What is shared ownership? In short, these are housing developments typically by housing associations where you can part rent and part buy your home.
Who is eligible for a shared ownership property?
Shared Ownership properties 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).
Shared ownership gives you the ability to initially own between 25% and 75% of a property. The remainder of the home is usually owned by a housing association. So you will end up paying part rent as well as a mortgage. It’s a way to get your foot on the property ladder enabling you to part own a home.
Many first time buyers see this a great option to start owning their own home. They don’t have to get a massive deposit because they will only need a mortgage 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.
How do I get a mortgage for shared ownership property?
Shared ownership is becoming more mainstream and you will find more and more mortgage providers in the marketplace. So there should be enough choice for you to get competitive rates.
There is no need to save for a massive deposit either. In most cases shared ownership mortgages mean you only need to provide 5% of the value of the property. However, some housing providers may prefer this to be 10%. It is important to note, that as you are buying a share, the amount of deposit you will need to put up will be less.
For example, if you were buying a 50% share in a home valued at £150,000. This means you would only need a deposit of £3,750 (50% of £75,000) for the mortgage. This is only an example, mortgage providers will be able to provide more details about what you can and cannot put down as a deposit.
Are shared ownership properties leasehold?
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 do you calculate the rent that is paid on the remaining share?
At the moment, the rent is calculated as being 2.75% of the remaining share divided by 12. So, if we use the same example as we did for mortgage calculation it would be 50% of the property to pay rent on. In our example this would be £75,000 divided by 2.75% which is £2,062.50 per annum. Which means monthly (divided by 12) rent would be £171.88. 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.
What is staircasing in shared ownership?
So you have decided after purchasing your shared ownership home you would like to buy a bigger share. This is known as staircasing. You will need to be able to demonstrate how affordable this is. It is very similar process to remortgaging. The difference being is that you will need to get your property valued to work out how much more you are able to buy and get an appropriate mortgage to cover these larger payments.
The criteria may differ depending on which housing association is running the scheme. As ever it’s best to try and find out what you would need to do in the event of you wanting to purchase more of your shared ownership home at a later date.
What fees are involved in staircasing?
Firstly, you will need to speak to your housing association to understand what options there are to staircase your home. For example, they may have specific amounts you can staircase at a time.
You will need to pay to get someone round to do a valuation of your shared ownership property. So, for example, if the value of the property has increased, then 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.
Don’t forget though that 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 include 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 my 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? If so, start your search for a shared ownership properties today.