The property ladder is becoming a misnomer for many. For those who are in shared ownership, the next steps are often too steep to ascend. But pressure remains to get a foot on that first rung.
As private-sector renting is expensive, and borrowing rates are low, why not start paying off a mortgage instead of paying into a landlord's pension?
For some first-time buyers, shared ownership is the only way to start, but the schemes have had a bad press, with cases of landlords – usually housing associations (HAs) – demanding high maintenance charges and delivering poor customer care. The schemes have been blamed for diverting attention from the lack of affordable housing; for inflating prices at the bottom end; and for allowing developers to get planning permission simply by offering up a small number of properties to HAs. And moving up is restricted, not only by the high costs involved, but also by the low level of stock available.
Traditionally, shared ownership involved owning up to 40 to 50 per cent of a property from the outset – the original scheme, which surfaced nearly 20 years ago, was nicknamed "50-50" – but since the property price boom and the credit crunch, lenders now demand a 10 per cent deposit and 25 per cent shares are the usual starting point. Part-owners then have the chance to increase their share by "staircasing", often in chunks of 10 per cent. Each increment involves a new valuation of the property, which the part-owner has to pay for, as well as legal fees and mortgage arrangement fees. Along with mortgage payments, part-owners pay a subsidised rent on the share still owned by the HA. This is usually capped at 3 per cent of the value of the share retained by the HA.
Shared ownership gives people a chance of investing in a property instead of paying rent. "It's always good to start paying off your own mortgage," says Helen Adams, from the website First Rung Now. "And shared ownership also gives you a buying history, so if at a later date you go for a bigger mortgage you've proved that you can take on the responsibility."
But starting at 25 per cent ownership means there's a huge chunk left to find if you want to own outright, leaving many sharing indefinitely. The Joseph Rowntree Foundation (JRF) has found that fewer than half of all part-owners ever reach 100 per cent ownership. "Shared ownership is seen as a transitional stage on the way to full home-ownership, but for many people it's become permanent. So being able to move within the sector is vital, to meet changing needs or aspirations, to change jobs and, importantly, to provide opportunities – by freeing up smaller properties – for new households to get a foot on the housing ladder," says Alison Wallace of JRF.
The problem that these homeowners face is that not all HAs are providing opportunities for mobility. Instead, if they haven't managed to reach 100 per cent, they sell up, move into the private sector, or even move back into rented accommodation. As circumstances change, these households should have the same opportunities to trade up, downsize, or relocate as owners in the private sector. The problems are both the limited variety of stock, and finding it.
"There's currently very little provision for that," says Stephen Dwelley, who runs a shared ownership mortgage website, Share to Buy. "People are coming to us asking how to find a property in Luton, for example, when they currently own in London. These homeowners should have the same sort of access as full owners, when they want or need to move. But it's not out there."
Family Mosaic Housing Association, which operates across London and Essex, is engaging in more shared-ownership developments in which the majority of buyers won't be first-timers, and is also launching a sales website for current owners to find a new property. Part-owners can upscale to larger properties through the system if they can afford the jump, owning a similar share, or even reducing their share if they own more than 25 per cent.
If it's a relocation, Family Mosaic will co-ordinate with the new region's HA so that the buying and selling happens in tandem.
"In this instance, there's not a lot of difference in the buying and selling process compared with the private sector", says Chris Roads, from Family Mosaic. "Only that we still retain a share in the property and we have to manage the allocation obligation to ensure that the new [first-time] buyer is eligible to move into the property being sold." However, this only makes more sense than staircasing on their first property, if household size demands the space. The "agent" fee charged by Family Mosaic to sell a property is a hefty £2,000, whether the share is 25 per cent or 75 per cent. That means when selling a minimum share of a £200,000 flat, for instance, the seller is paying, in effect, "estate agent" fees at 4 per cent.
HAs are becoming aware that larger properties are needed for part-owners to upscale, and there is currently a shortage.
"There's no escaping the fact that the majority of properties available are apartments", says Kush Rawal, from Thames Valley HA. "That's because shared ownership is primarily for giving people access to the housing market. It's then assumed that part-owners will staircase up, or move on".
With average houses now costing over five times the average income, buying a home in the conventional way is beyond the reach of many, despite the two-year stamp duty holiday on property below £250,000 announced in last week's Budget.
The Government is heavily promoting shared ownership and uptake seems to be strong. But it's causing congestion. Wider access to family homes is needed for part-owners to climb the next rung.
Home alone: A choice of one house
Rebecca Adams and her partner, Ben Wright, investigated shared ownership after accidentally stumbling across a resale property in Tiverton, Devon.
"A three-bedroom house came up in a search of our price range and I discovered the price of £82,500 was actually a 50 per cent share. I realised this was a way we could afford something which we could live in long-term. If we'd bought a one-bed flat we'd have to sell up when we start a family."
After deciding to go down the shared-ownership route, the couple found that their choices were limited. "The only other properties available were smaller new-build apartments in developments with extra expenses like service charges and ground rent. This was the only house on the market at the time we were looking. The only other thing which has caused us a problem has been the housing association which owns the other half – the unexpected charges which I don't understand. It's a shame because the scheme's designed for people with not much money. They also took a long time, although after talking to friends who've bought outright, our purchase has perhaps been quicker!"