How to get on to the housing ladder

The froth may have come off the London property market for the time being but this means little to those on moderate incomes that want to live as well as work in the capital.

The average Londoner needs to earn more than £41,000 each year to get a mortgage for a two-bedroom house on the open market, according to the London Housing Federation. At current rates, monthly payments would amount to £935.

At these prices there is no sign that teachers, nurses and other key workers are going to find it any easier to get a foothold on the housing ladder, even in the current slowdown.

Increasing numbers on ordinary incomes are turning to shared-ownership as a way of buying a house at a price they can afford. Participants pay a mixture of mortgage and subsidised rent with the option of increasing their share of the property as time goes on until they own it outright.

Some 20,000 households in the capital are in shared-ownership homes developed by housing associations. Now there are calls for a rapid expansion of the schemes. But shared ownership is not always a panacea and there are as many pitfalls as there are when buying a whole property on the open market, say critics.

There is a great deal of public support for home ownership and 69% of households are currently owner-occupiers. In its housing green paper, the government made clear it wants to support schemes that offer low cost home ownership for those on the income threshold.

Also, many social housing providers share the government's enthusiasm for schemes that help those on modest incomes join the ranks of owner-occupiers. In a report published last month the London Housing Federa tion, which represents the capital's housing associations, made a convincing case for massive expansion of shared ownership schemes. In A Foot On The Ladder, it says shared ownership is a "proven value-for-money option for housing key workers."

Steve Coleman of Notting Hill Home Ownership, part of a larger housing trust, believes it is more or less foolproof for those who want to buy. Flexible tenure means owners who get into difficulties can reduce the share of the property they own and increase the amount they rent, or even return to renting altogether, if appropriate. Similarly, owners whose incomes rise can increase the amount they own.

"The other important thing about buying is you get access to the market. If property values rise, you benefit. Someone who owns 25% of a property in Westminster will benefit more from price rises than someone who owns a property outright in some other areas."

But what happens when the market collapses? The involvement of a social landlord is likely to make buyers feel protected from the ups and downs of the property market. However, when it comes to purchasing a home, even a 50% share, buyers should apply the same criteria as they would to a conventional purchase. Buyers who used shared ownership to buy at the height of the market in the late 80s were just as stung as other buyers when property values collapsed.

Shared ownership in London is most popular with single adult households: 35% of all purchases are made by this group, according to figures produced by housing researchers at St Andrews and Dundee University. One-bedroom flats are also the properties that shoot up in value when the market is booming and plummet when prices fall.

One former homeowner who bought through shared ownership is sceptical about how many participants benefit from improving their property. "You can spend £5,000 doing up a one-bedroom flat bought for £100,000 to increase its value by £8,000.

"When the flat is sold the housing association picks up half of the value, which is £54,000. Therefore the owner will have spent £5,000 but gained only £4,000," he argues. "The housing association is supposed to get their valuer to take into account the improvements you have made but, in my experience, the owner doesn't really benefit."

His advice is to take as much care over a shared ownership purchase as you would one on the open market. Consider the location carefully, looking at amenities and transport links. You might want to move when your circumstances change, so ask yourself whether the property would sell even in a lacklustre market.

For those who are still keen, there is a range of subsidised home ownership schemes available. Buyers can opt for conventional shared ownership and part buy and part rent a home offered through a registered social landlord. Alternatively, DIY shared ownership means buyers select a property to buy on the open market and a social landlord takes over the rented share.

Last year the government introduced Homebuy, a scheme that allows local authority or housing association tenants or those on waiting lists, to buy a home in the open market with an interest-free equity loan from a social landlord for 25% of the value of the property - leaving them to secure a mortgage for 75%. There are no monthly repayments on the 25% loan, that is then repayable at 25% of the market value when the home is sold.

For further details of shared ownership, contact your local authority housing department. For a £30 registration fee, the Housing Mobility and Exchange Service (Homes) will send you a list of providers, and a property bulletin with ads for shared ownership properties. Homes, tel: 020-7963-0246 or go to www.homes.org.uk.