What is Shared Ownership?
Buying a home for the first time is a cause for celebration for many individuals, couples and families. Yet, all too often the initial deposit for that wonderful new home is well out of the average person’s price range. Fortunately, there is a solution that allows people to purchase part of their home at an affordable starting price.
Shared ownership allows new owners to purchase a share of their property while they pay rent to a landlord (who is typically the local housing association who own the properties and manage the scheme) on the rest. It helps people to buy into their property at a much more affordable rate while avoiding the risk of getting stuck in the rental cycle. Read on to find out more about shared ownership mortgages and their benefits.
Shared Ownership Explained
Shared ownership is a scheme that gives both first-time buyers and those who currently do not own a home an affordable way to purchase a property. The buyer purchases a share of the overall value of the home: usually around 25%, although you may purchase more if you wish. The shares offered range from 10% – 75% typically.
Once the buyer has purchased their initial share, they will pay rent and a service charge on the rest of the home. Once they can afford to purchase more of the property, they can either choose to purchase the rest outright or in increments. However, there is no requirement to purchase more if the buyer is unable or unwilling to do so.
Why is This Scheme Beneficial?
When purchasing a new home buyers will often need to pay a hefty deposit first. A home valued at £400,000, for example, might require an initial deposit of £40,000. This amount would be out of the price range for many first-time buyers, particularly those struggling with high rents and an increase in the cost of living.
As shared owners, first-time buyers will likely be able to purchase 25% of the same property valued at £100,000 with a deposit of around £5,000. This is a much more affordable deposit amount for most people trying to enter the property market.
The mortgage for this share of the property will likely cost £460 a month, as well as an additional rental fee on the other 75% of the property (usually around 2.75% of the total property value per year) plus service charges. Yet even with these fees, the buyer will almost certainly be paying less than open market rental costs for properties in the same area. Plus, the cost of these rents will decrease if the buyer purchases a greater share of the property.
Who is Eligible for the Scheme?
To apply for the shared ownership scheme, the buyer must fulfil these requirements:
- Must be at least 18 years old.
- Have a household budget that is £80,000 a year or less (£90,000 or less for London).
- Are not financially able to meet all the deposit and mortgage payments required for a property on the open market that meets their needs.
- Is either a first-time buyer, a current or former homeowner who cannot afford a new home, someone who is forming a new household, or an existing shared owner who wants to move elsewhere.
In some cases, the buyer may be required to show that they have some connection to the area before they can purchase a share, such as for work. In addition, those who currently own a home must complete the sale of their current home on or before the date they enter into a shared ownership agreement.
People aged 55 or over can purchase up to 75% of the property through the OPSO scheme without needing to pay rent on the rest. Those with long-term disabilities can also apply for the HOLD scheme. Finally, members of the armed forces may get priority if there are multiple offers for a property.
How to Apply for the Scheme
There are four steps involved when it comes to entering a shared owner agreement:
- Register with a Shared Ownership/share to buy agent in the area you wish to purchase a home by completing an affordable Home Ownership application online.
- If the agent determines that you are eligible, you can register your interest with the landlord of a shared ownership property you wish to purchase. The landlord will contact a mortgage advisor who can assess your income and advise you on what share of the home you can afford.
- If you are eligible to buy a share of the property, you can reserve it with a fee of up to £500. This sum will secure the home for a fixed period and will be taken off the final cost when you purchase the property.
- A solicitor or licensed conveyancer will need to handle the transfer of ownership on your behalf. They will also be able to explain to you the terms of your lease and the conditions of your mortgage offer.