Residents who bought shared-ownership properties promoted as “affordable homes” say they now feel trapped because they have to spend more than half of their net salaries on mortgage repayments, rent and service charges.
Campaigners say residents have become the victims of financial abuse after buying properties promoted as a step on the property ladder, only to be told of dramatic increases in service charges. Some residents face annual charges of more than £5,000 a year.
Costs have increased so much in some shared-ownership flats in the last two years that some residents say they are now struggling to meet them.
L&Q housing association, one of the largest in England, promotes its properties with the guidance that, typically, the costs of mortgage, rent and service charge “should be no more than 40% of your net take-home pay”. But the Observer has been told of numerous cases in L&Q homes where residents are paying more than 50%. Suzanne Muna, from the Social Housing Action Campaign, said: “It is the worst of both worlds for shared owners, because even though they only own a share of their home, they are responsible for all the repair costs in the home and the service charges.”
Muna said there was a lack of clarity. “It is a form of financial abuse, because the power is all on the side of the landlord. If you refuse to pay the charges, they can evict you,” she said.
The Observer revealed in March how some of the country’s largest housing providers had increased annual service charges by thousands of pounds. Service charges on shared-ownership properties are uncapped and in many cases they now exceed rents, which are strictly controlled.
A parliamentary inquiry published by the levelling up, housing and communities committee earlier this year warned shared-ownership homes were drastically failing to deliver affordability. It found that shared owners could face “considerable difficulty” selling the shares in their properties once rising costs “reach unaffordable levels”.
Residents at the L&Q development Braeburn Mansions, in north London, were told this month of deficits in annual service charges, with some facing demands for more than £2,000 on top of charges already paid.
L&Q promotes its shared-ownership flats as an “affordable home ownership scheme designed as a stepping stone to outright ownership”.
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Mélody Barreau, 33, a project manager who has a shared-ownership home in the Braeburn Mansions development, spends more than half of her take-home pay on mortgage repayments, rent and service charge. Her annual service charge is £3,700.
Barreau said: “The charges just seem to be getting out of control. I don’t mind paying service charges if I understand what the costs are for, but it’s difficult trying to get even very basic information. I feel trapped because it’s just me trying to pay for these things. I’ve never felt trapped like this in all the places I’ve rented. I’ve no control over it and no recourse. No one will want to buy a property with an insane amount of service charges.”
L&Q has faced criticism for its promotion of shared-ownership homes. An Advertising Standards Authority ruling published in September last year upheld a complaint that a “Black Friday” promotion was unsuitable because of the short deadlines for the purchase of a shared-ownership home.
Sue Phillips, founder of Shared Ownership Resources, which champions the interests of shared owners and made the complaint against L&Q, said there were concerns about whether it was made sufficiently clear to potential buyers of shared-ownership properties that services charges could rise considerably. “Shared owners may find their homes become much less affordable over time,” she said.
Matt Foreman, executive director of customer services at L&Q, said: “Following a purchase, many factors beyond a landlord’s control can result in increases to service charges, mortgages and other housing costs for leaseholders, whether they are outright or shared owners. In recent years, energy prices have risen sharply. Landlords are unable to absorb these costs, so they unfortunately have to be passed on through service charges. We are listening to residents, and we recognise this is putting significant pressure on their finances.”
Foreman said L&Q was a charitable association and did not make profits from service charges, but was looking to ensure it had more control over the charges in developments where it was not the freeholder and delivering greater transparency.
He said: “We are also reviewing how we carry out affordability checks for new residents to reflect the rising cost of many services.”
A ministry of housing, communities and local government spokesperson said: “Unjustified increases in service charges are completely unacceptable. We will implement the provisions in the Leasehold and Freehold Reform Act to deliver transparency over service charges and provide homeowners with greater rights and protections.”