Shared ownership properties, once thought of as a feasible route to house ownership-especially for young persons trying to get onto the property ladder in the face of rising house prices-are becoming unsellable, with their owners being trapped in a frustrating financial bind. The article looks at the root causes of such problems, the frailties of shared ownership, and why young people still resort to this scheme notwithstanding the risks involved.
The Appeal of Shared Ownership
Shared ownership schemes are part-buy, part-rent arrangements where buyers purchase a share of a property (usually between 10% to 75%) and pay rent on the remaining portion. The idea is that owners can gradually “staircase” their way to full ownership by purchasing additional shares over time. With the minimum share reduced from 25% to 10%, shared ownership is more accessible than traditional homeownership models, particularly in high-cost areas like London and the South of England.
For young people, especially first-time buyers, shared ownership often represents the only feasible option to enter the housing market. The scheme allows buyers to secure a mortgage on a smaller amount, reducing upfront costs. This is particularly appealing when outright ownership seems out of reach due to high property prices (House of Commons Library); (CBRE).
The Problems Facing Shared Ownership
However, beneath this seemingly accessible solution lies a multitude of problems that are increasingly leading to shared ownership properties becoming unsellable.
1. The Rent Trap
While shared owners are buying a part of their property, they are required to pay rent on the remaining share that gets owned by a housing association or developer. Rent on such properties grows over time, often linked to inflation, such as Retail Price Index + 0.5%. This means if the rate of inflation goes higher, then the rent payments may become unsustainably high.
Unlike private renters, shared owners have no negotiation rights to discuss any type of rent reduction, which puts them in a position where they have to pay more money each and every year on a property they only own a fraction of. This burden, coupled with mortgage payments, can make the financial strain unbearable. Hence, most shared ownership properties are not feasible for new buyers anymore.
2. Unsellable Homes
One of the most significant issues with shared ownership properties is their unsellability. Several factors contribute to this:
- Nominations Period: When a shared ownership property goes up for sale, the housing association has a “nominations period” where they are given the exclusive right to market the home, usually for four weeks. This can significantly limit the potential buyer pool, especially if the housing association fails to find a suitable buyer (House of Commons Library).
- Short Leases: Shared ownership homes are leasehold properties, and many older homes have short leases that make them less attractive to buyers. While newer homes may come with 990-year leases, older properties still suffer from shorter leases, making them harder to sell.
- Repairs and Maintenance Costs: Shared ownership agreements often leave buyers responsible for 100% of the repair and maintenance costs, even if they only own a small portion of the property. This can deter potential buyers, especially when homes require significant maintenance.
3. The Staircasing Dilemma
One of the strong points emphasized in shared ownership is the ability to “staircase,” or buy more shares in the property. In practice, this is often financially difficult because, while wages may increase incrementally, house prices go up much faster. As the value of the property increases, so does the cost of additional shares, making further buy-ups prohibitively expensive. Even with 1% increments in staircasing, owners find themselves unable to make the leap toward full ownership from partial ownership.
This leaves the owners with a meagre share in a property they would not be able to fully own, while they are still liable for increased rent payments and maintenance costs. This has further brought about more properties that are difficult to sell, given that potential buyers are wary of taking on financial burdens.
Why Young Buyers Are Drawn to Shared Ownership
Despite the growing concerns, young people continue to gravitate toward shared ownership. This is largely due to the lack of affordable alternatives. The average house price in the UK has soared by 40% in the last five years, while wages have only risen by 11.6%. For many, shared ownership offers the only way to secure a home without a massive deposit.
Additionally, the cessation of government schemes like Help to Buy has left a gap in the market. With fewer options available, shared ownership seems like the only feasible route for young buyers, especially in areas with high housing demand like London or other major cities.
The Limitations of Shared Ownership
Shared ownership properties come with a range of limitations that make them less attractive compared to traditional homeownership. Here are some of the key drawbacks:
- Leasehold Issues: As shared ownership properties are always leasehold, buyers do not fully own the land or building. This comes with additional costs, such as ground rent and service charges, which can be significant.
- Limited Control: Shared owners often have limited control over their property. Many lease agreements restrict how the property can be modified, and selling the property can be a complex process (HomeOwners Alliance).
- Difficulty in Reselling: The combination of rising rent, high maintenance costs, and leasehold restrictions makes shared ownership properties difficult to resell. Even if an owner wants to move, they may find themselves trapped in a home they can’t sell (HomeOwners Alliance).
Final Thoughts
Shared ownership may have given young buyers and buyers with financial constraints a glimmer of hope, but it is plagued by a number of perils, some of which can leave buyers stuck with unsellable homes. Unsellable shared ownership properties are on the rise as a result of increased rents, shortening leases, and staircasing financial difficulties. While this is by necessity, as more and more young buyers invest in the scheme, it will surely force a reform that will finally resolve its issues and make shared ownership a viable solution to homeownership in the UK.
