A shared ownership purchase is where a person who opts to purchase a share of a property. They will purchase anything between 10%-75% of the equity (some require minimum of 25%) and pay rent on the portion of equity that they do not own. It is also referred to as part buy/part rent. Usually the buyer will mortgage the equity share they are purchasing and then pay rent to a housing association on the remainder. There are also other costs payable such as ground rent/service charges if it is a leasehold property. This often means that a lower deposit is required for the buyer to get a foot onto the property market.
Who can apply for shared ownership?
There are strict criteria as to who are eligible to buy under a shared ownership scheme:
A your household income is less than £80K per annum (£90K per annum in London)
B you cannot afford all of deposit/mortgage payments for a home that meets your needs
C you’re a first time buyer
D you used to own a home but cannot afford one now
E you own a home and want to move but cannot afford one that suits your needs
F you are forming a new household – eg remarriage
G you are existing shared ownership owner and want to move.
Is there any restriction on the type of home you can buy?
You can buy:-
1 new-build house
2 existing home for sale through registered provider’s shared ownership resale scheme
3 disabled people can buy a property that meets specific requirements but they must have a long-term disability.
Advantages of shared ownership
1 There is an element of security as, unlike a straight tenancy, you have long-term occupancy whilst keeping the outgoings at a manageable level. As long as you pay mortgage/rent you can remain for the term of your lease which can be extended.
2 There is a lower deposit required as you only pay the deposit on the equitable portion.
3 There is a greater likelihood of getting a mortgage over the equitable portion as your overheads are likely to be lower.
4 You can “staircase” or buy greater portions of equity over time as your finance permit.
5 If you staircase your share in the equity to 100% you will own outright and the rental payment ceases.
6 You can sell your share on the open market when you wish.
7 Usually the first purchase of equity is likely to fall below the stamp duty threshold.
Disadvantages of shared ownership
1 The pool of lenders who agree to lend against shared ownership properties is reduced so this may mean less favourable interest rates are applicable.
2 You are likely to have to pay 100% of the service charges/ground rent no matter what equitable portion you buy.
3 Stamp duty is payable when you own 80% or more.
4 Legal fees are likely to be higher when purchasing a shared ownership as there are the seller’s solicitors and the Housing Association’s solicitors involved and shared ownership leases to approve.
5 The shared ownership lease may have certain restrictions you have to observe such as allowing the Housing Association to nominate a buyer before being able to sell on the open market.
Shared Ownership – the future
The Government announced certain changes to the shared ownership scheme under the Governments “Affordable Homes Programme (AHP) which are likely to come into effect between 2021-2026. A summary of the changes – which will only apply to future shared ownership properties and is not retrospective – are:-
A Buyers can now purchase a minimum of 10% (rather than 25% previously)
B Option to staircase in 1% increments for first 15 years.
C Housing Association/Landlords will be required to contribute to costs of essential repairs during first 10 years.
D Housing Associations/Landlord to only have 4 weeks in which to nominate a buyer instead of 8 weeks.
E Lease term will now be 990 years instead of 99/125 years previously