Shared Ownership Housing Schemes Explained
Not everyone can afford to buy a property. Especially in London, where property prices have gone up significantly in recent years.
Shared Ownership Schemes come to the aid of first-time buyers and renters looking to own a home by offering them lower deposits and more convenient financial conditions. Shared ownership gives you the opportunity to own a share of a property and rent the remaining share. Over time, you can also increase the share you own until you reach 100% ownership.
What is a shared ownership scheme?
A shared ownership scheme allows a purchaser to buy a share of a property through a mortgage while paying rent for the remaining share of that property to a housing association. In time, the purchaser also has a “staircase” option, allowing them to purchase more shares in the property until they reach 100% ownership and stop paying rent. In this case, the only remaining payments will be for the mortgage, service charges, and ground rent.
A shared ownership scheme is very convenient especially for first-time home buyers with lower incomes. If their income does not qualify for a full-property mortgage, they can use this option to make their way onto the property ladder. Because they are only buying a share of a property, financing institutions will require that they pay smaller deposits for the related mortgage and will accept lower incomes.
At this time, the minimum share of a property you can buy through a shared ownership scheme is 25%. However, the government has announced plans to soon lower that margin to 10%. This will allow even more people to access shared ownership schemes and benefit from their conditions.
The types of homes you can purchase through a shared ownership scheme are typically new builds or older properties being re-sold by housing associations. In England, you can only benefit from a shared ownership scheme based on a leasehold. Other rules may apply to other regions, so check the government websites for more information.
Benefits of A Shared Ownership Scheme
The biggest advantage of a shared ownership scheme is that it allows you to own a share of a property even if you have a lower income and can only afford a smaller deposit.
Costs of shared ownership are lower than other housing options due to the fact that the rent you pay is often times less than the market rate. Additionally, until you reach a share of 80%, you can also defer the payment of Stamp Duty Land Tax (SDLT).
Because local authorities require new developments to include shared ownership properties in order to receive planning permission, this means that the homes you can purchase through such a scheme can be located in very sought-after areas.
Shared ownership scheme eligibility criteria
Each country will have its own criteria for shared ownership eligibility. Make sure you check official sources to see what conditions apply to your area.
In England, the following conditions apply to those wanting to access a shared ownership scheme:
- You are a first-time buyer, an existing shared owner, or a person who has previously owned a home and can’t afford to own one now
- You have a combined household income lower than £80,000 (or £90,000 in London)
- Military personnel applications have priority
- There are special programs in place for people over 55 years old called ‘Older People’s Shared Ownership’ (you can buy up to 75% of a property through this scheme and not pay rent on the remaining share)
- There is also a ‘Home Ownership for People with Long-term Disabilities (HOLD)’ scheme in place.
How to Apply for a Shared Ownership Scheme
First of all, check if you are eligible.
Then, contact your local council’s housing team to check what shared ownership schemes are available and what conditions are in place.
Next, check if you are eligible for a mortgage. Most major lenders have mortgage programs for shared ownership. If they do, you can apply for a mortgage. Once you undergo the affordability checks, you will have to pay a deposit in order to receive the mortgage.
To make sure you can afford all the costs related to shared ownership, calculate your income compared to the monthly costs of mortgage fees, stamp duty (if any), as well as any insurance, repairs, maintenance, and service charges.
Buying more shares in a shared ownership property
Once you purchase your first share of a property based on a shared ownership scheme, you can use “staircasing” to purchase more.
At this time, the minimum additional share of a property you can buy through a shared ownership scheme is 10%. However, the government has announced plans to lower that margin to 1%.
The cost of buying a new share of a property will depend on the market value of that property at the time you intend to buy a new share. The housing association will value the property (at your cost) and inform you how much you need to pay. If prices in the area have gone up, you will pay more than you did for the first share. If prices in the area have gone down, you will pay less.
How Can You Sell a Shared Ownership Home?
If you are currently benefitting from a shared ownership scheme and you want to sell your share in a home, you can still do this even though you do not own the property 100%. The only condition that applies is that the housing association will have a “right of first refusal”. This means that they take priority in purchasing your share of the property or finding a buyer for it.
If the housing association is not interested in buying your share, you can search for a buyer yourself.
When you own 100% of your property, you are free to sell it on the open market, without any interference from the housing association.