Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to MEREN Talk
Speaker 1: to Your Money, the personal finance edition of Merin Talks
Speaker 1: Money and this bonus podcast, we talk about the best
Speaker 1: strategy for making the most of your money. Ameren Sunset
Speaker 1: Web and with me senior reporter and author of the
Speaker 1: Money Distilled newsletter, John Staffact.
Speaker 2: Hi John, Hi Man.
Speaker 3: John.
Speaker 1: As you know, we are continuing on with our housing
Speaker 1: series and we have got another very special expert guest
Speaker 1: on today.
Speaker 3: Today we'll be speaking with Ray Bulger. Ray is the
Speaker 3: senior Mortgage Technical Manager Senior.
Speaker 1: Mortgage Technical Manager that's QUB title at independent mortgage broker
Speaker 1: John Charcoal and is regarded as not just an authority,
Speaker 1: but the authority within the mortgage industry. We've asked Ray
Speaker 1: Endaalba's answer one of our listener questions.
Speaker 3: Thank you so much for being on the show. Ray,
Speaker 3: We appreciate it. So here we go. Here's the question.
Speaker 4: Him Merrily and John. My name is Ulu and I'm
Speaker 4: London based. I'm looking to buy a flat soon and
Speaker 4: was considering shared ownership. I was wondering what are the
Speaker 4: pros and cons of shared ownership and would you consider
Speaker 4: it over traditional mortgages.
Speaker 1: My instinct there, and we'll get along to this, but
Speaker 1: my instinct is don't touch it with a barge pole,
Speaker 1: run for your life, and read somewhere else instead. But
Speaker 1: you may have a more nuanced view, So I'm wondered
Speaker 1: maybe we could start with perhaps you could.
Speaker 3: Just explain to us what is shared ownership? What does
Speaker 3: that mean? Who are you sharing it with?
Speaker 5: Shared ownership basically means that you buy a property which
Speaker 5: will at the moment be a leasehold property, whether it's
Speaker 5: a house or flat, but with the rules that the
Speaker 5: governments bring in shortly, I guess that would become common
Speaker 5: hold in future, and you normally buy it in conjunction
Speaker 5: with a housing association. You would buy between ten and
Speaker 5: seventy five percent of the property, and the housing association
Speaker 5: owns the rest. You would probably need a mortgage between
Speaker 5: buy your share of the property, and it is possible
Speaker 5: to get a mortgage of up to one hundred percent
Speaker 5: of the amount you're boring. The housing association will charge
Speaker 5: and rent on the balance, and normally rent will be
Speaker 5: a subsidized rate, which frankly is the only way the
Speaker 5: multipayments on this full of proposition work. So that's MutS
Speaker 5: and bolts bit.
Speaker 1: So you find a house or a flat, it's normally
Speaker 1: going to be in some kind of housing association estate.
Speaker 1: I would guess it's going to be housing a station
Speaker 1: the tional council approved. You find a house that you
Speaker 1: would like to have, you can't afford to buy the
Speaker 1: whole thing. You look at what you can afford to buy,
Speaker 1: You take out a mortgage for that amount of the
Speaker 1: ten thirty percent whatever it is.
Speaker 3: The housing A Station continues to own the rest.
Speaker 1: You pay pro rata rent for that section. And then
Speaker 1: so you end up being liable for the mortgage on
Speaker 1: your share for the rent on the share that you
Speaker 1: don't own. And then because it's a lease hold, presumably
Speaker 1: there is ground rent and service charges and all that
Speaker 1: kind of thing as well upkeep of cumula areas, and
Speaker 1: so you then pay your pro writ share of that.
Speaker 3: Is that right?
Speaker 5: No, Unfortunately that's not so. One of the downside is
Speaker 5: that even though you may only own as little as
Speaker 5: ten percent of the property, you are responsible for one
Speaker 5: hundred percent of the service charge, one hundred percent of
Speaker 5: the ground rent, one hundred percent of the maintenance such
Speaker 5: as any work you want to do on your property,
Speaker 5: such as you're decorating it. So generally speaking, buying as
Speaker 5: little as ten percent, whilst it's an option, frankly, I
Speaker 5: think in most cases makes little sense.
Speaker 3: Okay, I calling you that, and I just wanted to
Speaker 3: hear you say it.
Speaker 1: So, if you have your shared ownership house and you
Speaker 1: put in a new kitchen which increases the value of
Speaker 1: the house by say ten percent, and you only own
Speaker 1: twenty percent of the house, the other eighty percent of
Speaker 1: the uplift effectively goes to the housing association, and you
Speaker 1: would need to buy it back when you increase your
Speaker 1: share of the ownership.
Speaker 5: Yes, if you did a major refurbishment like putting in
Speaker 5: a new kitchen, then it would usually be possible to
Speaker 5: actually have evaluation pre and post and you would get
Speaker 5: part of the benefit of that. And if you have
Speaker 5: normal decorations, then yes, you're responsible for all of that.
Speaker 1: Okay, So just to be clear, this all sounds insanely expensive,
Speaker 1: and I can see how it might make sense if
Speaker 1: you genuinely believed that over time you were going to
Speaker 1: buy the full one hundred percent, and it was some
Speaker 1: way you genuinely wanted to live for a long time,
Speaker 1: and the estate in which you had chosen to live
Speaker 1: was extremely well managed, and you didn't have long term
Speaker 1: service change problems, and if he didn't have, for example,
Speaker 1: cladding problems. But out with all those things, and of
Speaker 1: course house price continuing to go up, so the thing.
Speaker 3: Is worth something.
Speaker 1: When you try and sell it out With all that,
Speaker 1: it seems insane. Why would you not just rent somewhere?
Speaker 1: I mean, because you're effectively a renter, you're not an owner,
Speaker 1: you have none of the control, you have none of
Speaker 1: the power, and your expenses that seem to me extremely
Speaker 1: a high, particularly as mortgage rates rise.
Speaker 3: What am I missing?
Speaker 5: I don't think you're missing very much at all. The
Speaker 5: one thing perhaps you are missing is that what you
Speaker 5: do have with shared ownership, which you don't have with renting,
Speaker 5: is security of tenure. That's perhaps the main benefit. But
Speaker 5: you're paying an awful lot for that security of tenure.
Speaker 5: So I think what's also worth bearing your mind is
Speaker 5: that what we find is a lot of first time
Speaker 5: buyers is that they do have options they don't realize
Speaker 5: they have. You can, for example, get one hundred percent
Speaker 5: mortgages in certain circumstances. There are other lenders that will
Speaker 5: offer you a mortgage with just the five thousand pounds deposit.
Speaker 5: So for some people, because they think the maximum they
Speaker 5: can borrow is nine ninety five percent, there may be
Speaker 5: another option even without a posit. Likewise, even though in
Speaker 5: many cases the maximum you can borrow is four and
Speaker 5: a half times income, there are other lenders that will
Speaker 5: lend you up to six times income. So if your
Speaker 5: problem is not enough income, that may be avail hand it. Likewise,
Speaker 5: you can get mortgages on what's known as a sore
Speaker 5: propriety aura basis, where a family member helps you with
Speaker 5: the affordability. So before contemplating show ownership, I would recommend
Speaker 5: that anybody who's considering this talks to a good independent
Speaker 5: broker who has an understanding of the whole market and
Speaker 5: looks at all the other options and only looks I've shared,
Speaker 5: I've really known the options work.
Speaker 3: For So I just want to ask you one more question.
Speaker 1: For John is champion the fit to get into shared
Speaker 1: ownerseral questions, but I want to ask you one more
Speaker 1: before I let him loose. So, if you have to
Speaker 1: buy your share from an approved provider of shared ownership housing,
Speaker 1: which is going to be a local counsel or housing
Speaker 1: association etc.
Speaker 3: When it comes to.
Speaker 1: Sell, and is lightly what I'm say, you just have
Speaker 1: no control here when it comes to sell. Presumably you
Speaker 1: can again only sell that share to a buyer who
Speaker 1: is being pre approved by the.
Speaker 3: Council or housing association.
Speaker 1: So you're not particularly free when you'll buy, You're not
Speaker 1: particularly free when you're living there, and you're certainly not
Speaker 1: free to sell to anybody when it comes to selling,
Speaker 1: and that might make it difficult.
Speaker 3: Is that fair I just been two down on this.
Speaker 5: No, that's absolutely right. So you will certainly first have
Speaker 5: to offer the property to the housing association and if
Speaker 5: they can't find a buyer within say six months, sometimes
Speaker 5: you may have an option to sell on there pro market,
Speaker 5: but that clearly is a restraint restriction or potential buyers
Speaker 5: and therefore the price you might get a property. One
Speaker 5: other thing to consider is if you do want to staircase,
Speaker 5: which means buying a further share identically not prove affordability.
Speaker 5: And one thing I would strongly recommend anybody contemplating buying
Speaker 5: any property frankly, but in particular shared owners, is to
Speaker 5: make sure they use an independent solicitor, not a solicitor
Speaker 5: recommended by the housing association, so we know you're getting genuine,
Speaker 5: independent advice rather than perhaps advice from somebody who have
Speaker 5: a conflict of interest.
Speaker 3: Is suggesting that you can't trust your local housing association.
Speaker 5: Ray, Well, we all know some of the problems with
Speaker 5: conflict of interest. Many of the problems with Brown Went
Speaker 5: dubbling every ten years were cause by buyers using solicit
Speaker 5: of recommended by the developer.
Speaker 3: Yeah.
Speaker 1: Ray, is it also the case that more often than not,
Speaker 1: when you enter a shared ownership contract like this, you're
Speaker 1: buying a new house, what's the percentative new versus old?
Speaker 1: Because of course there's another whole area of jeopardy if
Speaker 1: you put your hard down cash into a brand new house.
Speaker 1: Because I don't know what the statistics are at the moment,
Speaker 1: but historically a new house has lost sixteen percent of
Speaker 1: its value the second that broke and puts the nice
Speaker 1: Shanny keys in your hand.
Speaker 3: So that doesn't help.
Speaker 5: No, that's certainly true in them Georgia of cases, you
Speaker 5: would be looking at a new property. And of course
Speaker 5: one of the benefits if one's going to look at
Speaker 5: positive here is if you're buying new property, what's the
Speaker 5: point you make about value is relevant. You will probably
Speaker 5: have relatively low heating costs because one you've propped it
Speaker 5: up to comply with current government regulations.
Speaker 3: That's about the best effort of grasping in the silver
Speaker 3: lining I've ever heard on this podcast.
Speaker 1: Ray, Thank you, No, I was tinking to my original
Speaker 1: analysis here, kids run for the hills, John.
Speaker 2: I mean, I don't have that many more questions, but
Speaker 2: one thing I would ask. The shared ownation has been
Speaker 2: around for actually quite a long time now, and so
Speaker 2: clearly people are using it. So I'm just wanting in
Speaker 2: practical terms, either the volume of horror stories is not
Speaker 2: as high as I think. I certainly felt that it
Speaker 2: would be five years old from when it first became popular,
Speaker 2: So I mean, why do you think that is? Why
Speaker 2: is it still around?
Speaker 5: Anybody who is struggling to find a deposit and affordability
Speaker 5: may find it. The fullibility works a bit better with
Speaker 5: shared ownership. But I think the point that was made
Speaker 5: earlier in terms of perhaps thinking of renting until you
Speaker 5: can afford to buy a property in the ordany way,
Speaker 5: is the key one. If you buy a shared ownership
Speaker 5: property and then at a later stage you're ready to
Speaker 5: buy a property in a normal way, you will no
Speaker 5: longer be a first time buyer, which means you may
Speaker 5: then end up paying more stampfew from land tax, which
Speaker 5: is frankly the main benefit these days in being a
Speaker 5: first time buyer. So I think that is really a
Speaker 5: key point. If you can't afford to buy property in
Speaker 5: the ordiny way, bearing in mind all the legal implications
Speaker 5: and problems even when you want to staircase up when
Speaker 5: you want to sell, that's a strong argument for renting
Speaker 5: rather than shared ownership.
Speaker 2: In my view, it strikes me that one of the
Speaker 2: big big problems is the complexities of the legal seed.
Speaker 2: And obviously a lot of these properties are also new
Speaker 2: and a lot of them are flats and lease orders. Well,
Speaker 2: from your experience, who do mortgage lend does feel about this?
Speaker 2: Is it hard that you get a mortgage and shared
Speaker 2: donership proper? These are the actually relatively relaxed about it.
Speaker 5: Well, there are plenty of lenders who will lend on
Speaker 5: shared ownership of properties. Building societies tend to have the
Speaker 5: line's share of this for the market. So whilst not
Speaker 5: every lender will provide you with the mortgage on the
Speaker 5: shared ownership property, there is plenty of choice, and there
Speaker 5: are a few lenders who will actually give you one
Speaker 5: hundred percent mortgage on the part you're buying, although most
Speaker 5: will limited denied you one ninety five percent. So the
Speaker 5: mortgage is not in itself a problem. However, you will
Speaker 5: probably pay a higher interest rate because you've got restaurants.
Speaker 2: Thank you very much to no. I think that's that's
Speaker 2: all my questions, and I basically have to agree with
Speaker 2: both of you. It sounds like very much a last
Speaker 2: resort chained of option.
Speaker 1: Yeah, I mean all I would say that I'm amazed
Speaker 1: that Ray has managed to find a negative to shared
Speaker 1: ownership that I hadn't even thought of, which was not
Speaker 1: being a first time buyer anymore and losing your stamp
Speaker 1: duty advantage. So the unusual, we have someone on who
Speaker 1: can find a negative about something that John and I
Speaker 1: hadn't thought of given away that are minds except we
Speaker 1: hugely appreciate that too.
Speaker 3: Great.
Speaker 1: Thank you very much, indeed, and John, as usual, thank
Speaker 1: you and thanks for listening to this week's Maren Talk
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