Ian answers: It’s an interesting question – and one of the reasons why that might be is that what is meant by shared home ownership varies, particularly between countries. The way I see it is that, typically, a buyer takes out a mortgage in partnership with others – perhaps relatives, a company or a charity. The arrangement might appeal to those on lower and middle incomes, allowing those unable to buy a property on their own to share the costs.
Let’s share my dream
Potential benefits might include the chance to buy with a smaller initial deposit and benefit from future rises in house prices, while living within a major city or reducing commuting time. The latter can be a real advantage for key workers such as teachers, nurses and firefighters, professions that in some places have special access to such a scheme.
Responses to a 2012 YouGov/Lloyds TSB survey indicated that as many as 46% of first-time UK home buyers would consider shared ownership or shared equity schemes. Some 26% said such housing schemes were their only option.
Dreams may not be all they seem
The idea appears to be that shared ownership need not cost much more than renting, and can offer some security against needing to move when a rental agreement ends. But, as always, buyer beware: scrutinise the fine print before committing to anything. There may be hidden costs.
It’s not just about the monthly mortgage payments. Buildings insurance, maintenance, and property taxes should all be considered. The situation can change rapidly with changes to employment or health issues. Renters can downsize with relative ease. Home owners – shared or otherwise – have far less flexibility when circumstances change. Some of these pros and cons of buying are detailed here. Unfortunately, there really are financial risks.
House prices can and do fall rather than rise, potentially leaving the buyer in negative equity, where mortgage debt, the amount required to pay it all off, is more than the value of the house. This situation is more common than many recognise and occurs in many countries, as explained in the book Safe as Houses?
Many people underestimate this risk; 42% of respondents across Europe in our ING International Survey on Homes and Mortgages 2015 agreed with the statement “house prices never fall”. It is possible for shared ownership to magnify these risks. Consider the potential downside, including the cost of problems that may arise before the mortgage is paid off.
Proceed with caution
My concerns are thrown into sharp relief by the way emotions can blur our judgement when buying a house. Even before the final papers are signed, we can imagine ourselves living in the property and how much better our lives might be, endowing the property with qualities that may not really exist. We could end up buying the “best” house we think we can afford – with the largest (shared) mortgage attached. The result may be an over-stretched budget. This can be even more risky than buying something more affordable as a single buyer.
There’s no easy answer. Do get expert legal and financial advice – and remember that renting can be the sensible choice.