Most people understand shared ownership and how it works by now. But we love facts here at MovingSoon and we love to help, so we have put this post together to provide more background and information about shared ownership and how it works. We hope you find it useful!
In this post you will find information on:
- Shared Ownership mortgages
- Leasehold and resale
- Rent calculations and monthly outgoings
- Buying more of your home (staircasing)
What is Shared Ownership?
In short, shared ownwership means that the home you own is co-owned by a housing association. The amount you own will be determined by you when you purchase the property based on what you can afford. Typically, ownership is around 25-75%.
Each month you will pay your mortgage as you would with any other home. You also pay rent to the housing association based on the amount that they own.
Don’t worry, the rent is affordable and costs are laid out clearly before you buy to ensure that you can afford the overall costs.
Many first time buyers see this as a great option to start owning their own home. Even getting a deposit together is easier as the mortgage is only for between 25% and 75% of the property. The rest, as mentioned earlier, is rent which is paid to the housing association that owns the development.
Who is eligible for a shared ownership property?
Shared Ownership homes are aimed at first time buyers or those who used to own a home, but are unable to buy one at the moment.
You are eligible if you have a household income that is less than £80,000 per year (in London it is less than £90,000).
How do I get a mortgage for a shared ownership property?
Shared ownership mortgages are not currently offered as standard on the high street. However, we are now seeing more companies launching more specialist products as shared ownership is becoming more popular. There are also a number of specialist providers such as Together who can help.
The best place to start your search for shared ownership mortgage providers is Google to get a good comparison of products and rates available.
Another benefit of shared ownership is that you don’t need to save as much of a deposit. Firstly, you only need to save the percentage of the amount of property you are buying (for example 50%) instead of the total property value. Secondly, most shared ownership mortgages only require a 5% deposit of the value of the property rather than the standard 10%. So you could be moving sooner than you think!
Let’s break it down:
As an example, let’s imagine you were buying a 50% share in a home valued at £150,000. This means you would only need a deposit of £3,750 (5% of £75,000) for the mortgage.
Don’t forget you will also need some cash for the additional legal and moving costs but still we hope that gives you an idea of how accessible owning your home can be.
Most shared ownership properties are leasehold
This means that if you have not bought the property outright the housing association will have first refusal to find a buyer for your shared ownership home for a nominated period, which is usually 8 weeks. After this time, if a buyer has not been found you can market the property on the open market much the same as you would if you were selling a home that you owned.
Due to the way the lease is structured for shared ownership it will mean that the property will be subject to a service charge. If you cannot see them on the property listings get in touch with the housing associations to find out how much this will be.
How is the rent that I need to pay to the housing association calculated?
Currently, housing associations calculate rent using the following formula:
Share owned by housing association (E.G. 50%) / 100 x 3 / 12
To give you an idea of the figures, if we assume a property cost £150,000 and you owned 50%, the housing association would also own 50%. To work out your rent they would calculate:
50% of £150,000 = £75,000 / 100 = 750 x 3 = 2,250 / 12 = £187.50
This means that as well as your mortgage you will need to pay a rent of £187.50 per month.
It is worthwhile checking this with the housing association you are dealing with.
So what do you pay monthly for a shared ownership home?
You need to budget for mortgage, rent and service charge payment.
Staircasing is where you buy more of your shared ownership home
Once you are in your home if you find that you are suddenly in a position to buy more of your home you can. This is known as staircasing.
If you are re-mortgaging to buy more of your property you will need to demonstrate your affordability so the lender knows that you can meet the increased monthly mortgage. You also need to pay to have your home revalued.
What to consider when staircasing?
Speak to your housing association to understand what the options are to staircase your home. They may have specific amounts you can staircase at a time.
You will need to pay to have your property valued. This is because the value of the property could have changed since you originally bought it. The property may be worth more now in which case it will be more costly to buy a bigger share than it would have been when you decided to part buy / part rent it in the first place. However, the good thing is here that your initial share will be worth more than you paid for it.
Of course, the value could also decrease which would mean your initial share is not worth as much as you originally paid for it. However, you could buy a bigger share cheaper than you could when you first agreed to part buy / part rent.
If you staircase to 100% you become an outright owner, and pay no rent.
It is important to bear in mind that you may face other costs to staircase your home. This includes legal fees, mortgage arrangement fees as well as additional valuations in the case of valuer disputes or expired valuation reports.
However, one of the major positives will be the bigger share of the property you own, the less rent you will be paying the housing association.
How does leasehold work if I buy the original shared ownership home 100% outright?
If it is a flat you own it is likely you will still need to pay service charge as your housing association may remain the freeholder of the block of flats or apartments. If you own a house you may be able to get the freehold transferred over to you. Check with your housing association to see what their rules are.
Why is shared ownership a popular choice with first time buyers
Shared ownership not only allows middle and low income earners the opportunity to buy their own home, it also means you can do so with a little less risk. So you don’t have to save for a large deposit and potentially get on the home ownership ladder a little quicker. It’s also a great way to see if you could manage the full expense of owning your own home outright.
Are you interested in a Shared Ownership property?
What are you waiting for?! Start your search for a shared ownership home today.