YOUR GUIDE TO SHARED OWNERSHIP
What is Shared Ownership & the benefits?
A shared ownership purchase allows you to buy a share of a property and pay rent on the part you don’t own at a reduced rate. It is designed to help people with a smaller deposit and/or lower income to get on to the property ladder and is particularly aimed at first-time buyers. The scheme can be potentially cheaper than renting, but the main benefit is that you own a percentage of the home and therefore not all of your money is lost in rent. Also, more often than not, your monthly repayments work out cheaper than if you had an outright mortgage. Of course, you also stand to benefit from any increase in value of the share you have purchased.
Where can I find a shared ownership property?
The majority of shared ownership properties are new-build homes; however, some older or previously lived-in properties come under shared ownership from time to time too. If you want to buy a shared ownership property in England, firstly you should contact the Help to Buy agent in the area that you would like to buy in. You can do this online via the government’s Help to Buy website. In Wales, you should contact your local authority and for properties in Scotland, you should contact the housing association. While shared ownership schemes are run slightly differently in each country, the properties under shared ownership in England are offered on a leasehold only basis, therefore in addition to your rental and mortgage payments, you are often required to pay a monthly service charge, as well as contribute to any major maintenance works on the property or grounds.
How does it work?
Shared ownership involves buying a share in a property, typically between 25% – 75% of the property and renting the rest. You are sometimes given the opportunity to buy a further share of the property later, when your circumstances allow, also known as ‘staircasing’. Shares can be bought in 10% increments; however, there is often a limit on how many times you can ‘staircase’ your payments, so you must plan these ahead. Any remaining share of the property is owned by a housing association or private developer, to whom you pay rent, but this rent is, more often than not, priced below market value. Increasing your property share will in turn reduce your rent and if you staircase all the way to 100%, you own your property outright and have no more rent payments to make.
In order to purchase your share of a shared ownership property, you must have a deposit of at least 5% of the share being purchased. You will only need a mortgage for the value of the share that you own, minus the deposit; therefore, the amount of money required to live in a shared ownership property is greatly reduced compared to buying a property outright.
Am I eligible?
In England, to be eligible for shared ownership, you must either be a first-time buyer, have previously owned a home but can’t afford one now or have an existing shared ownership property and want to move house. Applicants must also have a combined household income of less than £80,000 (or £90,000 if the property is in London) and have the right to permanently live in the UK. If you’re currently in the armed forces or have been discharged within the past two years, you’ll also have priority to purchase a shared ownership property.
Getting a mortgage for shared ownership
You can get a mortgage for the part of the property you are purchasing under shared ownership; however, not all mortgage lenders offer shared ownership mortgages. The mortgage will only cover the costs of your share that you purchase and not your monthly rent payments to the housing association or developer. There are several factors to consider when calculating the affordability of a shared ownership mortgage that you might not have considered, compared to buying a property outright. These include the rental payments, council tax to the local authority and any service or maintenance charges to cover the costs of upkeep of communal areas and buildings insurance. In most circumstances you will also be expected to pay the service charge for 100% of the property, despite only owning a smaller percentage and the service charge can in fact increase from year to year, so ensure that you ask for records of the last few years’ charge demands to see how the costs have increased. You should bear in mind that while you’re renting part of the property, if you fall behind on any payments, the housing association has the right to evict you. This could result in you not only losing your home, but also any money that you have already paid to purchase your percentage of the property.
How can we help?
St. Arthur Homes is a Homes England Registered Provider of Affordable Homes, specialising in shared ownership properties. We own and manage affordable housing throughout the South of England. We aim to help people looking to get on the property ladder. We have specialist agents on hand from our Central London office who will be happy to answer any questions or concerns you may have. Click here to contact us today.
For more government information on the Help to Buy Shared Ownership scheme or other schemes, visit https://www.helptobuy.gov.uk/.