If you want to own your own home, but can’t get a big enough mortgage for the property you want to buy, Shared Ownership might be a good option to get you onto the housing ladder.
In this article, we find out what Shared Ownership is, its benefits and help you find out if you’re eligible.
What is Shared Ownership?
Shared Ownership refers to when you co-own a property in conjunction with a housing authority. You purchase a share of the property (between 25% – 75%) and pay rent on the remaining share.
Lenders will typically loan you a mortgage for between 4-5 times your salary. Because you are only purchasing a share of the property, the mortgage you require is much smaller than if you were buying the property outright, so the size, location and style of property you can afford is substantially improved.
Who is eligible for Shared Ownership?
As long as you are over 18 years old you are eligible to purchase a Shared Ownership property. One can only purchase through Shared Ownership if it will be the only property you own.
Other eligibility criteria include:
- Your annual household income must be less than £80,000 (less than £90,000 in London).
- You are unable to afford to buy a home suitable for your housing needs on the open market.
- You must show you are not in mortgage or rent arrears and be able to demonstrate that you have a good credit history and can afford the repayments.
If you are aged over 55, you may qualify for the Older People’s Shared Ownership Scheme, but unlike the wider Shared Ownership, you can only ever own a maximum of 75% of your home.
What are the advantages of Shared Ownership?
It gives you a good footing on the housing ladder with a smaller mortgage repayment than if you were purchasing the whole property.
You will likely be living in a larger property than you would be able to afford if you were purchasing 100% of the property.
What are the disadvantages of Shared Ownership?
All Shared Ownership properties are purchased on a Leasehold basis, which means that you will need to pay a monthly or annual fee towards the maintenance of the property.
Because the property is purchased on a Leasehold basis, you won’t be allowed to make any major changes or improvements to the property unless you have permission from the Landlord or Housing Authority or unless it is stated in the lease.
If you decide to sell before owning 100% of a Shared Ownership home, the Housing Association has the right to find you the buyer. And even once you own 100% of it, you may have to give the Housing Association first refusal when you come to sell.
If the housing association are happy for you to buy the leasehold, your property would then become freehold. However, the housing association are not under any obligation to sell it.
How much does Shared Ownership cost?
Shared Ownership involves you getting a mortgage for between a 25%-75% share of the property and paying rent on the remaining share.
Your monthly costs will include your mortgage repayments on the share of the property you have purchased.
The higher the portion of the property you purchase the more your mortgage repayments would be. For a £300,000 property the expected mortgage repayment on a 30% share (£90,000 mortgage) would be circa £450 per month.
You will be required to pay rent to the Housing Authority to service the loan on the portion of the property you don’t own.
The rent you pay is usually 3% of the value of the portion you don’t own, per year. If you own a 30% share of a £300,000 property (£90,000) the expected rent payment will be £6,300 per annum or £525 per month, which is 3% of the remaining £210,000 per year in rent.
The exact figures will depend on the property you are purchasing and the amount of equity – as your share increases, your mortgage repayment goes up and your rent will go down.
Leasehold property owners usually have to pay a service charge to maintain the building and communal areas of the property they own. The service charge will also include a share of the management costs for the building.
Buildings & Contents Insurance
Payment of insurance for the building will usually be the responsibility of the Freeholder i.e. the Housing Authority. When purchasing a share of a property you won’t have to pay buildings insurance, but it is advisable you arrange some form of contents insurance.
If you are a first-time buyer looking to purchase a Shared ownership property you won’t have to pay Stamp Duty on the first £300,000 of a property which costs up to £500,000.
If this is not your first property purchase or you are buying a share of a property over £300,000, you will be required to pay Stamp Duty Land Tax (SDLT) on the full value of the property, not just the share you are purchasing, but you have the option of paying it all at the start or deferring a portion of the cost until you own more of the property.
How much SDLT you pay will depend entirely on the property you purchase, but it is worth asking the question when you find a suitable property.
Most people entering into a Shared Ownership purchase will require a mortgage. In order to secure a mortgage, you will need to have access to a deposit which can be as low as 5% of the portion of the property you are purchasing. For example if you are purchasing a 30% share in a £300,000 property, the lender will require you to have a £4,500 deposit which is equal to 5% of £90,000 (your 30% share).
Who pays for repairs and maintenance of a Shared Ownership property?
Unlike renting, the ‘rent’ you pay to the Housing Authority does not cover for maintenance of the property or the appliances in it. The rent paid to the Housing Authority simply covers the loan for the portion of the property that you have not purchased yet.
The lease you sign when purchasing the property makes you solely responsible for the costs associated with your property, irrespective of the percentage share you originally bought.
How to find Shared Ownership properties to buy?
Shared Ownership properties will usually appear in the search results of the UK’s largest property websites like Rightmove, Zoopla or OnTheMarket.
Alternatively you can visit PropertyBooking.co.uk to search Shared Ownership properties throughout the UK.
Can I increase the portion of the Shared Ownership property I own?
Increasing the amount you own of your Shared Ownership property is called ‘staircasing’.
If your income increases or you have managed to save some money, you will be able to take ownership of a larger percentage of the value of the property. Typically your share must be increased in increments of 10%.
As the share you own in the property increases, the amount you need to pay in rent will go down. If you staircase to 100% you become an outright owner, and you will no longer need to pay rent.
What happens when you sell a Shared Ownership property?
The process of selling the property you share ownership of will depend on how much of the property you own.
If you own less than 100% the Housing Association reserves the right to find a buyer for it. Once you own 100% of the property you will be able to sell it yourself via an estate agent.
There may be conditions which give the Housing Association first refusal to purchase your property, but this will all be detailed in your Lease Agreement.
Owning your own home is an aspiration for many and whilst Shared Ownership is one option for getting onto the housing ladder, our best advice would be to Book An Appointment to speak to one of our qualified Mortgage Advisors at Curchods Mortgage Services. They can advise you on other purchasing options that you might not have considered which could help you find out how to fund your first house purchase.
Want to know more?
If you’ve got this far and want to know more about Shared Ownership, feel free to Contact Us. We can talk you through Shared Ownership in more detail and alert you to any Shared Ownership properties we have available in your price range.