Tens of thousands of Britons who bought their homes through shared ownership arrangements are struggling to sell them, leaving them in limbo as they are unable to move for work or family reasons.
Many more, who bought at the height of the market boom, are now stuck in negative equity – facing making a loss in order to extricate themselves from shared ownership, according to a damning new report from Cambridge University.
Shared ownership was sold as the panacea for first-time buyers in the past decade with people able to buy a fraction of their home through a mortgage with the rest of the property owned by a housing association on which rent would be paid. Over time, the idea was that buyers would "staircase"– increase the percentage of the property they owned – but the fallout from the world financial crisis and the recession has put paid to this, leaving many homeowners trapped.
The report highlights problems including the inability to secure a mortgage, poor demand from buyers, high upfront costs of sales and delays to sales caused by inefficient housing associations.
"Many of the problems that affect the wider housing market are magnified when a property is bought on a shared ownership arrangement," Henry Pryor, a former estate agent and housing expert, says.
And, crucially, it seems the concept of "staircasing" is failing badly. Cambridge University found that out of 145,000 shared ownership properties that have been sold since 2001, only 27,908 have staircased.
The experience of Jenny Lowe, a journalist from Stratford, east London, is typical.
"It was sold to me in 2006 as an easy way to get onto the ladder in an expensive area, but if I had my time again I would rather have moved further out of London and bought 100 per cent rather than endure the hassle and expense of shared ownership," Ms Lowe says.
Despite buying 40 per cent of a property, with a mortgage, near the Olympic site, within two years she was in negative equity.
"When my two-year fixed mortgage on the 40 per cent portion of the property ended I couldn't remortgage because my lender says I was in negative equity. I have not been able to remortgage since," Ms Lowe says.
She was also hit with substantial rent rises and maintenance fees by her housing association.
"They would always get estimates wrong and come back for more money in rent or service charge. This despite costs rising by 5 per cent a year on average. When it comes to staircasing the legal fees are huge."
Ms Lowe has since decided to sell, but this isn't easy.
"My housing association insists on having a 10-week period where it markets the property, but so far I have had one viewing," she says. "I am going to an estate agent but am resigned that I am not going to make any money. Trying to sell a proportion of a property is a real hassle."
Ms Lowe is lucky in that living in Stratford, at the heart of the Olympics venues, she has probably benefited from capital appreciation. However, elsewhere house prices are moribund at best.
"Imagine if you bought a property on shared ownership in somewhere like Hartlepool where prices have fallen 20 per cent in a year. You would certainly now be in negative equity, and add to that these open-ended management charges and increasing rents, shared ownership starts to look like a bad deal," Mr Pryor says.
The Cambridge University report suggests a major overhaul of the current shared ownership arrangements is needed, including the introduction of a deposit big enough to afford owners some protection during a housing market downturn and an increase to the minimum level of shares sold to ensure that new purchasers are in a better position to gradually move to full ownership.
Additionally, it says that housing associations should improve the way they market second-hand, shared ownership properties to allow people to move more easily.
Yet even with some much-needed improvements, there are other pitfalls to consider. For example, you have all the responsibilities of a home owner without the full ownership, so you may have to gain permission if you want to redecorate or make improvements. You are also solely responsible for repairs and maintenance, so if you own 25 per cent of the property, you still pay 100 per cent of these costs. Even as a fully fledged owner, although you no longer have to pay rent, you are still liable for an annual service charge.
Perhaps the biggest problem is that circumstances change all the time. You may want to move in with a partner, expand your family, or relocate for a job, but a fundamental problem with shared ownership is that you cannot rent out your property, temporarily or otherwise.
There are, therefore, only two options available: you can sell your shares to someone else or buy the portion of the property that you don't own. Shared owners who bought before the housing market crash and saw their property slump in value would potentially have to sell at a loss, try to scramble enough money to buy more shares, or simply stay put. This is even more of a concern if first-time buyers are paying an initial new-build premium. And pushing first-time buyers into new build is a key component of current government housing policy through schemes like New Build.
"The experience of those in shared ownership should be a lesson to those looking at New Build and other schemes which try to buck the market through clever engineering," says Trevor Kent, a Hertfordshire-based estate agent and former head of the National Association of Estate Agents. "You are at greater risk of negative equity and having additional regulations thrust upon you. I do wonder if our approach to first-time buyers is like sending lambs to the slaughter."
Additional reporting by Chiara CavaglieriReuse content