Shared ownership, its not just for first time buyers you know!
Shared ownership has become more common than you might think. With rising house prices over the last two decades, without the assistance of a shared ownership scheme, many home owners would not have been able to afford a new home. The office of National Statistics in February 2020 reported the average home in England cost £230,300, while the average wage in the UK is presently £36,611.00, meaning there is a larger proportion of the population priced out of the local property market.
Believe it or not shared ownership is not a recent initiative, it first started in the late 70’s to help people buy their first homes.
However, because of the rise of house prices, shared ownership has become more and more popular. However, it has also become more complex, with several models of shared ownership. Usually shared ownership allows you to buy between 25% and 75% of your property, the remainder is rented from the other joint owner.
There are a number of schemes in place offering help to home owners looking to get on the property market. Shared equity schemes are not just for first time buyers, there for everyone who need that little bit of extra help to make their dream home a reality.
You can buy a home from your local housing association, to be eligible, your household income must not exceed £80,000 (£90,000 in London), you must be either a first time buyer, a previous home owner who cannot now afford to buy the property without shared ownership or an existing shared owner. If you are over 55 you can also take advantage of the Older Persons Shared Ownership Scheme, which means you can purchased up to 75% of your home and not pay rent on the remaining 25%, this also applied to disabled buyers.
The benefit of buying a property through a housing association is that you can buy more of your home as your financial situation improves, known as “staircasing”.
The government in 2013 also introduced the now popular Help To Buy Scheme to help home owners as well as builders open up the new build property market to more of the general population. The requirements being, you are buying a new build home worth less than £600K, the buyer contributes a 5% deposit, the government a 20% loan (40% if you live in London) interest free for the first 5 years, and the remainder of 75% as a mortgage with a high street lender. The Help to Buy Scheme is set to end in March 2023, unless the government extends it, so if you are thinking of taking advantage of the scheme keep this date in mind.
As well as government backed shared equity schemes, larger residential builders offer shared equity schemes. Each developers’ terms and conditions are different, its therefore important that you get expert legal advice as to the term and conditions of the shared ownership scheme with the developer. Often the developer includes provisions in the agreement that mean, even if the value of the property reduces when you come to sell the property, the builder will not lose out and any negative equity is born by you as the purchaser. You therefore need to pay attention to the small print and take advice before signing up to the scheme. Depending on where you live a fluctuating property market can have a massive impact on hard saved deposit if the property market falls.
There are also private equity firms getting in on the act, teaming up with building developers to offer shared equity ownership. So, you buy the share you can afford, the private equity partner the other and you pay rent on the remaining share.
When considering shared equity, you need to be aware that not all mortgage lenders are open to shared equity schemes and so getting financial advice early is advised, a good Independent Financial Adviser will know which mortgage lenders loan against shared ownership properties. Once you have found your new home, you then need a conveyancer who knows the complexities of the shared ownership market and can advise you properly about the contact terms and conditions you are entering into. You need to fully understand the commitment you are making not only buying a new home but also your obligations under the shared ownership scheme.
You need to weigh up the pros and cons of shared ownership, here are some examples for you to consider:
- The deposit is usually smaller because you are purchasing less of the value of the property. Deposits are dependent on your lender and usually between 5% and 15% of the share you are buying. However, remember, your fees for buying will be more expensive than buying a home which is not shared ownership, because the buying process is more time consuming and complicated, so your conveyancer is likely to charge more.
- The rent you are charged on the share, is less than current market rate, you will usually be charge around 2.75% of the market value of the property. However, you need to factor the cost of the rental of the share when budgeting whether you can afford to buy your home.
- There will be less stamp duty to pay as you will only pay for your share, if you decide to staircase, then you will also only pay for the share you buy later down the line.
- For those on lower incomes, it means that mortgage lenders are more likely to offer a mortgage as the mortgage is smaller
- You can sell your share of the property at any time, however, shares ownership properties can take longer to sell and the process is more complicated if you have to offer your share back to the housing association before offering your share on the open market.
- Shared ownership of course offers you more security than private renting and means your share will increase as the property increases in value.
- You can choose to staircase as your financial position improves, however, some associations wont allow you to buy 100% of your home, so make sure you read the small print so you know where you stand before buying. Also, the smaller share of your home, the less benefit you will get from an increase in the value of your home. If you choose to staircase later down the line, bear in mind that the fees for staircasing can be similar to the cost of buying, because you will have survey, valuation and legal fees to pay for.
- As shared ownership properties are leaseholds, you will have to pay all of the service charge of the property, so make sure you factor this into your budget, also check the terms of the service charge to make sure this does not go up significantly after a period of time.
- There are fewer mortgage lenders willing to mortgage shared ownership properties, so get financial advice early on so you know, which lenders are likely to lend to you.
- Because you do not own all the property, you usually have to ask permission of the other owner if you want to make an alterations to the property, so if you are thinking of making any alternations, make sure you get permission before buying and enquire what alteration might be agreed in case you want to make any further down the line.
Although the shared equity market is complicated, if you know what you are getting into and get the right advice before you buy, it offers many a chance to own their own home. As prices increase, more and more people will be taking advantage of shared ownership. Ensuring you get the right legal advice before buying is essential. At Gaddes Noble Property Lawyers, our expert team understand the complexities of shared equity schemes, we can explain to you the legal jargon and guide you though what can be a complex area.
We are here to help make your dream home a reality. If you are considering buying a shared equity home, get in touch, we would be happy to provide you with any advice before you decide to commit to a shared equity home.