Is shared ownership affordable
Has shared ownership lost its way? What was once hailed a potential solution to London’s housing shortage, helping key workers buy a stake in a new home, is now seen by many as a subsidy allowing high-salaried professionals to get a foothold in the capital’s overpriced housing market.
Even lower-paid people who do succeed in buying a share of a new home can find themselves crippled by service charges and the high cost of the “rented” portion of their property.
The four biggest housing associations are set to build 9,000 new shared-ownership homes in London in the next two years: welcome news for young professionals on a decent salary who struggle to save the eye-watering deposit needed to buy a property outright with a mortgage.
But shared ownership was not originally intended for young professionals. First designed for key workers — who could buy as little as a 25 per cent stake in a property, put down a small deposit and pay part-mortgage and reduced rent — it is now under scrutiny from the London Assembly housing committee for often being “ridiculously” costly.
Housing association chief executives Helen Evans of Network Homes, David Montague of L&Q, Geeta Nanda of Metropolitan and Rod Cahill of Catalyst were asked to appear before the committee this month to justify their focus on shared-ownership homes over other types of affordable housing.
The chair, Sian Berry, said: “There are a lot of questions being raised about shared ownership as something that potentially for the long term is not going to work out for a lot of people.”
Her deputy Tom Copley agreed: “I look at shared-ownership properties just to see what is going on, and the further you go into central London the more you find some ridiculous values. Even if you are purchasing just 25 per cent you need to find quite an extraordinary amount of money.”
In defence, Catalyst boss Cahill said selling shared-ownership homes was one way of funding the development of social housing which now costs £300,000 per unit due to high land prices.
“If we can’t sell homes we have to reduce the numbers of homes we build,” added Helen Evans of Network Homes.
Property expert Kate Faulkner says: “Though originally conceived to keep key workers living in London, as land prices continued to shoot up there was a realisation that shared ownership was needed to help accountants and IT workers buy a property and those professionals who cannot get their deposit from the Bank of Mum and Dad.”
HOW MUCH SHARED-OWNERSHIP HOMES COST ACROSS LONDON
But these rising prices have pushed low earners and key workers, who can no longer afford the new shared-ownership schemes, off the ladder, she explains. Homes & Property has uncovered swathes of schemes across inner London where the qualifying household income needed is higher than the average household income of the borough, making it a stretch to classify such homes as “affordable”.
A nurse, for example, earns on average £25,000 in London. Yet to qualify to buy a 25 per cent stake of a one-bedroom flat in the new Metropolitan development in Brentford, Hounslow, the purchaser buying on their own needs to be earning £41,000. This is higher than the average household income in the borough of £31,764.
Slapped on the front of the Notting Hill Genesis website is the slogan “providing homes for lower-income households”. However, to snap up a quarter of a one-bedroom home in the New Garden Quarter in Stratford, the household income must be £58,108 per year. Far higher than the borough average of £29,002.
The same group — a collaboration of two housing associations — is also building Liberty at Crossharbour in Tower Hamlets. The qualifying household income for a one-bedroom flat is £55,492. The borough average is £37,603.
MORE EXPENSIVE THAN RENTING?
The subsidised rent, set by the Housing Associations and paid on a shared-ownership property, goes up in line with inflation and therefore between 2008 and 2013 rose by 21 per cent. However, private rents, naturally capped by wage growth, crept up seven per cent over the same period.
“We should be spending 30 per cent of our salary on housing costs,” says Kate Faulkner, “which outside London, parts of the South-East and cities such as Edinburgh, is happening.” But a lone buyer will fork out £1,088.36 every month, including mortgage, rent and service charge but not counting other bills, for a new one-bedroom shared-ownership flat that has just come on the market in Barking.
The resident needs to earn £33,000 to qualify for the scheme, meaning their take-home pay is £2,151.75 per month and half of their monthly income is going on housing costs.
Paula Higgins, chief executive of the advice organisation HomeOwners Alliance, warns: “Just because this is a government-backed scheme doesn’t mean you get any more protection. Costs can spiral. Check you can afford increased maintenance charges. While rents start low, expect these to increase, too.”
Teaching assistant Barbara Richardson (not her real name) is a long-term shared-ownership resident in Mile End. “I own 25 per cent but as house prices have gone up so fast I can’t buy more of my property, which I had intended to do,” she says. “I pay 100 per cent of the service charge despite the fact I only own a quarter of the property. People from across the area fly-tip at one end of our road and the council has to come and take the rubbish away. I also get billed for that.”
A KEY WORKER CRISIS
Shared ownership, along with the shared-equity Help to Buy scheme, propped up the first-time buyer market during the property market slowdown in the capital. However, in inner London it is no longer appropriately priced for key workers and modestly earning employees.
This is a result of the Government’s austerity measures which capped key worker wages for a decade while land and property prices soared, Kate Faulkner claims. “If land and property costs more than a nurse’s wage, then that is a crisis. If the minimum wage does not cover rents, that’s a crisis.
“If we have not matched earnings to the cost of properties that we need to build, then that’s a crisis. And if we don’t keep key workers in central London, then the communities that they work in will fail,” she says.
IT WAS JUST WHAT I NEEDED
Low-deposit option suits nurse
Shared ownership tends to be cheaper on the peripheries of the capital, in areas such as Barking and Dagenham in east London. Nurse Leanne Milne has bought a 40 per cent stake in a £240,000 property in Weavers Quarter in Barking, by L&Q. In total she pays £1,010 per month including the £175 service charge.
“One of my colleagues had bought a home through shared ownership and was recommending it to all of us who work at the hospital,” says Leanne, 36. “After doing some more research, I realised that it was exactly what I needed — a low-deposit option with mortgage payments that I could afford as a single occupant.
“Once I had decided the time was right to buy a home, I moved back in with my mum and sister for a year to focus on finding the right home, and to save money for a deposit. Six thousand pounds felt achievable.”
Shared ownership can also work for couples or people buying in pairs, as the qualifying income is per household, rather than per individual.
VIBRANT ELEPHANT & CASTLE
Mother-and-son shared owners
In order to get on the ladder through shared ownership, Kit Cowlam has bought with his mum, Sacha, in a Peabody scheme in Elephant & Castle.
Prior to purchasing their new home the Cowlams, both in TV production, were living in a house in suburban Dulwich with a 170ft garden. However, having been involved in a prolonged legal battle that devastated Sacha’s finances, they were almost forced to move out of London.
“Before we were paying to commute in [from Dulwich], but now we walk or cycle to work,” says Sacha. “The area itself is so vibrant and up-and-coming, totally different from where we used to live.
“Although I was aware of the regeneration in Elephant & Castle from living in south London, I didn’t realise its full extent until after we moved in. There are markets and restaurants just moments away from us.”
The mother-son duo purchased a 25 per cent share of their two-bedroom apartment, at the Castilla development, for £133,000, based on a full market value of £620,000.
A limited number of shared-ownership units at Castilla remain.