Future home dreams shattered in the traps of shared-ownership
Rising rents and negative equity prevent families from selling up and moving on, reports Laura Shannon
Sunday 01 April 2012
First-time buyers desperate to become homeowners have complained of being locked into part-buy part-rent schemes with little hope of selling on.
Shared ownership deals allow vendors to buy a share of a new-build property with a smaller mortgage and therefore smaller deposit, while paying rent on the share they don't own.
The scheme's popularity has boomed in recent years as high house prices, strict mortgage lending and the need for chunky deposits make it difficult for young first timers to buy a home outright.
But, after using the scheme as a compromise between renting and ownership, some shared-owners are regretting the decision.
Negative equity, in which the money owed on the mortgage is more than the value of the property, has affected many owners who bought properties before the market took a nosedive in 2007.
This hasn't just affected shared ownership, but typically had an impact on new-build properties. Shared-owners have also been left reeling from rising rents, mounting costs for repairs or maintenance to communal areas and inflexible contract terms in their agreements with housing associations, which run the schemes.
Matt Griffith, a spokesman for the PricedOut campaign, which represents first-time buyers trying to purchase property, says there is concern over shared ownership's performance. "There are serious questions about whether shared-ownership buyers are exposing themselves to exploitation under ambiguous terms and conditions and unclear financial charges.
"The feedback we are receiving is that these buyers often feel they are over a financial barrel with little effective way of redressing this imbalance."
Buyers opting for shared ownership have tried to escape sky-high rents in the private sector and instead carve a route to full home ownership. But in the first few years after buying an affordable home, only a quarter or so of owners subsequently go on to buy more shares in the property, known as "staircasing".
The majority who don't "staircase" may be hindered by negative equity or inflation-linked rent rises. Both make saving enough to buy more shares that bit harder. Rent is initially capped at 3 per cent of the share owned by the housing association, but annual rises thereafter are linked to the higher retail prices index (RPI)measure of inflation. Adding to the part-owners' woes are escalating service charges, a costly burden for those whose home is a flat.
It's hard for shared-owners to find an answer to their quandary. For example, growing families who need more space, but who can't sell might not be allowed to rent out the property as an alternative solution. This measure is designed to prevent affordable properties from being snapped up by landlords, instead of people who need their own home.
But there may be other unfavourable restrictions buried in contracts.
Tom, who didn't want to disclose his surname, says his parents have been plagued with problems when trying to sell their shared-ownership flat in Scotland. The couple, in their seventies, need to move because Tom's mother can no longer use the stairs.
He says: "With no extra capital it proved impossible for them to sell, so they decided to sell back to the housing association and pay 100 per cent rent on the same place as tenants. As tenants they could then apply to be allocated something downstairs on health grounds."
Before selling back to the association they had to pay thousands of pounds to "upgrade" the property, as tenancy regulations had changed since they bought the flat eight years ago.
Quotes for work from the housing association's approved suppliers were too expensive. When the couple used independent, yet fully registered companies, they were obliged to pay inspection fees once it was completed.
Legal experts warn that adverse terms in shared-ownership agreements are often only exposed when it's too late. Attention to small print is sacrificed at the start because buyers want to get moving and the agreements take too long to digest.
David Knapp, the head of residential property for Hart Brown solicitors, said: "The devil is in the detail and often the problems experienced are a result of inadequate understanding of papers. Too many buyers feel they do not have the right or are embarrassed about raising questions."
Mr Knapp argues that tenants should also receive better help when trying to establish what they have to pay and what rates they can challenge once they're living in the property.
"Problems arise when landlords use pet suppliers for services, with owners unsure of their legal rights in challenging the costs," adds Mr Knapp.
Yvette Ruggins of Affinity Sutton Housing Association and the chairwoman of the National Housing Federation's Home Ownership advisory panel, disagrees. She says: "Housing associations are rigorous about getting value for money and have to consult with shared owners if expenditure exceeds a certain amount."
Location is another factor affecting shared owners wanting to move. In London, there is higher demand for affordable homes because property prices are much steeper than elsewhere. But people in more remote areas could struggle to sell. According to the latest report by the Tenant Services Authority, 3,285 affordable homes remained unsold from October to December last year. This is compared with just over 2,000 homes sold. About 1,200 homes have remained unsold for more than six months.
However, Ms Ruggins says that selling an affordable home is no more of a problem for shared owners than it is for regular homeowners.
"No property scheme is perfect, but shared ownership has been going for years and is immensely flexible in helping people onto the property ladder," she said. "the criticism about it being difficult to sell is a myth."
Anyone unhappy with their housing association can contact the Housing Ombudsman (housing-ombudsman.org.uk or call 0300 1113000).
Case study: Glen Curry, Birmingham
Mr Curry, 28, wants to sell his Birmingham-based city apartment but is trapped in his shared ownership deal.
He bought a 50 per cent share at the height of the market in 2007, but the collapse in property prices effectively meant around £30,000 was wiped from the value of his flat, leaving him in negative equity.
"I'm at a dead end. I can't sell because I'm in negative equity, I can't rent it out as the rules don't allow it and I can't transfer my negative equity to another mortgage as it's above the lender's limits.
"I have no option but to stay where I am."
To top off this threefold lock-in, Mr Curry, who works for a national charity, has to go through the housing association's list of RICS valuers to find out his property value – an extra expense he can't afford.
"It's money I haven't got just to find out I may not be able to do anything," he adds. "It is frustrating that I thought I was doing the right thing at the time, getting on the property ladder. Now I'm stuck."
Ruth Cooke, a finance director for Midland Heart, said sub-letting is only occasionally an option for short periods.
"Negative equity is an unfortunate position for anyone to be in and is entirely due to the difficult housing conditions in the economy at present," she added.
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