Shared Ownership: A Cautionary Tale

Shared ownership is a way to get on the housing ladder if you’re a first time buyer and can’t afford to purchase a flat/house outright. You buy a share of a property with, typically, a housing association (HA) owning the rest. You pay a mortgage on the part you own and rent on what you don’t. It can seem a tangible, achievable way to get your foot on that first rung of the property ladder.

This post is about our experience of owning a shared ownership flat which was easiest the single worst decision we’ve ever made in our lives. We were young, naive and fooled into thinking it was a good idea.

Buying Our Home

Looking back, the process of obtaining our home feels like an absolute racket. The HA “recommended” a mortgage adviser to us, who “recommended” a particular mortgage to us.

And I say recommended with quotes to emphasise sarcasm. I still have the letter from the HA where they say we were under no obligation to take the meeting with the mortgage adviser and go do our own homework to obtain a mortgage. But when you’re 21, naive and don’t have the first clue about mortgages, let alone shared ownership mortgages, you’re a pretty captive audience who plays along with their game.

Looking back, the meeting with the mortgage adviser makes me laugh. He actually only ever recommended one mortgage to us. We just played along and signed on the dotted line. Turned out the mortgage advisers were getting kickbacks from the mortgage company for selling their mortgage products.

We also bought at a terrible time. Not that we knew it at the time but we purchased a new build flat in 2007 just prior to the 2008 crash. In other words, we bought at the absolute market peak and saw ourselves in negative equity before we knew it.

The OK-ish Parts

Overall, we loved having our own home and living together.

Living in our shared ownership home wasn’t terrible but it wasn’t outstanding either. Our rent went up by about 4% every year and we also dealt with increases in our service charge each year. This is the thing, above all else, that bugs me about new builds (as our flat and the estate we lived on were), the management company fees. Never again will I ever live in a house that is liable for a fee to be paid to a management company. We may as well just have thrown money in the bin every month, for the service we received from the management company.

The only good thing about the mortgage we were sold was that after the fixed term was up, because of the 2008 financial crisis and the base rate dropping to 0.5%, our mortgage repayment amount dropped significantly.

Selling Our Home

If your circumstances change, it’s almost impossible to find a solution that works that doesn’t involve extricating yourself entirely from the situation, selling up and moving on. And even in that situation, it isn’t easy to achieve.

In early 2013, we made the decision to move to America with Mr. LLC’s job. We thought through our options; attempt to sublet, staircase to 100%, own the property outright and rent it out or sell and chalk the whole experience up to a hard life lesson to learn.  

Option A: Sublet
You can’t sublet your home in a shared ownership situation. Actually, I’ll qualify this by saying, many HA’s don’t let you sublet. With ours, we had to apply for permission to do so. However, there were extremely stringent regulations in place, including only being allowed to sublet for up to 12 months. As we were planning on being in America for more than a year, this option gave us nothing to work with.

Letter from the HA detailing our limited subletting options. We were also not keyworkers so I don’t even know how we obtained our lease on that requirement.

Option B: Staircase and rent out
When you buy your shared ownership home, they sell you big on the idea of staircasing, which is when you purchase additional shares of your home from the HA, meaning you can staircase up to 100% ownership. They make it sound so simple, like it’s as easy as a walk in the park.

What you aren’t told (conveniently) about staircasing is that it’s expensive. Expensive enough to make it well out of reach of most shared ownership home owners. The HA requires you to obtain a valuation by an independent valuation company (that they recommend) as the first stage of staircasing, which you are liable to pay for (we paid £250). You then need to pay solicitors fees, any applicable stamp duty and obtain a new mortgage with associated fees and a new rate/repayment terms. And that’s the procedure every single time you want to staircase.

You’re sold on the ease of just adding another 10% to your ownership share as and when you want. In reality, if you own 40% of the property, you could potentially pay 6 times over for valuation/solicitor/new mortgage fees to own the whole property. Thanks but no thanks.

Additionally (but a minor side note), in order to rent the flat out whilst we lived abroad, we would have needed to sink pretty much all of our savings into obtaining a buy-to-let mortgage to enable us to rent out the flat (buy-to-lets mortgages typically require a significant down payment). The going rate for rent in the area we lived in didn’t balance the books in our favour in terms of additionally having to pay a letting agent to manage the tenants/problems in our absence and being liable for ongoing repair costs or the mortgage if we had periods without tenants.

It didn’t make ongoing economic or financial sense to go opt for option b, particularly as it would leave us with no cash savings and potentially liable for ongoing costs. It was just too risky.

Option C: Sell and try to forget the whole sorry situation
We ultimately chose this option. It boiled down to the fact that we hated the area where we lived and wouldn’t have wanted to return to the area once we moved back to the UK. We also, by this point, 6 years in, had had enough of the situation and decided to cut our losses, suck up the costs involved and move on.

It wasn’t easy though. It was actually monumentally difficult and one of the most stressful things I’ve ever had to deal with in my life. We put the flat on the market in June 2013 and completed on the sale in August 2014, 14 months later. We paid rent and mortgage on an empty property for 9 months. At one point we were projecting in our budget an ongoing cost for it until we returned from America. It hung like a noose around our neck.

When you come to the decision to sell your shared ownership home, you have to inform the HA, who (after the valuation) market it on their own site for 8 weeks and if that fails to attract a buyer, you can then put it on the open market.

So, when we came to the decision to sell, as per the regulations we informed the HA, paid for the independent valuation to assess the market value of the property and then went back to the HA to get the process started of them marketing it on their site. The HA however, didn’t want anything to do with it. They informed us take up of second-hand shared ownership homes was low and they actually wanted out of the area where we lived, so we put it straight on the market with an estate agent.

It was under offer extremely quickly but that was pretty much the only quick thing about the whole process. In very brief summary: we lost our first buyers as the process was taking too long and they were expecting and so wanted to be in a new home before the baby arrived. By this point we were both in America and so had to sell the second time round remotely. We had to get another valuation (first one expired) and remarket with the estate agents. Again, we were lucky with actually getting offers on the flat and were within a hair’s breadth of losing the 2nd buyers when we eventually completed.

There was a unique set of circumstances that meant it took so long. Again in brief: We had shoddy solicitors who didn’t seem to understand the concept of shared ownership. We had 3 sets of solicitors to deal with as the housing association had a solicitor representing them also. The buyer’s solicitors also didn’t understand what we were trying to do (staircasing to 100% and selling the whole property to the buyers). We also had the management company to deal with who ran the estate where we lived and obtain documentation from who were just the biggest bunch of incompetent cowboys ever to have existed.   

One other extremely important thing to note when selling is the HA will always take their % of the market value of the property when its sold. If you sell for less than the valuation then you will lose money. For example, if the ownership is 50/50 and the valuation of the property was £100k but you were only able to sell for for 90k, the HA will still take their £50k, leaving you with only £40k.

We Lived To Tell The Tale

You live and learn. Yes, we lost money a lot of money during the whole process but that doesn’t bother me as much as our decision to buy it in the first place. But I will say we were extremely fortunate because of our circumstances. We bought when we were only living on Mr. LLC’s wage and our earning potential grew rapidly as we became more established in our careers. We eventually had the money to pay our way out of the situation. Yes, it wasn’t pleasant totting up how much it cost but we had the ability to do so. Many in similar situations don’t see their earnings rise so much as we did and so their options become limited.

You live and learn. Yes, we lost a lot of money during the whole process but that doesn’t bother me as much as our decision to buy it in the first place. But I will say we were extremely fortunate because of circumstances. We bought when we were only living on Mr. LLC’s wage and our earning potential grew rapidly as we became more established in our careers. We eventually had the money to pay our way out of the situation. Yes, it wasn’t pleasant totting up how much it cost but we had the ability to do so. Many in similar situations don’t see their earnings rise as much meaning their options are more limited.

It frustrates me why we were so determined that we needed to own a home, even if it was only 40% of one. With hindsight, it would’ve made much more sense for us to move to London and rent in our 20’s before buying. Yes, our combined mortgage and rent cost may only have been £800 a month but we were paying thousands of pounds to commute into London to work. Those season ticket costs could’ve been directed at rent and it would’ve saved us a lot of exhaustion by slashing our commute times significantly.

Shared ownership may truly be a great option for some people but it isn’t for everyone. There’s a lot you’re not told when you sign up for shared ownership and I’m just glad we managed to get out when we did.

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