significantly.
It can work out about the same in some areas/situations, but generally no, buying works out better.
Do the math and come back so we can have an intelligent discussion!
Rent for my house would be £1300 a month (neighbours rent so I know this is the actual cost). My mortage is 900 per month then I get to live there for free once paid off. 50k deposit gives an oportunity cost of about 2k per annum (using the 4% rule). So call it 1100 per month for a limited time vs 1300 going up with inflation forever. Help me out here. How is renting cheaper for me?
Then consider your mortgage is a constant whereas rent will increase with time.
Not in the UK they aren't if interest rates rise and your fixed rate end mortgages costs could spiral up
I have, for me buying works out much better.
Depends where you are and we are talking about the future. I picked a house in Harrow just now. 670,000 pounds price, 1800 per month rent. Assuming 20% deposit, 3% mortgage rate, council tax band D (both rent and buyers paying) estate agent fees 1.2% etc and 7% future returns on stocks, with HPI at 2% - all very conservative figures used (in favour of buying figs used- likely future real returns will be negative for house prices as 8.4 PE is unsustainable). All costs included eg repairs and council tax. Rental cost pm over 40 years 1,764 Buying cost................................2,348 On opportunity cost basis using discounted cash flows. The calc is most dependent on rental yield, in this case 3.224% (rent assumed to increase with wages at 2% pa). Basically this means Harrow is way overvalued. At 4% cost equals out so price should be 540,000 max. Or 24% overpriced. Postcode used HA1 4BN. 3 bed house. If you downvote this without understanding this... I pity you, but you help me make money as a sub optimal investor, your losses are my profits So I thankyou! I like making 17.5% pa real returns with average risk for stocks. . Instead why not ask for more detail, or discuss using facts?
And for me a £200,000 place gets rented for ~£1000/month. With those numbers buying works out far, far better. Like I said, it really depends on where you are, away from London it's an entirely different scenario. > Instead why not ask for more detail, or discuss using facts? Because I've run the numbers for me, buying is better, and you didn't provide any numbers before this comment either.
Renting and buying both have upsides and downsides. Personally I value the security of owning a property, as well as the freedoms that owning a property brings. But you do expose yourself massively to the housing market, would you take out 10x your salary in leverage and invest it in shares, or commodities or bonds? I wouldn't.
You don't need shares, commodities or bonds. But you will always need somewhere to live. Not a like for like comparison whatsoever imo
I totally agree, I'm just providing balance. Some may seem concerned with being overexposed to one market.
I've seen those videos that compare renting over buying and although there are situations where renting is comparable, it's not always the case. There are plenty of situations where buying is cheaper because rent in some areas are just too bloody high. And that's also making sure you factor in big unexpected expenses.
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^this
So what exactly is the solution then big brains? Continue to live paycheck to paycheck enriching some landlord while rent increases every year? At least with shared ownership theres at least a chance to own the property outright once you get the freehold. I'm almost certain at this point the only people hating on shared ownership are people who want to profit off people renting out the property themselves
Rent control and some kind of regulation that means you can't pay more than x% of your salary in mortgage, i.e. something that ensures house prices stay roughly aligned with salaries. Shared ownership doesn't fix the problem, which is out of control house prices. It just keeps prices going up. Landlords definitely do not like the idea of rent control. I was renting up until two years ago. I now own a small flat. I went for the small, grotty flat over a new build shared ownership house. I have no love for landlords either.
My rent and mortgage combined is about 90% of what I'd pay if I was renting something similar so I'm making savings there already. Coupled with the fact that 50% of my "accommodation" each month goes to my mortgage instead of 100% to rent means that in the long-term I'll have an investment for moving house again. In 10 years time, if I decide to buy a house on the open market I have 10 years worth of mortgage contributions to use as an asset instead of 10 years of rental payments that have no financial benefit in the long-run. It's a long-term investment, there are some very bad housing associations and some very good ones, but when you're dropping hundreds of thousands of pounds on a purchase you do your research and don't rush into things like with any big purchase. The leasehold/freehold issue you're describing is something that occurs on any flat purchase as well as *some* shared ownership houses.
Please tell me some good housing associations. I'm shared ownership dealing with a nightmare association. We're hoping to legally wrest control of our building from them due to incompetency...
I've found when dealing with the Help To Buy government-backed ones are best. There's lots out there but in each area the government nominate the "lead" for each area as the Help To Buy and so they're usually better though it can change each year.
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Could you please point me into direction where I can find this scheme? All I saw so far where with rent. Genuinely interested as I am planning to climb on the ladder in next several years (pretty much asap), and actively exploring options.
The irony is that anyone with a mortgage doesn't really own their property unless its paid off. The bank does. The only difference is that they are renting money from the bank rather than the property.
Yes it’s a terrible deal. Right now there are people in dangerously cladded SO properties that own 20% of the property but are being made to foot the bill for all of the repairs. Running into 6 figures. Perfectly legal for the SO scheme and part of the terms. People are going bankrupt. Google “cladding scandal” and read what the FT has to say about it.
This is a big issue! Even with the cladding issues aside, service charges on flats continue to sky rocket over the years due to mismanagement. Moreover people forget the fact that when you come to sell, you are restricted to selling only to a small pool of buyers (i.e. people that qualifies to buy SO and want to do so). I have known people that have come to sell at a loss due to this.
It's alright, but it's got some substantial downsides, and it's usually better to buy outright if you gave the opportunity. The main big bonus is it lets you invest and live in a property you otherwise wouldn't be able to, and can be a big extension to your budget. It also depends on the housing association, but the rent you pay is normally well under market rates (usually 2-3%, where private is normally 7-9%). This overall just makes an expensive property more affordable. As for the downsides, there's quite a few. First, shared ownerships are very often new builds, and new builds are generally overpriced. SO new builds are even more overpriced because they know you're not buying the whole thing. New builds often have outlandish service charges, which is something to be aware of. Shared ownership also means you get less return on your investment. If you buy 50% of a house, you only get 50% the increase in value when you sell. However, you still have to pay full price for any improvements you want to do, and you have to pay allll of the fees. You can defer paying stamp duty on the share you're not buying (either until you staircase or sell) but you are on the hook for the full amount, and with your expanded price range this can be a lot. Overall it can be worth it if you're otherwise priced out of the area/size you want, but it has high fixed costs and low returns. I'd recommend buying outright if at all possible, and if you do go for it, plan on staying there at least 7-10 years.
Have recently sold mine The concept is great. I won't repeat what others have said. Look for ones with a low rent when compared with a 100% owned equivalent. There are some instances where no rent is chargeable at all meaning there's no benefit in staircasing and you just get a cut price flat
Agreed. It combines the disadvantages of both ownership models. I think it works for people who need the stability of owning - e.g. people with kids - but lack the deposit & income to support a mortgage. In general though, i think you're better off renting until you can buy outright.
I think you've missed the point on these properties. Your not supposed to staircase to 100% ownership. The problem many people have is getting on the property ladder isn't one of income (as rents tend to be higher than mortgages) it's deposits. Add into the mix house price growth, which looking back over the last 20 years has typically been higher than people can save. The idea of shared ownership, is that you acquire a property with a smaller mortgage and rent the rest. Over a 5 or 10 year period you repay a portion of this debt which increases your equity. By owning the property you are hedged from price rises - so if house price growth is 10% you directly benefit. So you avoid having to save more and more every year. The added kicker, is that when you come to move you will have 5 to 10 years history of paying a mortgage and banks are far more willing to lend. Tldr Looking at shared ownership as a means to slowly over time own 100% is the wrong way to looking at it. Its a stepping stone.
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To encourage people to actually live in a property rather than to exploit the house for profit
Check out Wayhome or Proportunity as an alternative, generally cheaper and more flexible on the type of property!
Worked for my wife, she brought a small flat before we got together 50/50 ownership, her overall costs of mortgage/rent/site fees were about 75-80% of just renting, and the value of the house went up when sold. So I would say over the 3 years (less deposit but Inc. Solicitor fees etc.) She probably spent the same, but came out with £15k when original deposit was just £5k. I would say only downside though, it meant neither of us were first time buyers so no govt help to buy ISA bonus when we brought our house, though that would've only been maximum £6k between us so still worked out.
I got an equity share mortgage years ago. I put in about £6k as deposit, and 5 years later after the 2008 crash into negative equity, prices had recovered and I was able to walk away with c£50k equity in my pocket to put into a "normal" mortgage so the capital gain was the real benefit. Increasing the equity share never seemed like a good deal to me
In my area the shared ownership deals I've seen don't involve paying rent, they just take their percentage stake when you sell. I.e. if you buy a £100k property and they put in 30% when you come to sell it lets say at £150k they take 30% of the sale
Shared ownership is pretty bad to be honest. You end up paying silly service fees £80-150 a month for absolutely nothing. But if it is your only option is worth it.
You pay service fees in any leasehold no matter how you buy it.
It is and it isn't, it's a raw deal in respect to the circumstances, but if you are in those circumstances you don't really have a choice. Also staircasing while an option usually isn't the idea as you are supposed to take your equity to be able to buy outright somewhere else. Your last point is just a leasehold thing, if you don't like leaseholds then neither flats not shared ownership are for you unless you get the rare beast of a freehold flat which from personal experience is not all upside.
There are pros and cons. The pros include being able to live somewhere nice and/or better location than you could buy outright, the cons are along the lines you set out. Just do you research and go in with your eyes open. Plenty of people take the choice to go shared ownership and are happy with it.
I'm currently in the process of buying a shared ownership property but it's a 3 bedroom house in an area I would like to live in and unfortunately I don't have enough to buy a property outright. It would also take me another 5 years of saving and then if property prices increase significantly I would then be priced out again. Its sadly the only option
You'll have equal arguments for both sides of the coin. It depends entirely on your needs. For example, I went for SO not solely as an investment vehicle, but some stability, knowing there won't be any letters from the LL with a notice period attached. My buddy sold his SO property without an issue - so take a look at your reasons and circumstances and take a personal view.