Shared Ownership

Shared ownership is an increasingly popular way to get onto the property ladder in the UK. This scheme allows you to buy a share of a property and pay rent on the remaining portion. It’s a fantastic option for those who cannot afford to buy a home outright. This article will delve into the intricacies of shared ownership, explaining how it works, eligibility criteria, mortgage options, and more.

What is Shared Ownership?

Share Ownership Explained

Shared ownership is a scheme designed to help people purchase a home who might otherwise be unable to afford one. Under this scheme, you buy a share of a property, typically between 25% and 75%, and pay rent on the remaining share. The rent is usually set at a lower rate than the market value, making it more affordable.

How Does Shared Ownership Work?

When you enter into a shared ownership agreement, you purchase a percentage of the property and enter into a lease agreement for the remaining portion. Over time, you have the option to buy additional shares in the property, a process known as “staircasing,” until you own 100% of the property.

Shared Ownership vs. Shared Equity

It’s important to distinguish between shared ownership and shared equity. While both schemes aim to make home ownership more accessible, they operate differently. In shared equity schemes, you buy a property with the help of an equity loan, which means you own the property outright but share any increase in its value with the equity loan provider.

Eligibility for Shared Ownership

Shared Ownership Eligibility

To be eligible for share ownership, you typically need to meet certain criteria:

• Income: Your household income must be less than £80,000 outside London and £90,000 in London.
• First-Time Buyer: You must be a first-time buyer, someone who used to own a home but can’t afford to buy one now, or an existing shared owner looking to move.
• Local Requirements: Some properties may have local eligibility criteria, such as living or working in the area.

Help to Buy for Shared Ownership

The Help to Buy scheme can be used in conjunction with shared ownership to make buying a home even more affordable. This government initiative provides an equity loan to help cover the cost of your home, reducing the amount you need to borrow through a mortgage.

Financing Shared Ownership

Shared Ownership Mortgage

Obtaining a mortgage for shared ownership is slightly different from a standard mortgage. You will need a shared ownership mortgage, which is specifically designed for purchasing shares of a property.

Shared Ownership Mortgage Rates

Share ownership mortgage rates can be competitive, but they vary between lenders. It’s crucial to shop around and compare deals to find the best rate.

Shared Ownership Mortgage Deals

Several lenders offer special deals on share ownership mortgages, including lower interest rates, reduced fees, or cashback offers. It’s worthwhile to explore different options and negotiate the best terms for your situation.

Shared Ownership Mortgage Lenders

Many high street banks and specialist lenders offer shared ownership mortgages. Some of the prominent ones include Nationwide, Halifax, and Barclays. Each lender has its criteria and terms, so it’s essential to review these carefully.

Share Ownership Mortgage Calculator

A shared ownership mortgage calculator can help you understand how much you can borrow and what your monthly payments will be. These calculators take into account your income, the share you wish to buy, and the rent on the remaining share.

Share Ownership Rent Calculator

In addition to mortgage payments, you’ll need to pay rent on the portion of the property you don’t own. A shared ownership rent calculator can help you estimate these costs, making it easier to budget for your new home.

Co Ownership Calculator

For those in Northern Ireland, the co-ownership scheme operates similarly to shared ownership. A co-ownership calculator NI can help you understand the costs and benefits of this scheme.

Shared Equity

Shared Equity Property

Shared equity properties are those bought with the help of an equity loan. This type of financing allows you to purchase the property outright but share any future increase in its value with the equity loan provider.

Shared Equity Calculator

A shared equity calculator can help you understand the financial implications of buying a property under a shared equity scheme. It can show you how much you need to borrow, your monthly payments, and how the equity loan affects your finances.

Shared Equity Mortgage Calculator

Similar to shared ownership, a shared equity mortgage calculator helps you determine how much you can borrow and what your monthly payments will be when using a shared equity scheme.

Shared Equity Scheme

Shared equity schemes are designed to make homeownership more accessible by reducing the initial financial burden. Under these schemes, you receive an equity loan to help cover the cost of your home. You then repay this loan when you sell the property, based on the property’s market value at the time of sale.

Advantages of Shared Ownership

Affordability

Share ownership makes it easier to get on the property ladder by reducing the amount you need to borrow and pay upfront. This can be particularly beneficial in high-cost areas like London.

Staircasing

Staircasing allows you to gradually increase your share of the property over time. This means you can start with a smaller share and buy more as your financial situation improves.

Security

Shared ownership provides the security of homeownership without the need to rent privately. You have a long-term lease, typically 99 years, which gives you stability and peace of mind.

Potential for Capital Growth

As you buy more shares in your property and eventually own it outright, you benefit from any increase in its market value. This can be a significant financial gain over time.

Disadvantages of Shared Ownership

Rent Payments

Even though you own a share of the property, you still have to pay rent on the remaining portion. This can sometimes make shared ownership more expensive than it initially appears.

Maintenance Costs

As a shared owner, you are responsible for the maintenance and repair of the property. This includes both your owned share and the rented portion, which can add to your monthly expenses.

Selling Restrictions

Selling a share ownership property can be more complicated than selling a fully owned home. There may be restrictions on who you can sell to, and the housing association may have the right to buy back your share before it goes on the open market.

The Shared Ownership Process

Finding a Property

The first step in the shared ownership process is finding a suitable property. Many housing associations and developers offer shared ownership homes. You can search for these properties online, through estate agents, or directly with housing associations.

Applying for Shared Ownership

Once you’ve found a property, you need to apply for shared ownership. This typically involves completing an application form and providing proof of your income, savings, and employment status.

Getting a Mortgage

Next, you’ll need to secure a shared ownership mortgage. It’s advisable to speak with a mortgage advisor who has experience with shared ownership to find the best deal and navigate the application process.

Legal Process

After securing a mortgage, you’ll need to instruct a solicitor to handle the legal aspects of the purchase. This includes reviewing the lease agreement, conducting searches, and ensuring everything is in order for the purchase to proceed.

Completion

On completion day, you’ll pay your deposit and the solicitor will transfer the funds to the seller. You’ll then receive the keys to your new home and can move in.

Staircasing

Over time, you may decide to buy additional shares in your property. This process is known as staircasing. To staircase, you’ll need to have your property valued, arrange a mortgage for the additional share, and instruct a solicitor to handle the legal process.

Tips for Successful Shared Ownership

Assess Your Finances

Before committing to share ownership, it’s essential to assess your financial situation thoroughly. Consider your income, savings, and monthly expenses to ensure you can afford the mortgage and rent payments.

Shop Around for Mortgages

Not all lenders offer shared ownership mortgages, so it’s important to shop around and compare deals. Look for competitive rates and favorable terms that suit your financial situation.

Read the Lease Carefully

The lease agreement outlines your rights and responsibilities as a shared owner. It’s crucial to read this document carefully and understand all the terms before signing.

Plan for Staircasing

If you plan to staircase in the future, consider how this will impact your finances. Save regularly and be mindful of additional costs such as valuation fees, legal fees, and potential increases in mortgage payments.

Seek Professional Advice

Navigating the shared ownership process can be complex. Seeking advice from professionals such as mortgage advisors, solicitors, and financial planners can help you make informed decisions and avoid potential pitfalls.

Case Study: Share Ownership in Practice

Emma’s Story

Emma, a first-time buyer in her early thirties, had been renting a small flat in London for several years. Despite having a stable job and saving diligently, she found it challenging to afford a property outright in the capital’s high-priced market.

Emma decided to explore share ownership as an option. She found a one-bedroom apartment in a new development through a housing association. The property was valued at £400,000, and Emma decided to buy a 25% share, costing her £100,000.

Financial Arrangements

Emma used a shared ownership mortgage calculator to determine her borrowing capacity and monthly payments. She secured a mortgage for £90,000, with a 10% deposit of £10,000. Her monthly mortgage payments were £450, and her rent on the remaining share was £600, totaling £1,050 per month. This was affordable for Emma, given her income.

Staircasing

After two years, Emma received a promotion and decided to staircase. She bought an additional 25% share for £110,000, as the property’s value had increased to £440,000. Her new mortgage covered the additional share, and her rent decreased proportionally.

Benefits Realized

Emma now owns 50% of her property and plans to staircase further in the future. She appreciates the security and stability of homeownership and has benefited from the property’s appreciation in value. Shared ownership has enabled her to get on the property ladder in London, something she thought was out of reach.

Conclusion

Shared ownership is a viable pathway to homeownership for many people who cannot afford to buy a property outright. It offers a balance between owning a home and paying rent, making it a more affordable option in high-cost areas. By understanding the intricacies of the shared ownership scheme, utilizing tools like the shared ownership mortgage calculator, and seeking professional advice, prospective buyers can make informed decisions and successfully navigate the process.