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Shared Ownership Mortgages Explained
It is becoming increasingly hard to get onto the property ladder but with schemes in place such as Shared Ownership, there are other ways a purchaser can enter into the property market. Shared Ownership can allow you to apply for a smaller mortgage amount, therefore decreasing the deposit required.
Below we look further in detail of the Shared Ownership Scheme, provide an example and discuss the advantages and disadvantages.
What is Shared Ownership?
Shared Ownership is different from the government backed scheme Help to Buy: Equity Loan where an equity loan of up to 20% of the property price (or up to 40% in London) is provided to help purchasers towards their deposit.
Shared Ownership allows someone to part-buy, part-rent a home from housing association (arranged by a local Help to Buy agent) and the share you can initially purchase is usually between 25% – 75% of the property price. You are given the option later on to purchase more of a share of the property from the housing association until you own the full 100% and this process is called ‘staircasing’.
You provide a deposit and take out a mortgage for your share of the property and rent is paid on the remainder to the housing association.
Example Shared Ownership
You wish to purchase 25% share of a £200,000 property under shared ownership.
Housing association’s share (75%) = £150,000
Your share of the property (25%) = £50,000
Your deposit (10% of your share of £50,000) = £5000
Mortgage required (£50,000 – £5000) = £45,000
Who can qualify for shared ownership?
Aged 18 years or older.
Have joint income of less than £80,000 a year (less than £90,000 in London).
Be a first time buyer or a former homeowner who can’t afford to buy now or renting from a council or housing association.
You cannot own any other properties with using the Shared Ownership Scheme.
Have no mortgage or rent arrears.
Military personnel are given priority over other groups, however some councils may have their own priority groups based on local housing needs.
If you have a long-term disability, you can be qualified for this scheme under the government’s Home Ownership for People with Long-Term Disabilities (HOLD).
Staircasing and How if Works
As we mentioned before, you are given the opportunity to purchase more shares from housing association up to owning 100% of the property in a process called ‘staircasing’.
If you wish increase your share of a shared ownership property, you’ll need to pay for housing association to carry out a mortgage valuation for the current value of your home and this will determine the price of purchasing more shares. If the value of your home has increased, the cost to purchase more shares will go up and less if it’s fallen.
Shares can be bought in increments of 10% and the more shares of your home you purchase, the lower your rent will be.
When you come to sell your property, the proceeds are split between yourself and the housing association, depending on the share amount you both own.
- Suitable for people who cannot get a property via the traditional method of the open market.
- Could enable someone to step onto the housing ladder who otherwise couldn’t before due to not having a sufficient deposit or struggling to save. For example, on a £200,000 property you may need a percentage of £200,000 for your deposit whereas with using the Shared Ownership Scheme you may only need a percentage of the share you wish to purchase.
- Rent charged by the housing association is below the market value of the private rental sector.
- It can be a stepping stone to another property as overtime your income could increase or you could meet a partner and wish to move onto another property together. In the meantime, equity increases over time as you are reducing the mortgage debt which could be used as a deposit for your next property.
- Many mortgage lenders to choose from for shared ownership mortgages.
- Can increase your ownership overtime where later down the line you may be in a better position to purchase more of a share in the property. This is called staircasing and can mean you have the option to eventually own 100% share in your property.
- Shared ownership properties can apply to existing properties and new builds (flats and houses).
- Typically only required to have a 5% deposit with Shared Ownership whereas most other mortgage deals require at least 10%.
- Most lenders including ones not on the high street can offer mortgage products for Shared Ownership Schemes.
- Restricted to shared ownership properties on the market only.
- Not every location has shared ownership properties so a buyer may have to consider moving to another area to be able to take advantage of Shared Ownership Scheme.
- Have to pay service charge and annual ground rent on top of your mortgage payment and rent.
- Have to abide by terms and conditions set by Housing Association and if you don’t own the property fully, you may need to gain permission from the Housing Association to make improvements and changes.
- Not entitled to rent or sublet your property out if you need to move elsewhere.
- It could be difficult to achieve a quick sale when you come to sell, as there might be restrictions on who can qualify to buy your home.
How to get started
Contact the local Help to Buy agent in your desired area to find properties:
If you are considering using the Help to Buy: Shared Ownership scheme and need assistance with applying for a mortgage, please contact us and we will be happy to help.