Rising house prices mean home ownership is an unrealistic prospect for some prospective buyers in today’s society. Shared Ownership represents an alternative financing method that can provide a solution to this issue. It is one of the Affordable Home Ownership Schemes and essentially creates a part owner, part renter scenario allowing buyers to get a foot on the property ladder while not having to finance the purchase in full. Without going into the legal aspects behind the structure of a Shared Ownership purchase, this blog will look at what it is, who it is suitable for and how it works.
With a Shared Ownership purchase you buy a share of the property and pay rent on the remaining share – normally owned by a housing association. Typically, you can purchase between a 25% share and a 75% share, however some properties are available to be purchased with just a 10% share. The amount of rent you pay is dependent on the value of the property, the share you have and it will also be different between different housing associations.
Mortgage affordability is different to a standard residential purchase too. The rent you pay to the housing association and any service charge on the property is taken into consideration. Your deposit and mortgage LTV is based on the value of the share you will own. As an example, purchasing a 50% share in a £200k property would mean your share has a value of £100k. Putting down a 10% deposit would mean a £10k deposit and a £90k mortgage. Shared Ownership mortgage products are specific to the scheme, but they are available from major lenders at competitive interest rates.
Shared Ownership is available for first-time buyers and existing homeowners providing your household income is below £80k (£90k in London) and you cannot afford the deposit and mortgage payments for a suitable home. It is a common option in areas where property prices are high and buyers, often first-time buyers, would be unable to save the required deposit or meet the mortgage affordability requirements to borrow sufficient for the purchase. Single applicants are also more likely to use shared ownership as they do not have a partner’s income to help with mortgage affordability. In areas where house prices are lower, shared ownership can still be a viable option. While there are relatively few properties available for purchase through the Shared Ownership scheme, on new-build developments over a certain size, there will often be houses designated to be purchased through the scheme.
Owners of a Shared Ownership property may wish to increase their share in the future. This process is called staircasing and typically a minimum 5% must be purchased each time. However, from this year, some properties will allow an additional 1% share to be purchased each year for the first 15 years. The value of each share is based on the current value of the property at the time the additional shares are purchased, not the original purchase price. Normally, the value must be determined by a Royal Institute of Chartered Surveyors (RICS) professional. However, when purchasing 1% shares, the House Price Index (HPI) valuation is used instead.
If you want to know more about the Shared Ownership, about the buying process and evening how it works when you come to sell a shared ownership home, feel free to get in touch!