Bloomberg Audio Studios, Podcasts, Radio News. Welcome to MEREN Talk to Your Money, the personal finance edition of Merin Talks Money and this bonus podcast, we talk about the best strategy for making the most of your money. Ameren Sunset Web and with me senior reporter and author of the Money Distilled newsletter, John Staffact.
Hi John, Hi Man.
John.
As you know, we are continuing on with our housing series and we have got another very special expert guest on today.
Today we'll be speaking with Ray Bulger. Ray is the senior Mortgage Technical Manager Senior.
Mortgage Technical Manager that's QUB title at independent mortgage broker John Charcoal and is regarded as not just an authority, but the authority within the mortgage industry. We've asked Ray Endaalba's answer one of our listener questions.
Thank you so much for being on the show. Ray, We appreciate it. So here we go. Here's the question.
Him Merrily and John. My name is Ulu and I'm London based. I'm looking to buy a flat soon and was considering shared ownership. I was wondering what are the pros and cons of shared ownership and would you consider it over traditional mortgages.
My instinct there, and we'll get along to this, but my instinct is don't touch it with a barge pole, run for your life, and read somewhere else instead. But you may have a more nuanced view, So I'm wondered maybe we could start with perhaps you could.
Just explain to us what is shared ownership? What does that mean? Who are you sharing it with?
Shared ownership basically means that you buy a property which will at the moment be a leasehold property, whether it's a house or flat, but with the rules that the governments bring in shortly, I guess that would become common hold in future, and you normally buy it in conjunction with a housing association. You would buy between ten and seventy five percent of the property, and the housing association
owns the rest. You would probably need a mortgage between buy your share of the property, and it is possible to get a mortgage of up to one hundred percent of the amount you're boring. The housing association will charge and rent on the balance, and normally rent will be a subsidized rate, which frankly is the only way the multipayments on this full of proposition work. So that's MutS and bolts bit.
So you find a house or a flat, it's normally going to be in some kind of housing association estate. I would guess it's going to be housing a station the tional council approved. You find a house that you would like to have, you can't afford to buy the whole thing. You look at what you can afford to buy, You take out a mortgage for that amount of the ten thirty percent whatever it is.
The housing A Station continues to own the rest.
You pay pro rata rent for that section. And then so you end up being liable for the mortgage on your share for the rent on the share that you don't own. And then because it's a lease hold, presumably there is ground rent and service charges and all that kind of thing as well upkeep of cumula areas, and so you then pay your pro writ share of that.
Is that right?
No, Unfortunately that's not so. One of the downside is that even though you may only own as little as ten percent of the property, you are responsible for one hundred percent of the service charge, one hundred percent of the ground rent, one hundred percent of the maintenance such as any work you want to do on your property, such as you're decorating it. So generally speaking, buying as little as ten percent, whilst it's an option, frankly, I think in most cases makes little sense.
Okay, I calling you that, and I just wanted to hear you say it.
So, if you have your shared ownership house and you put in a new kitchen which increases the value of the house by say ten percent, and you only own twenty percent of the house, the other eighty percent of the uplift effectively goes to the housing association, and you would need to buy it back when you increase your share of the ownership.
Yes, if you did a major refurbishment like putting in a new kitchen, then it would usually be possible to actually have evaluation pre and post and you would get part of the benefit of that. And if you have normal decorations, then yes, you're responsible for all of that.
Okay, So just to be clear, this all sounds insanely expensive, and I can see how it might make sense if you genuinely believed that over time you were going to buy the full one hundred percent, and it was some way you genuinely wanted to live for a long time, and the estate in which you had chosen to live was extremely well managed, and you didn't have long term service change problems, and if he didn't have, for example,
cladding problems. But out with all those things, and of course house price continuing to go up, so the thing.
Is worth something.
When you try and sell it out With all that, it seems insane. Why would you not just rent somewhere? I mean, because you're effectively a renter, you're not an owner, you have none of the control, you have none of the power, and your expenses that seem to me extremely a high, particularly as mortgage rates rise.
What am I missing?
I don't think you're missing very much at all. The one thing perhaps you are missing is that what you do have with shared ownership, which you don't have with renting, is security of tenure. That's perhaps the main benefit. But you're paying an awful lot for that security of tenure. So I think what's also worth bearing your mind is that what we find is a lot of first time buyers is that they do have options they don't realize they have. You can, for example, get one hundred percent
mortgages in certain circumstances. There are other lenders that will offer you a mortgage with just the five thousand pounds deposit. So for some people, because they think the maximum they can borrow is nine ninety five percent, there may be another option even without a posit. Likewise, even though in many cases the maximum you can borrow is four and a half times income, there are other lenders that will lend you up to six times income. So if your
problem is not enough income, that may be avail hand it. Likewise, you can get mortgages on what's known as a sore propriety aura basis, where a family member helps you with the affordability. So before contemplating show ownership, I would recommend that anybody who's considering this talks to a good independent broker who has an understanding of the whole market and looks at all the other options and only looks I've shared, I've really known the options work.
For So I just want to ask you one more question.
For John is champion the fit to get into shared ownerseral questions, but I want to ask you one more before I let him loose. So, if you have to buy your share from an approved provider of shared ownership housing, which is going to be a local counsel or housing association etc.
When it comes to.
Sell, and is lightly what I'm say, you just have no control here when it comes to sell. Presumably you can again only sell that share to a buyer who is being pre approved by the.
Council or housing association.
So you're not particularly free when you'll buy, You're not particularly free when you're living there, and you're certainly not free to sell to anybody when it comes to selling, and that might make it difficult.
Is that fair I just been two down on this.
No, that's absolutely right. So you will certainly first have to offer the property to the housing association and if they can't find a buyer within say six months, sometimes you may have an option to sell on there pro market, but that clearly is a restraint restriction or potential buyers and therefore the price you might get a property. One other thing to consider is if you do want to staircase, which means buying a further share identically not prove affordability.
And one thing I would strongly recommend anybody contemplating buying any property frankly, but in particular shared owners, is to make sure they use an independent solicitor, not a solicitor recommended by the housing association, so we know you're getting genuine, independent advice rather than perhaps advice from somebody who have a conflict of interest.
Is suggesting that you can't trust your local housing association.
Ray, Well, we all know some of the problems with conflict of interest. Many of the problems with Brown Went dubbling every ten years were cause by buyers using solicit of recommended by the developer.
Yeah.
Ray, is it also the case that more often than not, when you enter a shared ownership contract like this, you're buying a new house, what's the percentative new versus old? Because of course there's another whole area of jeopardy if you put your hard down cash into a brand new house. Because I don't know what the statistics are at the moment, but historically a new house has lost sixteen percent of its value the second that broke and puts the nice Shanny keys in your hand.
So that doesn't help.
No, that's certainly true in them Georgia of cases, you would be looking at a new property. And of course one of the benefits if one's going to look at positive here is if you're buying new property, what's the point you make about value is relevant. You will probably have relatively low heating costs because one you've propped it up to comply with current government regulations.
That's about the best effort of grasping in the silver lining I've ever heard on this podcast.
Ray, Thank you, No, I was tinking to my original analysis here, kids run for the hills, John.
I mean, I don't have that many more questions, but one thing I would ask. The shared ownation has been around for actually quite a long time now, and so clearly people are using it. So I'm just wanting in practical terms, either the volume of horror stories is not as high as I think. I certainly felt that it would be five years old from when it first became popular, So I mean, why do you think that is? Why is it still around?
Anybody who is struggling to find a deposit and affordability may find it. The fullibility works a bit better with shared ownership. But I think the point that was made earlier in terms of perhaps thinking of renting until you can afford to buy a property in the ordany way,
is the key one. If you buy a shared ownership property and then at a later stage you're ready to buy a property in a normal way, you will no longer be a first time buyer, which means you may then end up paying more stampfew from land tax, which is frankly the main benefit these days in being a first time buyer. So I think that is really a
key point. If you can't afford to buy property in the ordiny way, bearing in mind all the legal implications and problems even when you want to staircase up when you want to sell, that's a strong argument for renting rather than shared ownership.
In my view, it strikes me that one of the big big problems is the complexities of the legal seed. And obviously a lot of these properties are also new and a lot of them are flats and lease orders. Well, from your experience, who do mortgage lend does feel about this? Is it hard that you get a mortgage and shared donership proper? These are the actually relatively relaxed about it.
Well, there are plenty of lenders who will lend on shared ownership of properties. Building societies tend to have the line's share of this for the market. So whilst not every lender will provide you with the mortgage on the shared ownership property, there is plenty of choice, and there are a few lenders who will actually give you one hundred percent mortgage on the part you're buying, although most will limited denied you one ninety five percent. So the
mortgage is not in itself a problem. However, you will probably pay a higher interest rate because you've got restaurants.
Thank you very much to no. I think that's that's all my questions, and I basically have to agree with both of you. It sounds like very much a last resort chained of option.
Yeah, I mean all I would say that I'm amazed that Ray has managed to find a negative to shared ownership that I hadn't even thought of, which was not being a first time buyer anymore and losing your stamp duty advantage. So the unusual, we have someone on who can find a negative about something that John and I hadn't thought of given away that are minds except we hugely appreciate that too.
Great.
Thank you very much, indeed, and John, as usual, thank you and thanks for listening to this week's Maren Talk to Your Money. If you like our show, rate review and subscribe wherever you listen to podcasts. Also shure to follow me and John on X or Twitter. I'm at Maren sw John is John Underscore Steppeic. This episode was produced by Summersadi and Moses and special thanks to Raybel Jerk. Questions and comments on this show and all our shows
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