Miércoles 24 de Octubre de 2007, Ip nº 213

A problem shared is a problem solved
Por Alison Thomson

Given the extraordinary rise in property prices over the past decade, many would-be first-time buyers could be forgiven for losing all hope of climbing the housing ladder.

They might also conclude that, after the recent turmoil in financial markets, their chances of obtaining the loan they need to reach even the lowest rung are being whittled away faster than you can say Northern Rock.

With the markets still decidedly choppy, lenders have become increasingly wary in recent weeks about who they lend to and how much they are prepared to advance. The situation is especially acute in London, where, according to the Land Registry, average house prices in July stood at £349,838. Across the country as a whole, the figure is £182,914 – more than seven times the average income, which, according to the Office for National Statistics, was £24,000 last year. All of which appears to leave a generation of young people for whom property ownership will always be out of financial reach, unless they have parents prepared to dip into their pockets. Or does it?

Laura Pye, 26, was convinced she was part of that generation. A manager at Pineapple Dance Studios in Covent Garden, she was renting in Wandsworth, southwest London, where a basic one-bedroom flat can cost £250,000. “I moved there two years ago,” she says. “But, on my salary, I had given up hope of getting anything in the area.”

Then she came across a scheme run by Assettrust Housing (AHL), a property investment company specialising in the provision of affordable housing. It would allow her to buy a part share in a property and rent the rest. She applied and found that, with a salary of £32,000, she was eligible.

So, in June, she bought a quarter of a new £335,000 two-bedroom flat with access to communal roof gardens, on a quiet street close to the shops and the local train station. The remaining 75% is owned by AHL, to which she pays rent equivalent to 2.75%-3.5% of the value of its share of the flat. She did not have to pay a deposit, although she did have to come up with £4,000 to cover stamp duty on her share and other costs.

Under the arrangement, Pye pays about £1,200 a month, including her part of the service charge. This compares with the £2,250 a month or more that a mortgage on the whole property would cost. Similar flats in the area rent for at least £2,000.

Pye will be able to increase her share in her home after a year, buying chunks of 5% or more – a process known as staircasing – at the prevailing market price. To help pay the bills, she plans to rent out the spare room, which will bring in about £600 a month.

Shared ownership was launched by the Conservative government in 1990 for key workers such as nurses, teachers and firemen, who were finding it increasingly difficult to buy properties, particularly in London, during the last property boom in the late 1980s.

The schemes have since been broadened to include professionals on low to moderate incomes who have been priced out of ownership by the recent boom. Many are run by registered social landlords (RSLs), as housing associations are now known. Some are offered through charitable trusts; others, as in Pye’s case, are through private companies. Even so, they cover only a tiny fraction of homes – about 143,000 of the 22m households in England and Wales (0.5% of households in England and 0.7% in Wales) are made up of people living in shared ownership.

At 5%, Milton Keynes has the highest percentage of shared-ownership properties in Britain – in part because of the large number of new developments being built there. Chris Gregg, 32, moved to the city this year, when he got a job as a programme controller for Horizon, the local commercial radio station. “I wanted to buy a place, but was worried about the price of property,” he says.

He came across the Hub, a new development with a shared-ownership scheme. “I went to see the show flat, but it was beyond my budget,” he recalls. “So I picked up a brochure and read about shared ownership.” Two-bed flats in the private blocks start at £300,000. In the affordable sector, however, they are priced at £220,000 – and Gregg was able to buy a 75% share. “The location of the Hub is great,” he says, “with bars, restaurants and a supermarket all within walking distance, as well as parks and lakes. London is 40 minutes away by train.” Gregg was able to obtain a 90% mortgage. He has monthly outgoings of about £1,000, including loan repayments, rental for the nonpurchased share and the service charge. This compares to the £1,400 a month a mortgage on the full amount would have cost him. In a year’s time, he will be eligible to buy the remaining 25% share.

Gregg’s flat is one of 117 units in the development that comprise a separate block, owned by Derwent Living, an RSL. “We marketed the properties in exactly the same way as the private ones,” says Mark Johnson, manager of the Milton Keynes office of the estate agency Knight Frank, which operates the scheme for the RSL. The two categories of block differ, however. “They are not built to the same specification,” he says. “Some may not have a balcony, or the aspect might not be as good.”

The advantages of these schemes are obvious to those such as Pye and Gregg, who have bought into them. But what of the drawbacks? An obvious one is that anyone buying, say, a 25% share of a property will get only a quarter of any capital gain – a serious consideration over the past few years, when prices were racing ahead, but perhaps not such a problem now the market has flattened out. In any case, even a quarter share of a gain is better than no share at all.

Such schemes won’t suit investors looking to make a quick buck or people who may have to move quickly, since it is not possible to sell to just anyone. Finding a buyer who fits the eligibility criteria is not always straightforward, and not all mortgage lenders are happy to lend on shared-ownership schemes. Such obstacles are rapidly disappearing, however, as the schemes expand.

The whole idea still has something of an image problem, too. “Friends think I’m buying a council house” is an oft-quoted phrase among those who choose shared ownership. But many of the homes on offer are brand-new, well decorated and well located – a far cry from the council houses of yore.

“Without the scheme, I would never have been able to stay in Wandsworth, an area that I know and love,” Pye says. “In fact, I’d have been lucky to get on the property ladder at all.”

How to get your fair share

How does it work? Developers are obliged to earmark a percentage of flats and houses in new developments over a certain size as affordable housing. These include shared-ownership schemes as well as rental units.

Who qualifies? It used to be only key workers, but the schemes have been expanded. Those run by the government are restricted to households with an income below a certain threshold, which varies from region to region (£52,500 for London). You may also be required to be a resident of the borough. Private schemes vary, but some may have no restrictions.

Can I get a mortgage? Yes. Some 20 lenders offer loans on a shared-ownership basis, but the terms of the schemes vary, so mortgages are considered on a case-by-case basis. Visit www.moneyfacts.com.

Are they making money out of me? Yes and no. Property investment companies such as AHL are looking to make money from rises in property values; RSLs and charitable trusts, by contrast, are run on a not-for-profit basis. Rents, at 2%-3.5% of the value of the part of the property you haven’t acquired, are lower than the market rate (although they increase each year by the rate of inflation plus 1%).

Can I make any changes or improvements I like to the property? Yes, but consult your landlord first, as there is a danger you may have to reverse them when you sell. Since most properties are new-builds, you are unlikely to want to make substantial changes.

What extras must I pay? Some schemes require a deposit, typically of about £5,000. (This is in addition to any proportion of the part of the property you are buying that is not covered by your mortgage.) Buyers will also need to come up with between £3,000 and £4,000 to cover legal fees and stamp duty on their share. As with other flats, you will have to pay a service charge.

How can I increase my stake? With most schemes, you can begin to buy further slices of the property – up to 100% – once you have been there for a year. The price you pay will reflect its market value at the time.

What happens when I want to sell? If you have bought in partnership with an RSL or charitable trust, you will need to go back to them, as they will have to find a buyer who satisfies their criteria – which could take time. If your deal is with a private company, you can sell your share through an estate agent in the usual way.

What's on offer?

At Pall Mall House, a development of 43 flats in Manchester city centre, one-bed flats start at £15,625 for a 12.5% share.

  07/10/2007. Times Online.