Given the extraordinary rise in property prices over the past decade, many
would-be first-time buyers could be forgiven for losing all hope of climbing
the housing ladder.
They might also conclude that, after the recent turmoil in financial markets,
their chances of obtaining the loan they need to reach even the lowest rung
are being whittled away faster than you can say Northern Rock.
With the markets still decidedly choppy, lenders have become increasingly wary
in recent weeks about who they lend to and how much they are prepared to
advance. The situation is especially acute in London, where, according to
the Land Registry, average house prices in July stood at £349,838. Across
the country as a whole, the figure is £182,914 – more than seven times the
average income, which, according to the Office for National Statistics, was
£24,000 last year. All of which appears to leave a generation of young
people for whom property ownership will always be out of financial reach,
unless they have parents prepared to dip into their pockets. Or does it?
Laura Pye, 26, was convinced she was part of that generation. A manager at
Pineapple Dance Studios in Covent Garden, she was renting in Wandsworth,
southwest London, where a basic one-bedroom flat can cost £250,000. “I moved
there two years ago,” she says. “But, on my salary, I had given up hope of
getting anything in the area.”
Then she came across a scheme run by Assettrust Housing (AHL), a property
investment company specialising in the provision of affordable housing. It
would allow her to buy a part share in a property and rent the rest. She
applied and found that, with a salary of £32,000, she was eligible.
So, in June, she bought a quarter of a new £335,000 two-bedroom flat with
access to communal roof gardens, on a quiet street close to the shops and
the local train station. The remaining 75% is owned by AHL, to which she
pays rent equivalent to 2.75%-3.5% of the value of its share of the flat.
She did not have to pay a deposit, although she did have to come up with
£4,000 to cover stamp duty on her share and other costs.
Under the arrangement, Pye pays about £1,200 a month, including her part of
the service charge. This compares with the £2,250 a month or more that a
mortgage on the whole property would cost. Similar flats in the area rent
for at least £2,000.
Pye will be able to increase her share in her home after a year, buying chunks
of 5% or more – a process known as staircasing – at the prevailing market
price. To help pay the bills, she plans to rent out the spare room, which
will bring in about £600 a month.
Shared ownership was launched by the Conservative government in 1990 for key
workers such as nurses, teachers and firemen, who were finding it
increasingly difficult to buy properties, particularly in London, during the
last property boom in the late 1980s.
The schemes have since been broadened to include professionals on low to
moderate incomes who have been priced out of ownership by the recent boom.
Many are run by registered social landlords (RSLs), as housing associations
are now known. Some are offered through charitable trusts; others, as in
Pye’s case, are through private companies. Even so, they cover only a tiny
fraction of homes – about 143,000 of the 22m households in England and Wales
(0.5% of households in England and 0.7% in Wales) are made up of people
living in shared ownership.
At 5%, Milton Keynes has the highest percentage of shared-ownership properties
in Britain – in part because of the large number of new developments being
built there. Chris Gregg, 32, moved to the city this year, when he got a job
as a programme controller for Horizon, the local commercial radio station.
“I wanted to buy a place, but was worried about the price of property,” he
says.
He came across the Hub, a new development with a shared-ownership scheme. “I
went to see the show flat, but it was beyond my budget,” he recalls. “So I
picked up a brochure and read about shared ownership.” Two-bed flats in the
private blocks start at £300,000. In the affordable sector, however, they
are priced at £220,000 – and Gregg was able to buy a 75% share. “The
location of the Hub is great,” he says, “with bars, restaurants and a
supermarket all within walking distance, as well as parks and lakes. London
is 40 minutes away by train.” Gregg was able to obtain a 90% mortgage. He
has monthly outgoings of about £1,000, including loan repayments, rental for
the nonpurchased share and the service charge. This compares to the £1,400 a
month a mortgage on the full amount would have cost him. In a year’s time,
he will be eligible to buy the remaining 25% share.
Gregg’s flat is one of 117 units in the development that comprise a separate
block, owned by Derwent Living, an RSL. “We marketed the properties in
exactly the same way as the private ones,” says Mark Johnson, manager of the
Milton Keynes office of the estate agency Knight Frank, which operates the
scheme for the RSL. The two categories of block differ, however. “They are
not built to the same specification,” he says. “Some may not have a balcony,
or the aspect might not be as good.”
The advantages of these schemes are obvious to those such as Pye and Gregg,
who have bought into them. But what of the drawbacks? An obvious one is that
anyone buying, say, a 25% share of a property will get only a quarter of any
capital gain – a serious consideration over the past few years, when prices
were racing ahead, but perhaps not such a problem now the market has
flattened out. In any case, even a quarter share of a gain is better than no
share at all.
Such schemes won’t suit investors looking to make a quick buck or people who
may have to move quickly, since it is not possible to sell to just anyone.
Finding a buyer who fits the eligibility criteria is not always
straightforward, and not all mortgage lenders are happy to lend on
shared-ownership schemes. Such obstacles are rapidly disappearing, however,
as the schemes expand.
The whole idea still has something of an image problem, too. “Friends think
I’m buying a council house” is an oft-quoted phrase among those who choose
shared ownership. But many of the homes on offer are brand-new, well
decorated and well located – a far cry from the council houses of yore.
“Without the scheme, I would never have been able to stay in Wandsworth, an
area that I know and love,” Pye says. “In fact, I’d have been lucky to get
on the property ladder at all.”
The Housing Options London Affordable New Homes Show takes place on Friday
from noon to 8pm at the New Connaught Rooms, WC2; www.housingoptions.co.uk
How to get your fair share
How does it work? Developers are obliged to earmark a percentage of
flats and houses in new developments over a certain size as affordable
housing. These include shared-ownership schemes as well as rental units.
Who qualifies? It used to be only key workers, but the schemes have
been expanded. Those run by the government are restricted to households with
an income below a certain threshold, which varies from region to region
(£52,500 for London). You may also be required to be a resident of the
borough. Private schemes vary, but some may have no restrictions.
Can I get a mortgage? Yes. Some 20 lenders offer loans on a
shared-ownership basis, but the terms of the schemes vary, so mortgages are
considered on a case-by-case basis. Visit www.moneyfacts.com.
Are they making money out of me? Yes and no. Property investment
companies such as AHL are looking to make money from rises in property
values; RSLs and charitable trusts, by contrast, are run on a not-for-profit
basis. Rents, at 2%-3.5% of the value of the part of the property you
haven’t acquired, are lower than the market rate (although they increase
each year by the rate of inflation plus 1%).
Can I make any changes or improvements I like to the property? Yes, but
consult your landlord first, as there is a danger you may have to reverse
them when you sell. Since most properties are new-builds, you are unlikely
to want to make substantial changes.
What extras must I pay? Some schemes require a deposit, typically of
about £5,000. (This is in addition to any proportion of the part of the
property you are buying that is not covered by your mortgage.) Buyers will
also need to come up with between £3,000 and £4,000 to cover legal fees and
stamp duty on their share. As with other flats, you will have to pay a
service charge.
How can I increase my stake? With most schemes, you can begin to buy
further slices of the property – up to 100% – once you have been there for a
year. The price you pay will reflect its market value at the time.
What happens when I want to sell? If you have bought in partnership
with an RSL or charitable trust, you will need to go back to them, as they
will have to find a buyer who satisfies their criteria – which could take
time. If your deal is with a private company, you can sell your share
through an estate agent in the usual way.
What's on offer?
At Pall Mall House, a development of 43 flats in Manchester city centre,
one-bed flats start at £15,625 for a 12.5% share.
Assettrust Housing; 0845 013 2450, www.assettrusthousing.com
Available to Lambeth residents, a one-bedroom flat at St George Wharf, in
Vauxhall, south London, costs £225,000. The total monthly outgoing on a 25%
share would be £859.
Notting Hill Home Ownership; 020 8357 4444, www.nottinghillhousing.org.uk
A one-bedroom flat at Park 25, in Redhill, Surrey, costs £172,000. You will
need to purchase a minimum 35% share, and pay 2% rent on the rest.
Thames Valley Housing; 0845 351 2345, www.tvha.co.uk
I have heard about a company called rentb4ubuy which offers 100% ownership with deposit, stamp duty and legal fees paid for you. Find them at www.rentb4ubuy.net
Dan, Nottingham,
Don't be taken in with these schemes - they or their like were all the rage in the early 90s - just before the property market imploded. The best thing prospective FTBs can do at the moment is nothing at all. Prices are dropping, which mean the longer you wait the cheaper the property.
George, East Sussex, UK