Shared Ownership is a type of residential property buying scheme that allows the buyer (or buyers) to part-buy, part-rent a home in the UK. The scheme offers the possibility to first time buyers, and in some cases people who have previously owned a property, to buy a home in stages because their circumstances mean they cannot afford a property on the open market. There are a number of myths and misunderstandings surrounding Shared Ownership, so we have attempted to demystify some of the misconceptions right here.
My income doesn't cover me to buy a house
The main advantage of the Shared Ownership scheme is that it makes home ownership more affordable by reducing the pressure and expense involved. Because you are buying a percentage of the property, the amount of mortgage you will need is reduced and a Shared Ownership Mortgage is likely to require a smaller deposit than a traditional purchase. So, Shared Ownership schemes open up home ownership to people on single and lower incomes.
Properties available via Shared Ownership schemes are valued at the full open market purchase price, with the share sold to the buyer calculated purely as the relevant percentage of that market price – for example, if the buyer buys 50% of a flat valued at £220,000, their required deposit and Shared Ownership Mortgage will total £110,000. The housing association owner of the property charges rent on the remaining 50% that it owns.
Another thing to note when partaking in a Shared Ownership scheme is that if the value of the £220,000 property increased in value, the equity when sold would be split depending on the share. For example, if the property increased to £240,000 and you owned 50% you would be entitled to £10,000. That's 50% of the £20,000 increase in value and the housing association would receive the other 50% of the increased equity.
Am I eligible?
In order to be eligible for Shared Ownership in England, and a Shared Ownership Mortgage, you must meet certain criteria (these may vary from provider to provider and by location so it is useful to check before making an application for a property). For example, the combined household income of Shared Ownership applicants must be less than £80,000 (with the exception of London, where combined household income must be less than £90,000). Additionally, prospective buyers will need to meet at least one of the following criteria. You must be either:
a first time buyer
someone who previously owned a home, but can no longer afford to buy now
a tenant of a council or housing association property
There is a different scheme available for people aged 55 and over. For anyone in this age bracket the scheme is called ‘Older People’s Shared Ownership’ (OPSO). People with long-term disability looking for housing suitable to their needs can apply through the Home Ownership for People with long-term Disabilities scheme (HOLD).
Why would I want to part-buy, part-rent and will I have to share with people I don't know?
Part-buy, part-rent means you initially buy a share of the property, perhaps 25%, 40% or more, and then you pay rent on the part you do not own. Significantly, this rent may be lower than rent you would expect to pay for private rental property of similar quality. And no, you do not share the ownership with strangers, you simply buy your share from the housing association running the scheme and you pay your rent to them as well.
How much of the property can I buy at the outset?
Shared Ownership schemes offer properties starting at one-quarter (25%) ownership, up to three-quarters (75%). However, you may be able to “staircase” and purchase a bigger share of the property at a later date when you are ready. In most cases, this will include the opportunity to purchase 100% of the property.
It is important to note that when staircasing, the extra share you buy will need to be valued at that given time. Therefore if the value of your home increased, you would have to pay the inflated cost for your additional share.
Can I choose any house to buy with a Shared Ownership Mortgage?
In the vast majority of cases, Shared Ownership schemes are for newly built homes which typically form part of larger developments of houses and flats. However, from time to time, housing associations will also advertise existing Shared Ownership properties for resale when the previous owner wishes to move on. You will need to register with the Help to Buy agent in the area you want to live in before you make an application for a Shared Ownership property. In Cambridgeshire and surrounding areas, this is Help to Buy East & South East.
I need a spare room, so Shared Ownership won't work for me.
You can apply to buy a property with one bedroom more than you need. So, a single person, or couple, without children could buy a two bedroom Shared Ownership property and a couple with one child could buy a three bedroom property. However, in most instances you cannot sub-let a spare room under a Shared Ownership scheme. Each housing association that runs a Shared Ownership scheme (and your mortgage provider) will have rules about lodgers and sub-tenants as part of the lease and you must abide by these.
Are Shared Ownership properties freehold or leasehold?
All Shared Ownership schemes in England offer property on a leasehold only basis. If you staircase to 100% ownership, your lease will remain the same, but the Shared Ownership provision will end i.e. no more rent will be payable.
I have owned a house before, am I still eligible?
Yes, if you previously bought a house but sold it and now your finances are such that you cannot afford to buy outright again, you can apply for a Shared Ownership purchase. See the information in the section on eligibility above.
Can I apply if I am not a key worker?
You do not have to be a teacher, nurse or other key worker to be eligible for a Shared Ownership Mortgage, although it may help. Certain housing associations may give priority to military personnel and their families over the applications of other interested parties, but being in a private sector occupation won't stop your application from going through. Each application will be looked at under a number of specific criteria and priority will be given depending on the immediate housing needs of the applicants.
Can I apply for Shared Ownership properties in an area I don’t live in?
You don't need to live in a specific area to apply for a specific property, but preference may be given to applicants who have significant ties to the area. Speak to representatives of the housing scheme advertising the property to find out how they will be assessing the applications.
What happens when I want to sell my Shared Ownership property?
You will need to let the Housing Association know that you are looking to sell your home, depending on the terms of the lease, the housing association will have a time period in which they need to find a buyer. If after this time they are unable to find a suitable buyer, you would need to decide whether to carry on marketing with them or if you will find an estate agent to act on your behalf, however you will need to pay the fees.
I’ve come to the end of my Shared Ownership mortgage deal
If you want to stay in your Shared Ownership home but you’ve come to the end of your mortgage deal, you have the option to either remain with your current mortgage provider or to switch to a new one. Switching could perhaps get you a better deal or enable you to staircase by borrowing more. For more information on remortgaging, see our guide.
Shared Ownership Mortgages with The Cambridge
There are many different Shared Ownership providers in the country and the schemes vary slightly across Scotland, Wales and Northern Ireland (the information in this article will apply to you if you are looking to buy a Shared Ownership property in England). For information about schemes operating within the Cambridge City Council area click here.
The Cambridge Building Society offers Shared Ownership Mortgages on properties located in Bedfordshire, Buckinghamshire, Cambridgeshire, Essex, Hertfordshire, Norfolk, Northamptonshire and Suffolk, with a minimum share of 25% ownership of the property, and a maximum of 75%. Arrangements must be through a registered Housing Association, and the property’s lease must contain a mortgage protection clause.
For more information, contact us today.
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