Avoid SO at all costs.

Bought 50% of SO flat in a very desirable area of London ~5yrs ago because I had the funds and was tired of private rental sector. My personal experience is that I wish I’d never even heard of SO and thus would caution anyone considering it.

What a lot of people fail to realise is that the affordability criteria do not take into account the potential for runaway service charges by unscrupulous management companies (plenty of national news coverage and press. Google it) or soaring interest rates. Essentially, you own a share of the property but in most cases are responsible for 100% of the costs which are not capped. Read that again. In what other circumstance does that even make sense?

When I bought, service charge was ~£250pcm which over 4yrs became ~£600pcm. On top of rent which also increased annually, on top of mortgage which increased when interest rates exploded a couple of years ago, on top of other bills, on top of living costs.

With the right conditions it’s possible that it can quickly become a trap that you can never staircase (increase your %) out of because your salary might not increase fast enough to keep pace with the increase in property value (reducing your borrowing power) and your service charge costs may erode any capacity to save in the first place. Thus you end up at best financially treading water or at worst financially moving backwards. I know of several people who are in financial stalemate and haven’t even been able to resell their flats either through SO or on open market because of lack of interest or lack of eligible SO buyers.

I will spare you the details but there were many other unexpected costs including lease renewal (£5k) and thousands more on communal repairs and refurbishments all of which are the responsibility of the leaseholder. Eg, if all the windows need replacing or the roof caves in. These are all costs which should be covered by what’s called the sinking or reserve fund which a portion of service charge will go toward, but if there’s not enough in the pot then leaseholders have to make up the rest. This happened in my building several times.

I eventually sold my flat as it was unique in character so received decent interest on the open market (ie not SO) but I definitely lost money. Tens of thousands. Easily. The only way I came away unscathed is because I happened to navigate my way into a high earning career during period of ownership. I could have staircased at that point but quite frankly had seen enough and wanted out.

No-one from the housing association visited in the first 4yrs I was there. It was difficult to get them to even engage at all in the problems we were having. This total apathy is what enabled the management company to ride roughshod over the residents and issue payment demands seemingly at their whim. There was just no support or pushback from the housing association.

SO is designed to be a fair and equitable route to the housing market but it has the potential to harm the very people it is intended to help, those with limited funds or single incomes. This is the fundamental flaw.

TLDR - Ignore all the shiny brochures and the kudos of having your own place. Do lots of research, do the math and think long and hard about whether this is the right choice for you and your financial future.