The perils of shared ownership

Fancy buying half a flat, paying 100 per cent of the maintenance and the cost of putting right a developer’s shoddy work?

Therein lies the great scandal at the heart of shared ownership, the government scheme which BBC Panorama exposed last week but which I others were writing about over a decade ago.

The concept sits at the heart of government efforts to increase the rate of home-ownership. Look around at the prices of London flats, compare them with average London salaries and you wonder how anyone can get on the housing ladder any more. But they do – sort of – thanks to shared ownership. Rather than fork out £400,000 for your new flat in Barking, you can ‘buy’ it by raising a mortgage for as little as £100,000. You then ‘own’ a quarter of it, and pay rent on the other three quarters – with the often elusive promise of being able to buy the rest at a later date.

I use inverted commas here because no-one really buys these properties at all. They are all leasehold – a lease being nothing more than a long rental contract for which you agree to pay most of the rent upfront. What ‘shared ownership’ really means in practice is buying a quarter of a property on a long rental contract, typically lasting 125 years, and taking out a short rental contract for the rest – which is rather less appealing than being able to call yourself a homeowner.

But the problems don’t end there. Under the rules of shared ownership, you are obliged to pay for 100 per cent of the service charges. As many have found, these can be subject to eye-watering rates of inflation. Panorama found one case where service charges had risen from £2300 to £4400 per annum over four years. In another building, the occupants had been told that their service charges could rise to £3000 a month while shoddy works were put right. Then, of course, there is the cladding scandal, which has made many flats unsaleable while potentially flammable cladding is investigated and possibly replaced.

Looking after a property, of course, costs money, and there are plenty of people who own freehold houses who find themselves with huge bills to correct structural or other defects. But at least they can choose, within reason, when to undertake works and so can spread them out as their income allows. It is a very different case with flats, where property managers decide when works must be undertaken and who will complete them, while leaseholders get sent a bill. That can be bad enough if you have a good income, but the point about shared ownership is that it is enticing into property ownership many people who don’t really have the means to maintain a flat.

Moreover, I have a suspicion that shared ownership has contributed significantly to house price inflation – even if we can never know for sure. Would developers really be able to sell all these £400,000 one bedroom flats in pretty ordinary parts of London were it not for shared ownership? They certainly wouldn’t find enough owner-occupiers to pay those sums – without substantial capital, you would need an income of near £100,000 to buy such a property outright, an income enjoyed by only around two per cent of the working population. Shared ownership has allowed developers to put fancy price tags on properties which they might otherwise struggle to sell.

There is another aspect to this scandal which Panorama hardly touched upon. I have used the term ‘developer’ throughout this piece, yet in every one of the cases identified by the programme the place had been sold by a housing association. These aren’t the red-blooded capitalists with offshore accounts who might spring to many people’s minds whenever the word ‘developer’ is mentioned – they are supposed to be the cuddly alternative.

Housing Associations are charitable organisations, not-for-profit bodies subsidised with large quantities of public money. And yet the experience of many who have partially bought their homes is as bad as anyone who has bought a property through a fly-by-night developer. It is a cautionary tale for anyone who assumes that just because something is communitarian and ‘not-for-profit’ it is a guarantee against being ripped off.