How does the shared ownership scheme work?
Prospective homeowners are looking for affordable ways to buy a home in anticipation of rising house prices in the UK. Prices are continuing to rise and make it more and more difficult to get onto the housing market. The shared ownership scheme offers an option to help get onto the home ownership ladder.
For first-time buyers looking to get on the property ladder, the shared ownership scheme may be a great option to look at. So, if you are thinking of taking this route, read on to find out more.
How does shared ownership work?
The goal of shared ownership is to make homeownership affordable for those who want to get on the property ladder. In the shared ownership program, purchasing part of a property rather than the entire property at once is possible for qualified buyers.
There are many housing associations offering shared ownership schemes around the country. This type of scheme allows the government to own the remaining share of the home. In this way, applicants can obtain a smaller mortgage than if they purchased the entire property.
Many of the properties are new build constructions, and their percentage can vary. Due to the shared ownership scheme, more houses are coming up for sale. No matter which percentage is purchased, the housing association must continue to collect rent.
How much will you own?
The percentage of the property value that you choose when buying will generally be between 10% and 75%. Including some price flexibility in a home’s listing prevents buyers from being priced out of their perfect home.
A larger share of the property will be available in the future for those participating in the shared ownership scheme for you to buy at a later date.
The housing association will also adjust the rent, so you will have to pay a lower rent but a higher mortgage. In this case, staircasing refers to the process of buying a larger proportion of the property. Shared ownership really has its advantages.
How about the shared ownership mortgages and rent to housing association?
While shared ownership is becoming more popular, and some lenders are now offering loans tailored to meet this demand, a standard mortgage should be ok for most people. Make sure your numbers are accurate before you apply, as all the usual affordability checks will be conducted. Speak to a mortgage advisor or broker before you leap into any decisions to ensure you are making the right choice.
It is impossible to provide a precise number. The following formula can be used to estimate your rent:
Value of property x percentage owned by housing association / 100 x 3 / 12
Almost all of them calculate rent this way, so you can use this formula to estimate your rent payment. The best practice is to make sure the information is accurate by double-checking. Make sure you pay rent on time.
What are the eligibility requirements for shared ownership?
You can buy a home through shared ownership if both of the following apply:
– your household earns £80,000 a year or less (£90,000 a year or less in London)
– you cannot afford all of the deposit and mortgage payments for a home that meets your needs
One of the following must also be true:
– you’re a first-time buyer
– you used to own a home, but cannot afford to buy one now
– you own a home and want to move but cannot afford a new home suitable for your needs
– you’re forming a new household – for example, after a relationship breakdown
– you’re an existing shared owner and want to move
Some shared ownership homes in a ‘designated protected area’ are only available to buy if you have a connection to the area.
If you buy one of these homes, you:
– may only be able to buy a share of up to 80%
– must sell it back to the landlord or a buyer nominated by the landlord – you cannot sell your home on the open market
Is it possible to own the property directly?
Depending on your association, you may have to follow specific rules about doing so. Most of the time, you’ll need to reside in the property for at least one year before your ownership percentage will increase.
If you own a home
When you apply for shared ownership you must have:
accepted an offer for the sale of your current home (called ‘sold subject to contract’ or ‘STC’)
written confirmation of the sale agreed (called a ‘memorandum of sale’) including the price and your intention to sell
You must have completed the sale of your home on or before the date you complete your shared ownership purchase.
In the event that you wish to sell my property, what will happen?
The selling of a shared ownership property differs from selling your own home, for the most part. Your lease will stipulate whether you are entitled to the first refusal based on the rules established by the association.
The shared owner will generally need to inform their association about their desire to move, instead of simply selling the property to an estate agent. In this way, the association can offer the property to others on its waiting list who are looking for affordable housing.
The association must find a buyer for the home, however, within a designated time frame. A property can then be sold on the open market if no one can be found within this timeframe.
Before signing up for shared ownership, you should consider the following before making your decision
There will still be a landlord
The property is, in effect, still a rental property, even if you own a portion of it. Even so, eviction can occur for many reasons, and it can happen at any time.
A house being repossessed is never a pleasant experience, and those who are participating in shared ownership schemes are at greater risk because of the portion of the property they ‘own’. In legal terms, you don’t actually own anything until you own all of it, which means you can be evicted without having to pay back the money you invested.
Legally, your association must reimburse you only upon selling the home, not after being evicted. or, you could be in serious trouble.
There are a number of reasons why tenants may be evicted, from non-payment of rent to irresponsible behaviour. So, it’s something to consider.
There may be some restrictions to follow
You must abide by the terms of your lease as a leaseholder. It could be as simple as prohibiting the installation of hard floors in adjacent flats, or it could be more complicated, such as restricting structural changes in a property. Make sure you read the terms and conditions carefully.
Pet ownership is usually not allowed in shared ownership property. Many houses are becoming more pet-friendly, so leaseholders can ask their housing association or property management company for permission to have a pet.
Renting the property is not allowed
Not exactly a surprise, but worth mentioning nonetheless. It is not legal to rent out shared ownership properties. Subleasing is also out of the question, so don’t expect to be able to rely on your flatmate for financial support, as it may backfire.
First time buyers must consider these points before making a purchase. Make a point to assess all the positives to determine if the property will be marketable in the future. It’s not always necessary to buy whole property.
Mortgages Remortgages Advice
Hopefully, you now have a better understanding of shared ownership and how it works. If you would like to discuss the scheme further to see if it is the right or best choice for you, then please give us a call. We don’t charge a fee but could save you thousands on your mortgage deal.
Click here for more information and advice on mortgages.
