The Shared Ownership scheme has been around now since the 1970s. It’s a very popular way for those on low incomes or with low deposits to get onto the housing ladder. Shared Ownership has been described as a cross between homeownership and renting – but how does it actually work?
The Shared Ownership scheme explained
The Shared Ownership scheme allows you to purchase a share of a property, meaning you’ll only need a 5%+ deposit or in some cases, no deposit at all. You have a mortgage for the percentage of the property that you own, and you pay rent to the Housing Association on the rest. Commonly you can purchase between 30-50% of a property, however new changes to the scheme allow you to purchase just 10%.
Once you have owned your share for a fixed period of time, you can ‘staircase’ out and buy further shares. The more shares you own, the less you will pay in rent. Eventually, you will be able to staircase out to 100% ownership.
The Shared Ownership process
If you decide that you would like to make use of the Shared Ownership scheme, the first step is to work out if you are eligible. The main requirement is that you do not currently own a property, but you also must be over the age of 18 with a household income of less than £80,000 (or £90,000 in London). You also need to fit the affordability calculator issued by your local Housing Association.
If you meet the criteria, you can then begin to look for a Shared Ownership property. You can do this by contacting your local Housing Association, or by searching on Share to Buy. Once you have found a property that you like, it’s time to crunch the numbers.
Let’s say for example that you find a Shared Ownership property for £58,500. The full market value of the property is £195,000. You want to buy 30% of shares of the property, which means that you will need to put down a deposit of £2,925 (5% of £58,500), and you will pay £370 per month in rent. You’ll need a mortgage for your 30% share, which we can help you with at Mortgage Light (not all lenders will fund Shared Ownership properties). You’ll need £2000 to cover your solicitor’s fees and £349 for using Mortgage Light’s services. In total, the upfront amount you’ll need to buy shares in the property is £5,274.
How does staircasing work?
Once you’ve lived in your Shared Ownership home for a certain period of time (this depends on the terms of your lease), you can buy further shares and begin to ‘staircase’ out. This allows you to own a greater proportion of your home. The more of the home that you own, the less you will pay in rent. If you staircase to 100% ownership, you will become an outright owner and will no longer need to pay rent.
When you buy further shares, you will need to have your property valued. This is because the price of the shares is based on the value of your property. The cost of the additional share will be more than your first share if the value of your property has gone up, or less than your first share if the value of your property has gone down. Using the previous example, let’s say that your property is valued at £200,000 and so has increased in value from £195,000. If you wanted to buy an additional 25% share, the extra share would cost you 25% of the valuation price, so £50,000. It’s also worth noting that when you staircase, there will be a need for some legal work, so you’ll incur some solicitors fees. There may also be some mortgage lender fees.
There’s no obligation to staircase out at all, however, remember that the rent you pay on the share of the property that you own does not go towards reducing your mortgage or increasing your share of ownership.
Are there any limitations to Shared Ownership?
Of course, as a shared owner you are likely to face a few more restrictions and limitations than you would in traditional homeownership. As well as being a homeowner, you are also a tenant. This means that you can still be evicted and lose a portion of your home if you fail to keep within your lease terms; failing to pay rent or displaying nuisance behaviour that affects your neighbours.
And although you will be able to paint walls and decorate your home exactly how you want to, you may need to seek permission on any major home improvements, such as changing the property’s structure or footprint. You will also be responsible for 100% of the maintenance costs. This means that even though you don’t own 100% of the property, you will need to cover 100% of the usual costs associated with homeownership, such as service charges, ground rents, and property repairs.
You will also be restricted if you decide to sell the property on. Your Housing Association has the right to be first in line to find a buyer for your home. This is known as the ‘nomination period’ which usually lasts from 30 days to two months. After this period, you can appoint an estate agent and handle it yourself.
Benefits of the Shared Ownership scheme
The Shared Ownership scheme is designed to make homeownership accessible. If you are on a lower income and struggling to save that 10% deposit, Shared Ownership offers the opportunity of getting on the property ladder with a lower deposit and a smaller mortgage.
If you’re currently renting, you may actually save money per month on the Shared Ownership scheme. Renting can be quite expensive, but paying rent and your mortgage combined in most instances can work out cost-neutral or cheaper.
You also may be able to purchase a bigger house or live in a more desirable area than you would have been able to afford otherwise. When searching for your Shared Ownership property, you’ll find that many can be found in private developments, as a certain number of Shared Ownership homes will often be required as a part of the planning permission. This means that a large number of Shared Ownership properties are new builds.
If you need any more information about how Shared Ownership works, get in touch with us here at Mortgage Light. Our Shared Ownership specialists are on hand and ready to help you with any questions, and to help you along your Shared Ownership journey. We have been dealing with Shared Ownership mortgages since we began trading and have helped many people to own 100% of their property. Contact us today using our online enquiry form, by dialing 01908 597655 or using the live chat in the bottom right-hand corner of your mobile or desktop screen.