Shared ownership in London: how do the finances stack up and how easy is it to staircase?

Expert advice on how to get the best from London shared ownership.
1/9
Ruth Bloomfield19 September 2019

From finding the perfect home to getting the keys and moving in takes about six months in London. Vuyo Magwaza chose the shared-ownership route, so outright ownership took longer, but the system worked for her.

In 2012 Vuyo bought a 50 per cent share in a two-bedroom maisonette, putting down a five per cent deposit and paying a total of £87,500.

Over the next five years she upped her stake in the property — a process known as staircasing — buying another 35 per cent in 2016 and then the final 15 per cent in 2017. “Shared ownership has changed my life,” she says.

Vuyo’s mortgage cost £930 a month and she rented out the spare bedroom of her home in Woking to help cover the costs. But the 48-year-old social worker’s longer-term ambition is life-changing.

From £120,750: 35 per cent of a one-bedroom flat at The Refinery, E16 (shosales.co.uk)

With a home of her own she intends to adopt a child. “I’ve never been happier,” she says. “I have my own home, more space, and I’m well on the way to building the life I have always wanted.”

Vuyo found staircasing simple. She was walked through the process by her housing association So Resi (soresi.co.uk), although she did face costs including mortgage fees, lawyers’ fees, and stamp duty for each leg of her purchase.

This is an issue the Government will need to resolve if its current proposals to reshuffle shared ownership are to help more buyers.

How to staircase in shared ownership

At present only a small number of shared owners are able to staircase. Housing association L&Q reports that about five per cent of its shared owners increase their stake in their home every year.

Housing Secretary Robert Jenrick recently announced plans to let owners buy smaller chunks of their homes than currently allowed.

At present shares must be increased in blocks of at least 10 per cent. The Government believes allowing owners to up their share as little as one per cent at a time will encourage more people to do so.

However, the HomeOwners Alliance estimates that buying an additional tranche of equity costs about £2,000 and warns that unless these costs can be reduced, the proposal will be unviable.

Selling a shared ownership property

The other shared-ownership exit strategy is to sell up. There are currently 541 shared-ownership flats on sale on Rightmove, of which 298 are resale properties.

Once a home is sold, any profit is split proportionally between the housing association and shared owner. If, for example, an owner bought a 50 per cent share in a flat worth £300,000, their minimum buying deposit would be £15,000, or five per cent.

From £106,250: 25 per cent of a one-bedroom flat at Acton Gardens in W3. Through L&Q (lqpricedin.co.uk; 0300 456 9997)

If, after three years of price rises of a modest five to six per cent per year, they were able to sell the property for £350,000, the profit would be £50,000.

They would get half of this money, representing their half share in the property, plus a return of their deposit. They would have also paid off a small proportion of their mortgage.

This would leave them with just over £40,000 cash, less than half the deposit put down by an average first-time buyer.

Upsizing from shared ownership

Although over three years they have grown their nest egg considerably, unless their circumstances have changed dramatically they will find themselves firmly back at square one.

Martin Fillery, managing director of estate agents Complete Moves, is an expert on the shared-ownership sector. “How much equity they take out depends on how much of the property they own, where it is and how long they have been there,” he says. “But it can be tricky.”

£93,750: 25 per cent of a one-bedroom flat at Churchfield Quarter, W3 (lqpricedin.co.uk)

And there lies the sting in the tail of shared ownership — its exit strategy.

Upsizing from a starter home is tough for all would-be second steppers. For shared owners, who only get a share of any profits, it is harder still. And with London prices flat-lining they could easily walk away with almost nothing beyond their original deposit.

Shared ownership: next steps

Research on the fate of shared owners once they have moved on is limited. But a survey by Alison Wallace of the University of York found about half of shared owners were able to move on to full home ownership. The rest went back into renting or bought another shared-ownership property.

A third of the shared owners Wallace interviewed said they wanted to move but could not afford to. “Some shared owners are able to move on due to improvements in their financial position, but many remain unable to afford a mortgage on a whole property,” says Wallace.

“For many, shared ownership has become a permanent housing solution. It cannot be regarded as just a stepping stone to full home ownership since it seems only half of those moving home in the sector move on to full ownership.”

Wallace believes the solution is to make it easier for shared owners to move from one shared property to another. However, this process needs to be made much more flexible.

From £99,750: 35 per cent of a one-bedroom flat at Ilford Works, through Southern Home Ownership (shosales.co.uk)
Andrew Sparkes

Fillery points out that to move from one shared-ownership property to another means getting your current home under offer before you can reserve a new one.

And getting this timing right is a real problem, since there are not endless shared-ownership homes to choose from, and those that come up tend to sell fast.

Moving from area to area is also a problem since most associations give priority to those who already live or work locally.

While changing these regulations is a matter for government and housing associations, buying a home you can imagine staying in for several years is the obvious way to help yourself here.

Says Fillery: “With the market the way it is at the moment there aren’t huge increases. People need to play a bit of a long game.”

You should aim to buy a two-bedroom flat, even if you don’t need a second bedroom. You can rent out the second bedroom, bank the money for your moving-on fund and if you find you need more space you can access it without having to move.

If you are flexible about moving on to a cheaper area, you will find it easier to move on.