‘Myth busting’ is a key element of many shared ownership advertising campaigns.
“As shared ownership gains popularity, so do the shared ownership myths.
Not everyone is familiar with the concept of shared ownership – and not all of the information out there is accurate. Some shared ownership myths are simple misunderstandings and some are rooted in truths that have been exaggerated, to make an article more newsworthy, or a social media post more compelling – but eventually the truth becomes lost, making it difficult for people to separate fact from fictions.
So, to help you better understand what is myth and what is reality, we’ve created a list of the most common myths surrounding shared ownership.”Snugg Homes – Shared Ownership Myths vs Facts
Buying a home is one of the most expensive – and potentially risky – purchases most people will make in their lifetime. So, of course, it’s essential to understand what you’re getting into. But can you rely on ‘myth busting’ ads to give you the facts?
We’ll start off by checking what four different housing providers say in their ‘myth busting’ campaigns. Then we’ll look at whether their ‘facts’ stand up to scrutiny.
(We’ve chosen Legal & General, SO Resi, Snugg Homes and Sanctuary. Why these four housing providers? They were the top results in a Google search for ‘shared ownership myth busting’. But other housing associations have similar ‘myth busting’ campaigns.)
MYTH: Shared ownership is more expensive than renting
|Legal & General
|Shared Ownership is more expensive than renting (so the leprechauns will have to use their pot of gold)
|Legal & General say: “Shared ownership can be cheaper than renting privately (mortgage cost and low rent usually add up to less than the equivalent rental payments to a landlord).
With shared ownership, you buy a percentage of a property, then pay a subsidised rent on the remaining portion. The key advantage of shared ownership is that you generally pay less each month than you would privately renting or paying a traditional mortgage.”
|Shared ownership is more expensive than renting
|SO Resi say: “In many cases shared ownership can be less expensive than renting a home.
For example, if you purchased a 25 per cent share (£60,000) of a one-bedroom apartment at SO Resi Times Square in Welwyn Garden City, with a £3,000 percent deposit, your monthly cost (including mortgage, rent and service charge) could be just £776 – compared to the average of £856* for a one-bedroom home in the same area.”
|It’s cheaper just to rent than having to pay for both a mortgage and rent each month
|Snugg say: “The combined shared ownership monthly mortgage and rent payments often work out cheaper than private rent costs. The added benefit of shared ownership, is that your monthly payments are also contributing towards paying off your mortgage and, you could gain equity in the percentage owned.”
|It’s not cost effective paying both rent and a mortgage
|Sanctuary say: “With shared ownership, you make monthly mortgage payments on the part of the property you own, as well as a subsidised rent on the remaining share.
Our research has found that shared ownership properties work out cheaper per month than an equivalent property would be to rent privately. This means that you might be able to reduce your monthly outgoings whilst building your equity and enjoying all the benefits of living in a new build home.
For example, if you purchased a 40 percent share in one of The Lexden three-bedroom homes at Penny Fields in Frating, Essex, your total monthly cost, including mortgage and indicative rent could be just £1,086 versus £1701 a month on full mortgage.”
Shared Ownership Resources says…
The claim that shared ownership can be ‘cheaper’ – or more ‘affordable’ – than renting privately is fairly common.
It’s the truth. But it’s not the whole truth. There are three important aspects to consider:
- location, and
- service charges.
Comparisons with private renting are almost always based on your rent costs in the first year.
Your rent is calculated as a % of the value of the landlord’s share. For example, 2.75% or 3%. Let’s assume your landlord’s share was valued at £100,000. Using the 2.75% formula, your annual rent would be £2,750. In this case, your monthly rent would be just over £229. To start off with…
But it’s essential to understand how annual shared ownership rent increases work. Each year, your rent will be increased based on inflation, plus an additional % specified in your lease. There have been a number of different updates to annual rent review arrangements over the years. Your lease might specify RPI (Retail Price Index) + 0.5%, or RPI + 2% or CPI (Consumer Price Index) + 1%..
Over time, your rent increases could rise faster than your household income. This might make your total housing costs increasingly less affordable. And, in some cases, your rent could end up more expensive than local private rents.
Will your rent end up more expensive than local private rents? This depends, partly, on whereabouts in the country you live.
‘While rental growth at a national level is roughly in line with RPI, this hides a great deal of regional variation. In many parts of England, private rents have shown little growth over the last decade. For example, rental growth in the North East was just 6.4 % between 2008 and 2018 according to the ONS. RPI over that period was 31.1%. Applying that inflation plus a premium to shared ownership rents results in rental growth far in excess of the market.’Savills (2019)
One study found that shared owners were more likely to have unaffordable rent compared to social and private rent tenants. In Essex, Suffolk, Norfolk and Cambridgeshire, at least, with 16% of tenants in shared ownership having unaffordable rent. (Compared to 9% of tenants in market rent and 5% in social/affordable/intermediate rent properties).
If you’re comparing shared ownership rent with private rent, don’t forget to take service charges into account. Private tenants don’t have to pay for repairs and maintenance. But shared owners are responsible for 100% of all costs. (With the exception of the 10-year ‘initial repair period’ under the new model for shared ownership).
‘Typically, shared owners saw charges of the magnitude of £48 per month to £180 per month or £50 to £250 per month over nine years, although some had much higher rises. For context, according to the Bank of England Inflation Calculator, £50 in 2012 by 2021 would be worth £62.82 if the service charge increase had reflected inflation.’University of York. Housing Policy Unit
Some shared owners find that service charges increase rapidly after the first few years. Consequently, your rent plus service charges could end up more costly than local private rents over time.
Of course – as some of these ads suggest – you may prefer to use your hard earned cash to build up equity in your home rather than pay it over to a private landlord. But that’s not the point here…. The claim made by marketing teams is that it is a ‘myth’ that shared ownership is more expensive than renting. But research shows that this is actually a fact for some shared owners, in some circumstances.
MYTH: Shared ownership means I can’t decorate my home
|Legal & General
|Shared ownership means I won’t be able to decorate my home (with my pictures of the Loch Ness Monster)
|Legal & General say: “You can decorate however you like, it’s yours! You don’t need our permission for decorating or simple repairs, however, you would need to get permission for larger works to ensure it does not affect the structure of the building.”
|You can’t decorate your home because you’re still renting
|SO Resi say: “When it comes to simply decorating a shared ownership home, renting rules don’t apply. You are free to paint it and decorate it however you like!
You do however need to consult us if you wish to do any major work – such as changing the electrics – or extend your property as you will need permission.”
|l won’t be able to decorate or carry out any DIY on my shared ownership house
|Snugg say: “You are the home-owner through shared ownership, you have the right to decorate your homes as you wish. However, for any structural improvements such as fitting a new kitchen or bathroom, you will need written consent from the housing association. There is a small fee for this.
|You can’t redecorate your home
|Sanctuary say: “A common misconception with shared ownership properties is that the same rules apply as renting when it comes to decorating your home or changing the way it looks. But in fact the opposite is true – your shared ownership home is yours and you are free to paint, decorate and carpet however you like. The only time you will need to seek permission from us is if you want to extend your property.”
Shared Ownership Resources says…
Shared ownership marketing ads often emphasise the fact that you can decorate your home however you like. This is a ‘fact’. However, the explanations given by housing providers are sometimes misleading. Let’s take a closer look at the language in myth-busting ads.
Legal & General say that you can decorate your shared ownership home however you like because: “It’s yours!”. Snugg Homes say: “You are the home-owner through shared ownership”. And Sanctuary say: “Your shared ownership home is yours”.
However, the advertising watchdog ruled, in 2022, that the claim “It’s your’s” – and similar jargon – are misleading. At this point, you might be asking yourself, why exactly is it misleading to use the phrase “It’s your’s”?
The ASA says that it is misleading to imply that shared owners have the same rights as someone who bought outright. Even if you do have the right to decorate as you please!
Shared owners are – in the eyes of the law – assured tenants. This means that you have fewer rights and more restrictions than homebuyers who bought a home on the open market. For example, you don’t have a statutory right to lease extension. Also, shared owners aren’t entitled to ground rent reforms introduced in 2022. You may also encounter restrictions when it comes to subletting and selling.
MYTH: With shared ownership you never actually own the home
|With shared ownership you never actually own the home
|SO Resi say: “With SO Resi you can ‘staircase’. This means you can buy more shares of your property as time and money allows you – eventually owning 100% of the property if you wish to.”
|I’ll never fully own the home
|Snugg Homes say: “You can buy 100% of the vast majority of shared ownership homes by staircasing in the future. Although, if the home you wish to purchase is in a Designated Protected Area, the share you can own may be restricted to 80% – if this is the case, it will be highlighted in the marketing.”
|You can’t increase the stake or share you own in your property
|Sanctuary say: “Almost all shared ownership developers, including Sanctuary, will allow you to ‘staircase’. Staircasing is the process of buying more shares in your property, usually in increments of 10 percent. As you increase the share you own of your property, you’ll pay less rent – and you’ll receive a greater proportion of the property’s value if you decide to sell. In most cases it’s even possible to buy your property outright through staircasing – our knowledgeable sales team will be able to answer any queries you have about increasing your percentage share that you own.”
Shared Ownership Resources says…
We complained to the ASA that it’s misleading to imply that shared owners are likely to staircase to 100%.
Statistics show that the vast majority of shared owners simply don’t… Whether by choice, or because staircasing rapidly becomes unaffordable in a rising property market.
The vast majority of shared ownership leaseholders will never staircase to 100%’.The Law Commission (2020)
Regardless, Shared Ownership Resources believes that it is vital that entrants to the shared ownership scheme understand the probability of staircasing to 100%, especially if that is their intention for their home.
MYTH: I have to pay stamp duty on the full amount of my share
|I have to pay Stamp Duty on the full amount of my share.
|Snugg Homes say: “If you are a first time buyer you can defer the stamp duty amount payable until you purchase the property outright in the future.”
.Shared Ownership Resources says…
Stamp Duty Land Tax (SDLT) on shared ownership is complex. But it’s vital for shared owners to have an understanding of the available options. This could potentially save them a lot of money.
It’s a fact that shared owners can elect not to make a an upfront payment of SDLT on the total market value of their home. Instead, they can pay in stages. In this case, they pay any SDLT due on the initial share, and don’t pay any more SDLT unless and until they staircase over 80%.
But this is not the same thing as ‘deferring’ payment. ‘Deferring’ implies a specified payment value can simply be postponed. However, electing to pay in stages could cost more than making a full market value election, as it requires recalculation of the amount payable using current market values.
It’s clearly essential that entrants to the shared ownership scheme take specialist advice on their tax options. But this does not excuse misleadingly over-simplified advice on complex tax issues presented as a reassuring ‘fact’ in an ad.
SO Resi don’t mention SDLT at all on their ‘myth busting’ page. Rather, they’ve published a feature – Do buyers need to pay stamp duty on shared ownership homes – which, helpfully, explains some pros and cons of paying all SDLT up front, and paying in stages.
(Please refer to Shared Ownership Resources’ 3-part feature if you’d like to explore SDLT in more detail.)
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