Shared ownership: When less means more

Shared ownership (SO) is to become a major part of Britain's housing market - and for tens of thousands of people, it may be their only way on to the property ladder. This year, Tony Blair and Gordon Brown pledged that 100,000 households now forced to rent would be able to buy their first homes by 2010 through SO schemes run by local housing associations.

The schemes vary from place to place but have some common characteristics. Local councils designate "key workers", often staff in essential public services, like the fire brigade or teaching. Along with families in overcrowded conditions or young people who have joined a housing waiting list, they are given priority for local SO schemes.

The individual then buys a 25 per cent, 50 per cent or 75 per cent share of the property at its open market value, with the rest being bought by a housing association. The individual owner then pays a mortgage on his share and pays rent to the housing association on the remainder. At a later date, the owner can increase his share and when he sells up, any profit is split proportionally with the housing association.

This can be a good option if a buyer has a regular income, but cannot afford to buy a home outright. It is more affordable and less risky than purchasing on the open-market, because a buyer does not need such a big mortgage.

SO has been frowned upon by some who consider it a second-rate form of ownership involving unattractive properties in undesirable locations. But not any more: the SO concept is getting an architect-led makeover. Local councils insist new upmarket housing developments must include large numbers of "affordable homes" - and these are often sold via SO. As a result, many are now indistinguishable from private flats and houses.

So at Broadway, an expensive Cotswolds village, Midlands developer Chase Homes, working with Evesham and Pershore Housing Association, has created 24 affordable homes for older residents as part of a bigger scheme of open-market homes and a new supermarket (Chase Partnership, 01675 444222).

In London, where SO is rapidly expanding as a result of average homes costing £269,059, according to government data, there is a similar transformation. Whereas SO was once applied to hard-to-let council properties or small flats, now architect-designed schemes are common.

Peter Barber, one of the country's leading urban designers, has created the Fabrika development in Bow, east London, where some of its homes are available for SO (from £174,950 through Circle 33, 020 7422 0989). In nearby Barking, an SO scheme by Acorn Homes and managed by East Thames Housing Association offers one-bedroom apartments from £165,000 in low-rise blocks. More than 90 per cent of the SO properties have their own entrances, rear patios and gardens (Acorn, 020 7357 7555).

Planning authorities insist that SO homes are integrated with more expensive, private ones when older industrial properties - from warehouses to water mills - are converted. So, 18 flats at St Lucia Lodge, a former 19th-century barracks in Hampshire, are allocated for SO through Kingfisher Housing Association (prices from £99,000, 01256 302302).

In Worcestershire, an old waterworks is now home to SO properties starting at just £50,000 (through Allan Morris estate agency, 01905 612266). "There's an increasing demand for affordable housing to possess the same kerb appeal as open-market properties," says Paul Loader, of Chase Partnership. "This means people will be able to live in a range of places that may have previously been considered out of their price range."

He says that councils and the Government increasingly insist affordable homes are "pepper-potted" in developments - dotted alongside open-market homes instead of sitting in separate, often less desirable blocks tucked away out of sight.

Despite the makeover, there are some difficulties associated with SO. There is no uniform approach to SO across local authorities - some areas have many schemes, some far fewer. Housing associations have different rules, too, and a few insist on the right to buy back your share of the property when you want to move.

A few first-time buyers also say they find it difficult to get loans from some high-street mortgage lenders, which do not understand the specific SO schemes in a local area.

But for the majority of people entering into SO, it is a genuine step up. Howard Fertleman and Amanda Vardi were renting a house in north London with their three children - having to share one bedroom - when they discovered SO.

In late 2002, they bought a 50 per cent share in a four-bedroom terraced house in Edgware, with a full market value of £150,000. The other 50 per cent was owned by Metropolitan Home Ownership, a housing association.

With the mortgage repayments on a £75,000 mortgage, plus rent on the remaining half of the property and the service charge, their monthly accommodation bill came to £750.

This was about £100 less than they had previously been paying in rent on a much smaller house nearby. Fertleman, a surveyor, was overjoyed: "We couldn't have got a house like this in London any other way."

More details about the principles of SO can be found at www.housingcorp.gov.uk; lists of SO properties on sale are at www.homes.org.uk; there is a guide to how SO works at www.firstrungnow.com