Getting on the property ladder isn’t always easy. For many people, putting down a 10-15% deposit on a home can simply be out of reach. That’s why there are government schemes available to assist people in becoming homeowners. One of the most popular schemes is Shared Ownership.
Shared Ownership is the most common affordable purchase option. It’s incredibly popular, with 200,000+ Shared Ownership properties throughout the UK. So, how does it all work?
How does Shared Ownership work?
When you make use of the Shared Ownership scheme, you simply purchase a share of a property with the remaining proportion retained by a Housing Association who then charges you a monthly rent. Think of it as a cross between buying and renting.
Shared Ownership mortgages are available to first-time buyers, or to someone who used to own a home and now cannot afford to buy a new one. You must be at least 18 years old and your household income must be less than £80,000 a year (£90,000 in London) to qualify. It’s also worth noting that you cannot get a Shared Ownership mortgage on any property. It is only applicable to certain homes and these are usually specifically purpose-built.
Usually, you would purchase between 30-50% of a Shared Ownership property and over time, you can buy further shares enabling you to own more of the property. This is known as ‘staircasing’. The more of the property you own, the less the Housing Association owns and therefore the rent you pay decreases. Eventually, you will be able to staircase out to the full 100% share, meaning you would own all of the property and not pay any rent.
The Shared Ownership scheme and other government Help to Buy schemes are designed to enable people to buy a house – but they all come with their fair shares of advantages and disadvantages. It’s important to know exactly what you are committing to when making use of the Shared Ownership schemes, so let’s take a look at the pros and cons.
Shared Ownership Pros
The Shared Ownership scheme is designed to help you. If you’re on a lower income and struggling to save for a 10%+ deposit to buy a home, Shared Ownership opens up a door to the housing market for you. Low income earners are much more likely to be approved for a mortgage with Shared Ownership because the amount that will be lent to them is much smaller. You are able to buy with zero deposit money – you simply need enough money for solicitors and any mortgage related costs. The scheme is designed to make buying a home affordable and then you can work your way up in shares over time should you want to.
If you’re currently renting, you may actually save money per month on a Shared Ownership scheme. It can often work out cheaper, and those monthly payments will be going towards paying off your mortgage instead of your landlord’s. And although you will still find yourself paying rent (to the Housing Association), it’s generally less than the rent charged on the open market. You would usually be looking at 2.75% of the property value per annum.
Not only this, but you may be able to purchase a bigger house or live in a more desirable area than you would have been able to afford if you were buying outright. Shared Ownership properties can often be found in private developments as a certain number of Shared Ownership homes will often be required as a part of the planning permission for a development. This can help to put affordable housing in the heart of sought-after areas.
Shared Ownership cons
As with anything, Shared Ownership has its potential downsides that you should be aware of. Firstly, buying increased shares in your property can be a little more expensive than you might first think. When you decide to increase your shares, the property must be valued and this will incur a valuation fee. (Via a RICS surveyor). You’ll also have some legal expenses as staircasing involves a solicitor making changes to your existing lease, and you may have mortgage fees.
As you don’t 100% own a Shared Ownership property straight away, you will find yourself with a few restrictions. For instance, you are unable to rent a Shared Ownership property out to someone else. There may be rare instances where it is okay to sub-let but in the majority of cases, until you are the sole owner of the property, it is not allowed.
Although you will be on the property ladder, it’s important to remember that when living in a Shared Ownership property, you are still a tenant. This means that you can still be evicted from the property if you fail to pay the rent or display nuisance behaviour for example. If you are evicted, you could lose the portion of the home that you have already ‘bought’ as the Housing Association is not legally obliged to reimburse you for this. You are only legally entitled to be paid for your share upon the sale of the property.
And similarly, just as you would when renting, you might find yourself needing permission to make certain home improvements to a Shared Ownership property. Decorating and modernising your home is usually unproblematic and does not require the need to inform your Housing Association. Larger changes such as extending or changing the footprint of your home will likely need approval from your Housing Association however if approved, any improvement value will eventually be allocated to you at the point of sale.
How can Mortgage Light help you?
If you’re interested in making use of the Shared Ownership scheme, you might find it more difficult to find a mortgage lender who offers Shared Ownership mortgages. It’s certainly becoming much more commonplace now, but it’s not quite as straightforward as traditional mortgages.
This is something that we can help you with here at Mortgage Light. We have access to the entire market and know exactly where to turn for Shared Ownership mortgage lenders. We have dealt with Shared Ownership mortgages since we began trading and have helped many people to own 100% of their house after only a few years, depending on their circumstances.
We’re on hand and waiting to help you make use of this affordable scheme. Contact us today and put yourself in the best hands.