Shared Ownership

Podcast approved by The Openwork Partnership on 27/12/2024

What is shared ownership and how does it work?

Shared ownership is a government scheme that offers people the chance to buy a share of a property from a housing association or a non-profit making body. It means you could buy with a smaller deposit and a smaller mortgage, meaning your monthly payments could be a bit lower.

Who is eligible for shared ownership? Can anyone get a shared ownership mortgage?

There is a small amount of criteria around eligibility for shared ownership properties. Typically, you’ve got to be a First Time Buyer, an existing shared ownership homeowner, or somebody who used to own a home but now can’t afford to buy outright.

You must be over 18 years old and have an annual household income of less than £80,000. That’s slightly increased if you’re in the London area, at £90,000 per annum.

Which lenders offer shared ownership mortgages? Are there many?

Most do, but it’s always a good idea to come and speak to us. We could find out what’s available, who’s offering good products and whether as potential applicants you are eligible.

Which properties are available for shared ownership?

Shared ownership properties tend to be new builds. However, you could also buy an existing property that’s in a shared ownership resale scheme. This is where people who bought a shared ownership in the past are looking to move on, so they’re selling their share of the property.

How much deposit do I need for a shared ownership mortgage?

Usually on a shared ownership property, you’re buying between 25% and 75% of it. The minimum deposit you’ll need is usually 5% of your share. That means you’re looking to raise a lower deposit for that potential purchase, which really helps people who maybe haven’t got the savings in place for a full property deposit.

Will my shared ownership property be freehold or leasehold?

All shared ownership homes are sold on a leasehold basis, whether it’s a house, bungalow or flat. If, over time, you ‘staircase’ on that property to increase your share all the way up to 100% and become the sole owner, usually the freehold gets transferred to you. At that point they’re no longer leasehold.

Can I buy a bigger share of my home at a later date?

Yes. You could buy a bigger share of your home at any time, usually in chunks of 5% of the home’s value, going right up to 100% for full ownership. You usually do that with a lump sum payment. You might use some savings, or you could increase your mortgage and do it that way.

Can I ever fully own a shared ownership home?

Absolutely. Staircasing allows you to buy additional percentages of that property, and most schemes allow you to increase the share to 100%, meaning you fully own that property. At that point, you no longer pay any rent on the part that you don’t own.

It’s worth bearing in mind that in some areas there are restrictions on the amount you could staircase up to. For example they could set a staircasing cap at 80%, which means you could only ever own 80% of that property.

What happens if the value of my house changes?

If the value goes up, for example, it means that the shares in the property become more expensive. Staircasing or increasing the share of your property might be slightly more difficult, because it will cost more.

But it’s also worth bearing in mind that if the property value were to decrease, the cost of your shares would reduce at the same time.

What if I have bad credit? Can I still get a shared ownership mortgage?

Bad credit shouldn’t be any barrier to being accepted onto a shared ownership scheme. But once you are accepted for shared ownership and you’re thinking about getting a mortgage, bad credit could make things more complicated.

Adverse credit could make lenders wary about whether you will make the payments – and therefore they may be unsure if it’s a good idea to lend to you. You might be restricted in the lenders available to you for a mortgage on the property. But a good broker would be able to advise you on your options.

Your property may be repossessed if you do not keep up repayments on your mortgage.
Approved by The Openwork Partnership on 27/12/2024

Podcast approved by The Openwork Partnership on 27/12/2024

How do I sell my shared ownership home?

You could sell your shared ownership property at any time. If you own 100% of the home, you could usually sell it on the open market, through an estate agent.

However, if you don’t own 100%, you must approach your landlord or housing association to sell the home. That gives them the opportunity to find a buyer for your share. You must also get a valuation by a surveyor who is accredited by the Royal Institution of Chartered Surveyors (RICS). That’s what the sale price will be based on.

Can I make home improvements to my shared ownership property?

You could paint, decorate, refurbish kitchens and bathrooms or anything like that on any shared ownership property, not a problem at all.

However, when it comes to structural changes, such as extensions, putting bifold doors and anything like that, you would need written permission from the housing association or developer.

How does the remortgaging process work with shared ownership?

It’s pretty much the same as any remortgage. We just need to find a lender who will allow shared ownership.

The biggest thing at a remortgage stage for shared ownership property is to decide whether you would like to buy an additional percentage. If it’s affordable, we could increase the mortgage to buy an extra 5% or 10% from the Housing Association. Or, you might have savings to increase your percentage.

How does stamp duty work for shared ownership properties?

It’s pretty much the same as a normal purchase. The stamp duty is calculated on the percentage that you’re buying, not the overall value of the property.

If, for example, if you’re buying a 20% share of a property that’s worth £300,000 overall, your share value is then £60,000. You would work out your stamp duty based on that. If you’re a First Time Buyer, that would mean no stamp duty to pay [correct at the time of recording in December 2024].

Are there any other fees we need to know about?

There could be property valuation fees to take into account, to work out the cost of your share of the property. There may be additional solicitors’ fees for dealing with leasehold and the paperwork involved with the shared ownership transaction.

There could be additional mortgage fees for lenders to look at shared ownership. Some housing associations have admin fees, as well. It’s always worth speaking to us at the start to work out what all the costs could be and what you could expect to pay.

What are the alternatives to shared ownership mortgages, what other options are there?
Shared equity is a slightly different approach to buying a property. You’ve also got normal residential purchases. A broker could help you look at straightforward mortgages at the time to see if these would work for you.

What are the advantages and disadvantages of shared ownership?

You typically need a smaller deposit because you’re buying a lower percentage of a property. Your deposit is based on that lower percentage, so you don’t need to have as much saved up.

You’re also not borrowing as much on the mortgage, which makes it easier for people on lower incomes to be approved. As life goes on, you may get pay rises here and there, or you might save some extra money. You could then gradually purchase more of that property and staircase right up to 100% ownership. It’s a really good way of starting out small, but eventually owning that whole property yourself.

In terms of disadvantages, staircasing and buying more shares could be tricky. If housing prices go up, you could find it costs you more to buy that extra percentage in the property. We’ve covered home improvements, where there are limitations on extensions and doing certain things to the property – that could be seen as a disadvantage.

Because shared ownership properties are leasehold, you’ll have to pay some ground rent, so there is an additional cost there. If you decide to move at some point, there may be limitations on selling. It has to involve a resale of the property share via the shared ownership market. There might be fewer people looking at those types of properties.

How do I apply for shared ownership? What is the process?

First, you need to make sure you’re eligible with the local housing association or housing provider. If you are eligible, they will invite you to complete a financial assessment. This is a calculator provided by the Homes and Communities Agency, which determines what percentage of the property you could afford to buy.

Once you’ve gone through that, you could start looking for a property. You would also speak to ourselves to find out about the deals available for you, which lenders are available and how much it’s all going to cost.

Then you’ll need to think about instructing solicitors to deal with the legal side of the transaction, all the way through to completion.

How can a mortgage broker help?

We’re here to take the stress and hassle out of the whole process and make it as smooth as possible from start to finish. We support you in finding a property, going through the mortgage application, getting the mortgage offer, the conveyancing and legal side of things and making sure everything keeps moving right up until you get the keys to your new home.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Approved by The Openwork Partnership on 27/12/2024