A Shelter report has concluded that a robust and organised shared ownership scheme is a key part of solving the nation’s housing crisis
The shared ownership flat in London’s Docklands seemed like salvation for Mark and his partner, who had spent years trying to find a home in striking distance of where they work in the capital. It was pricey, at £437,000, so they could only afford a 25% share, but with the rent set at a reasonable level it was just about affordable.
Yet just a few months later it turned into a nightmare for the first-time buyers, with the service charge hiked up by 73% to an unmanageable £380 a month, or £4,560 a year.
The service charge, plus the mortgage payment and rent, make the property no longer viable for Mark who feels conned by the housing association that sold the flat. At the time of the purchase, the association provided him with an “estimate” of the service charge, even though, he claims, it later admitted it knew this was not an accurate reflection of the costs, and that it would be raised in a matter of weeks.
If the true charge had been disclosed Mark would not have proceeded with the purchase, and in any case would have failed the affordability test.
Mark’s tale is just one among many about this hybrid form of property buying for the desperate. One former head of the National Association of Estate Agents likened shared ownership to “sending lambs to the slaughter”.
The concept of “staircasing”, where a young buyer takes on a 25% share then buys further portions on the way to full ownership, is largely illusory.
A Cambridge University report found that of the estimated 145,000 shared ownership properties already sold in England, only 27,908 have been staircased up to 100% ownership since 2001.
Many shared ownership apartments are overpriced new-builds flogged by housing associations using dubious techniques whereby the buyer is almost guaranteed instant negative equity. So-called “affordable” homes sell for as much as £640,000 (a two-bed in Tower Hamlets, east London) with combined monthly costs adding up to as much as £2,000. To qualify buyers need incomes of up to £80,000 a year.
Legal fees to staircase can be high, service charges are steep and selling up is difficult when you are restricted to just a small pool of potential buyers. Much of the public subsidy that goes into shared ownership ends up in the pockets of developers and landowners, which are able to charge an inflated price.
Yet housing charity Shelter, after a long investigation into the property market focusing on the 1.8 million low-to middle-income “forgotten families” trapped in renting this week concluded that the solution to the UK’s housing problem is … shared ownership.
To be fair to Shelter, its inquiry makes no bones about the current shoddy state of the shared ownership market. It has developed in a piecemeal way, with multiple schemes launched by successive governments, none having a material impact on the market. Shelter’s vision is for a major, mainstream shared ownership market supported by the government to the tune of £12bn in order to provide 600,000 decent homes for priced-out families throughout their lives.
Shelter reckons the minimum share of ownership should be as low as 12%. That effectively turns the purchase into a controlled rent home from a social landlord with a bit chipped in by the “buyer”. But maybe that is no bad thing. The main attraction of shared ownership is that unlike the private rented sector it gives full security to the occupiers, as they can’t be evicted with just a couple of months’ notice.
Shelter acknowledges that shared ownership is not the entire answer – we need to address the chronic undersupply of new homes in other ways as well. The government’s Help to Buy scheme won’t help, either. Shelter estimates that when the second part of the scheme goes live in 2014, three in four families will still be unable to raise enough money to buy an average three-bedroom home in their area.
It is good that Shelter has put shared ownership under the spotlight, as it is a sector that urgently needs reform. But it’s sad that the best we can offer today’s younger generations is a quarter share of what the baby boomers saw as their birthright.
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