Wondering how you can get on the property ladder as a first-time buyer in the UK? We’re going to discuss Shared Ownership and everything to know about it, here…
A want for many of us in the UK is to step onto the property ladder. Unfortunately, with the rising market value, it is becoming significantly harder to do so. However, with the series of Help to Buy schemes introduced by the government, it is possible for more first-time buyers to now afford a property.
Most mortgages require a large deposit, and for some, saving such a large sum is nearly impossible to do, especially with rent and bills to pay each month. Shared Ownership, however, provides potential buyers the means to save a smaller sum but enough to purchase a share of a home. Then, in the future, they may be able to buy further shares and eventually own the property.
Want to know more? Let’s take a look at everything you need to know about Shared Ownership…
What is Shared Ownership?
Shared Ownership means that the purchaser will own a share of the property, whilst a housing association will own the remaining share and charge a remainder rent. The purchaser can choose to purchase the remaining share by a process which is called staircasing.
Currently, a Shared Ownership buyer can purchase between 25 percent or 75 percent of a property, either outright or with a mortgage.
However, the minimum initial share is due to change, with the government issuing a revamp for Shared Ownership to help first-time buyers onto the property ladder. The initial share will drop from 25 percent to 10 percent.
Who is Entitled to Shared Ownership?
The housing association will set out their own eligibility criteria. However, generally, to be eligible for a Shared Ownership property purchase, you must:
- Be over the age of 18.
- Earn less than £80,000 (or £90,000 in London) annually.
- Not own a home already (can own an existing Shared Ownership home and be looking to sell).
- Not able to afford a house on the open market.
What is Staircasing?
If a Shared Ownership property owner wishes to increase the number of shares that they own on their home, then they can do so by staircasing. This is where they can purchase additional shares on the property from their housing association. The current rules only allow the property owners to purchase additional shares in 10 percent increments, and it does require initial valuation and legal fees to pay.
Since the government is changing the lowest initial share percentage, they have also created a new process called gradual staircasing, which enables homeowners to purchase more shares easier and quicker than waiting to save up to purchase only 10 percent or more shares. Gradual staircasing means that 1 percent shares can be purchased each time. However, there is only a maximum of 1 percent each year, and it must be done for a 10-year period.
There are two types of staircasing, which include:
- Interim staircasing: this is when the owner staircases but does not own 100 percent of the property.
- Final staircasing: this is where the owner staircases and takes the ownership up to 100 percent, and they will then no longer be considered as a shared owner.
When a Shared Ownership property owner chooses to staircase, the amount of remaining rent will decrease as their shares increase.
What Are the Advantages of Shared Ownership?
There are many advantages to purchasing a Shared Ownership property, especially for those who haven’t been able to purchase a house the usual route. Some of the advantages can include:
- There is a chance that people who have previously struggled to buy homes are now able to afford property due to the smaller mortgage.
- The remainder rent is lower than renting privately, although there will be mortgage costs to pay too, which could overall make it more expensive in total. However, compared to privately renting, you can eventually own the home, so you are building equity over time.
- If you are on a low income, you will likely be approved for the mortgage due to the mortgage loan being smaller.
- You can choose to pay stamp duty in stages when you staircase instead of an expensive one-off payment. However, if you are a first-time buyer and choose to pay it in full, you will qualify for the stamp duty exemption.
- You don’t have to staircase if you do not wish to.
What Are the Disadvantages of Shared Ownership?
Despite the vast number of advantages with Shared Ownership, there are also some disadvantages of it. These include:
- The monthly mortgage repayments could possibly be more alongside the rent that will need to be paid to the housing association.
- Shared Ownership properties are always leasehold which means that the land it is situated on is owned by the housing association, and they may require ground rent on top of the remainder rent that you must pay them.
- You are still considered as a tenant due to the remainder rent that you pay. This means if you fail to pay rent or display antisocial behaviour, you are liable to be evicted.
- You cannot sub-let your property if you have not staircased to 100 percent unless you are living in the property permanently.
How To Sell a Shared Ownership Property
Selling a Shared Ownership home is generally the same as selling any other home. However, the housing association has an eight week period where they can find a buyer before you are able to put the property on the open market.
When you sell the home, you will receive money for the share of the property that you own, e.g. if you own 50 percent of a property that sold for £250,000, you would receive £125,000.
How to Apply for a Shared Ownership Property
If you are interested in buying a property through the government’s Shared Ownership scheme, you can do so through your local Help to Buy Agency.
Shared Ownership is an Affordable Way onto the Property Ladder
Clearly, there are both advantages and disadvantages to Shared Ownership properties. If you no longer want to pay towards someone else’s mortgage, this scheme gives you the chance to have your own mortgage and eventually own a property in a far more affordable way than the usual and expensive route.
The question is, is it for you? Be sure to leave your thoughts in the comments down below.
Please be advised that this article is for general informational purposes only, and should not be used as a substitute for advice from a trained conveyancing professional. Be sure to consult a conveyancer or solicitor if you’re seeking advice regarding your shared ownership. We are not liable for risks or issues associated with using or acting upon the information on this site.