Should negative-equity fears stop you from buying a home? Not if you are looking at shared ownership.
If you buy a 25 per cent stake in a home and the market drops, it will be your housing association, which owns the other 75 per cent, that will take the major knock. Better still, if you plan to "staircase up" — increasing your share — falling prices could make you a winner.
As the Council of Mortgage Lenders (CML) points out, negative equity is not always the scary problem it is painted. It is only a difficulty if your mortgage exceeds the value of your home and you are anxious to sell; it is absolutely not an indication of impending repossession.
"What triggers the risk of repossession is missed mortgage payments, not being in negative equity," it says.
'The best time to staircase is when the market goes down'
For shared owners the risk of having an unaffordable mortgage is lower. As Belinda Porich of the London Housing Federation, which represents the capital's housing associations, explains: "It's a particularly secure lending market because shared owners are so carefully vetted for financial liability."
Jim Munson, of housing association Metropolitan Home Ownership, adds: "Repossessions involve only 0.16 per cent of all people with a mortgage. But in the affordable sector the figure falls even lower, to 0.1 per cent." Even in turbulent financial times, the other costs for shared owners are generally quite predictable.
Your rent is capped at three per cent of the unsold equity (but is more usually 2.75 per cent), while annual increases cannot go above the Retail Price Index plus 0.5 per cent. And when you buy you have no stamp-duty worries — shared owners do not pay it until they staircase to 80 per cent ownership.
David Cowans of housing association Places for People confirms: "Negative equity is only a problem if you're going to sell. People get fixed on the view that property is an investment. If it turns out that way, good. But that's an added benefit. The fundamental point is having a place to live that you can afford."
Simon Scott of housing association One Housing Group adds: "When the market drops, people get concerned and stop staircasing. But the best time to staircase is when the market goes down."
Try Before You Buy, a new government scheme, offers another buffer for buyers. It allows you to rent a property for a fixed period before you buy it, with your rent going towards the deposit. Rents typically would be 25 per cent below market rents.
The idea is that people can move in, get to know the property and then buy a share, or, if they cannot get a mortgage at first, wait a couple of years until they can.
This is being piloted by Places for People at its Wolverton Park development, near Milton Keynes in Buckinghamshire. If you rent for a year, paying five per cent of the value of the property, say £550 a month, and then agree to buy, Places for People will put the rent towards your deposit, adding a further five per cent to make it up to 10 per cent. Effectively, buyers will have lived for a year rent-free.
Places for People also offers flexible tenure for shared owners in difficulties, who can sell back part of their share to pay off their mortgage arrears, staircasing back up again if their finances improve.
For London-wide shared-ownership information and for details of October's Housing Options London Affordable New Homes Show, call 0845 230 8099, or visit www.housingoptions.co.uk.
Buy a share
Horizon, in Brockwell Park, south London, offers 20 shared-ownership flats from Genesis Housing. Market values are from £210,000, minimum share is 25 per cent, minimum income £21,796 (0845 600 4663; www.genesishomes.org.uk).
Co-operative House, Peckham Rye by Tower Homes has 68 shared ownership flats from £180,000. Minimum share is 25 per cent; minimum income £18,500. Call 020 8294 5065.
Rent it first
Wolverton Park, near Milton Keynes, from Places for People, includes 20 Try Before You Buy rentable apartments, where the rent goes towards an eventual deposit to buy. Market values are from £150,000. Immediate shared-ownership is also available. Call Knight Frank (01908 306262).