Most people have an ambition to become a homeowner but with the cost of living struggles and house prices skyrocketing, shared ownership is another way to get on the property ladder.
What is shared ownership?
Shared ownership is a government backed scheme to help folks get on the property ladder. You would initially buy a share of the value of the property (usually a new build flat or house), between 10% and 75%, whilst the housing association or developer would own the rest. They will be your de facto landlord. Every month, you would pay a mortgage on the share you own and a rent on the share the housing association owns.
How does the scheme work?
Just like with any home purchase, you would need to take out a mortgage. However, this will be for the share of the property you purchase. A deposit will be expected just like any mortgage application.
- Say you bought a 50% share of a £200,000 flat. This would cost you £100,000 in total, so you might put down a 10% deposit (£10,000) and take out a mortgage for £90,000.
- On top of this mortgage payment, you will need to pay rent to the housing association. This is worked out as a percentage of the share the housing association still owns and is usually between 2% and 3%. For arguments sake, if we applied 3%, you are looking at £3000 annually and £250 per month.
- Of course there are other costs that you need to factor in. As flats are usually leasehold, they come with service charge and ground rent. Stamp duty also needs to be considered, although this will be calculated slightly differently and you generally have the option to defer this until your share reaches 80%.
How do I find a shared ownership property?
Finding a property depends on what’s currently on offer from the housing association or developer. You’ll need to first contact a Help-to-Buy agent who will show you details of available homes.
- London https://www.sharetobuy.com/shared-ownership-london/
- England https://www.sharetobuy.com/
- Northern Ireland https://www.housingrights.org.uk/housing-advice
- Scotland https://www.mygov.scot/shared-ownership
- Wales https://www.gov.wales/shared-ownership-wales
Eligibility
There are some eligibility criteria that needs to be met to buy a shared ownership home. Generally speaking, this includes:
- Being the age of 18 and over.
- Outside London, your annual income needs to be less than £80,000.
- Inside London, your annual income needs to be less than £90,000.
- You cannot own another home. Shared ownership is popular amongst first time buyers. If you already own a home, you’ll need to be in the process of selling it.
- You should not be able to afford a home suitable for your housing needs on the open market.
- You must show that you do not have any rent arrears
- You must demonstrate a good credit history
- You’ll need a minimum deposit of between 5-10% of the share you intend to purchase
Can I purchase more shares in my home?
Buying more shares in your home is something called ‘staircasing’. It will be based on the market value of your home when you decide to buy additional shares as opposed to the price you paid when you first bought your home.
- Using the same example as above, say you now wanted to buy an additional 25% share, to boost your overall share up to 75%.
- You discover that the price of your home has now gone up to £300,000. You will therefore pay 25% of £300,000 – which is more than what you paid originally.
