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Shared Ownership: Getting on the property ladder

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Shared Ownership Week took place in September and saw a combination of housing associations, developers and mortgage lenders collaborate to help boost awareness of the scheme by showing first-time buyers how it can help them to get onto the property ladder.

Although there has been a recent flurry of publicity, Shared Ownership has actually been around since the late 1970s and its popularity is back on the rise.

According a report by Social Housing, at the end of 2018 tax year, there were 181,057 Shared Ownership owners in the UK, with over 10,000 new buyers coming into the market in that year alone.

Government plans could mean this will rise by 70% over the next five years – that’s a lot of new Shared Ownership properties becoming available.

However, many people still have questions about exactly what Shared Ownership is – how does it work? Is it right for me? Am I eligible? What is the process? Can I purchase the council-owned share after I move in? We will look to answer some of these questions below, along with highlighting the value of an intermediary in guiding you through the entire process.

Who is eligible?

Shared Ownership is available to anyone looking to purchase a property to live in, as long as they will not own any other property, or a share in any other property, at completion of the new purchase.

As such, the scheme has focused on first time buyers. However, as long as you sell your existing property before completion, Shared Ownership is also available to home movers.

The scheme is designed to assist individuals and families on lower incomes who could not purchase at this stage without the scheme’s assistance. This means there are some general eligibility requirements, including:

  • You must be at least 18 years old
  • Outside of London, your annual household income must be less than £80,000
  • Within London, your annual household income must be less than £90,000
  • You should not be able to afford to buy a home suitable for your housing needs on the open market
  • You must show you are not in mortgage or rent arrears
  • You must be able to demonstrate that you have a good credit history (no bad debts or County Court Judgements) and can afford the regular payments and costs involved in buying a home

You should always check the eligibility required with the housing association selling the property, as they may have specific criteria.

What is Shared Ownership and how does it work?

Put very simply, shared ownership is where you own a share of a property and pay rent on the share you don't own. This would typically be paid to a housing association, which would be in charge of the scheme and own the other share of the property. You can buy a share of between 25% and 75% of the property.

Typically you will need a minimum 5% deposit for the share you are purchasing, and this may be higher with some mortgage lenders. So, for example, if the overall purchase price is £400,000 and you are purchasing a 50% share for £200,000, you would need a personal deposit of £10,000, which is 5% of £200,000.

An intermediary who specialises in new build mortgages will be able to advise you on the various lender options and the deposit requirements they have.

Is Shared Ownership right for me?

Essentially, shared ownership is one of the cheapest ways to get on the property ladder, due to the deposit requirements being based on the share you are purchasing.

Also, if you're confident that you'll increase your earnings or savings enough to buy the whole of the property, which you can do via staircasing, then the shared ownership scheme can be particularly useful.

However, Shared Ownership will not be the right choice for everybody. It means paying rent on the share not owned, so it is important to ensure this is easily affordable for you. There will also often be a monthly service charge on these properties that you should take into account. You must ensure you are comfortable with the details of the scheme and all of the options and implications for the duration of your ownership.

It's also worth bearing in mind that the housing association will have first refusal if you decide to sell the property. Their right to buy the property back first will last for a term of 21 years from the date of 100% ownership.

This is why speaking to a good intermediary who has expertise in the scheme is so vital for anybody thinking of purchasing with Shared Ownership, as they can guide you through the pros and cons.

What’s the process for the Shared Ownership and mortgage applications?

One of the major differences when purchasing using Shared Ownership is that there are, in effect, two applications to proceed with and also different steps to applying for these.

The process in brief:

Step 1. Ensure you meet the eligibility for Shared Ownership. We can help you to confirm this, and afterwards will direct you to the housing association in the area you wish to purchase the Shared Ownership property in, so that they can confirm this before you look to commit to a property.

Step 2. Having an accurate budget. You need to have your affordability checked with an adviser who covers both the mortgage lenders and Shared Ownership. It is vital that you speak to an intermediary who understands the Shared Ownership scheme and who has access to the Shared Ownership affordability calculator. This will allow you to accurately confirm your budget before looking to view any properties and also takes the rent commitment into account. You will be able to get the mortgage agreed in principle at this stage.

Step 3. Viewing properties. Once you have your eligibility and budget confirmed and your mortgage agreed in principle you should arrange to view some properties to get a feel for what is available. Most housing associations will have stock for sale via Shared Ownership, and local properties will be listed on their website as well as the normal property listing websites.

Step 4. Reserving a property. Once you offer on a property and have this accepted, the housing association will ask you to complete a reservation form. At this stage a non-refundable deposit, typically around £200, is required. The housing association will submit your official Shared Ownership application at this time, while your eligibility with them will already be confirmed.

Step 5. Mortgage Application. At this stage your mortgage adviser will also submit your application to the mortgage lender. The mortgage lender will instruct the valuation on the property when you submit the mortgage application. You will also need to appoint a solicitor at this point in proceedings. I would heavily recommend you enlist a solicitor who has experience with Shared Ownership purchases.

Step 6. Approval and moving. Once your documentation is assessed and approved you will receive a mortgage offer from the lender. Once you have these your solicitor will be able to arrange exchange of contracts on the purchase. This is when all sides are legally committed to the purchase, and a date is set for completion – when you get the keys!

Case Study

Let’s take a look at a new case study. These recent Alexander Hall clients illustrate how Shared Ownership can significantly benefit a first time buyer family (names have been changed).

The clients:

A young couple, Kevin and Stacey, are both first time buyers. Kevin is a self-employed taxi driver and Stacey is a nurse on a basic salary.

The scenario:

Kevin and Stacey have been renting for the last few years in central London and met with a mortgage adviser to discuss purchasing. However, with the budget they were given they felt they could not find a property that would match their needs and were struggling to save the deposit required.

The clients had a £30,000 deposit thanks to some savings and a family gift and were shocked to see that this was not enough to purchase the properties they were looking at when combined with their maximum borrowing.

The solution:

We advised Kevin and Stacey that shared ownership could be a good option. We put them in touch with the housing association, which confirmed their eligibility. They then carried out some viewings and found a property that they fell in love with very quickly.

This meant the clients could purchase a two-bedroom flat in their local area, and with overall monthly payments still lower than their existing rental payments.

Property value: £415,000

Share being purchased: £207,500 (50%)
Loan amount: £186,750 (clients had a 10% deposit for their share)
LTV: 90% (of the share)
Rate: 1.95% five year fixed
APRC: 3.8%
Term: 35 Capital Repayment
Lender arrangement fee: £999 added to loan amount
Mortgage payment: £620pcm

Rent payment on the remaining share: £623pcm

Service charge: £129pcm

Total monthly expenditure: £1372pcm

This article was originally posted in What Mortgage online. You can see the original article here. Please note this will launch a new web page.

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