How does the shared ownership scheme work?
Shared ownership is a government scheme that allows you to buy a share in your home and not the whole thing. Shared ownership schemes are usually run by housing associations and offer you the option to buy between 25% and 75% of your home. You will then rent the rest of it from the housing association or other party.
Purchasing a property using the shared ownership scheme is an alternative way for people to get their foot on the property ladder. It involves buying a share in a property at an agreed price and then renting the remaining share from the housing association (or other party) involved.
If you want a property worth, say, £120,000, you could buy a 50% share, at £60,000 and pay rent on the remainder. Shared ownership purchases are always leasehold.
These schemes provide a degree of flexibility with regards to stamp duty land tax. You can either pay the stamp duty on the share you’re purchasing initially or, if you know that you’ll be buying additional shares in the future, you can pay stamp duty on the full market value at the time of the original purchase. No more stamp duty will be necessary later which can be advantageous if the property value increases.
The process is similar to buying a normal property but, as there are various other obligations with regards to the lender’s and housing association’s requirements, it can take longer as it is more complex.
What are the benefits of a shared ownership property?
It’s a great way to get a foot on the property ladder and buy the type of property you want, in an area you want, at an affordable price.
You can continue to buy shares in the property once you’ve moved in (known as staircasing), allowing you to save up, or wait until your circumstances change. You must purchase a minimum of 10% of the property at a time, and can’t usually buy more within the first 12 months of purchase. When you buy additional shares they’ll be based on the current value of the property, so if prices have risen you’ll pay more than you did per share originally.
Staircasing is a great way to gradually work up to fully owning your own home. As you buy additional shares, your rent will decrease in line with the amount you own and, in time, you could buy the whole property from the housing association. At this point, you would usually also be entitled to the freehold interest in the property (unless the property is a flat).
Am I eligible for the shared ownership scheme?
- Be at least 18 years old
- Have a household income of £80,000 or less (£90,000 in London)
- Be a first time buyer, or have owned a home previously but can’t afford to buy one that meets your housing needs now
‘Older People’s Shared Ownership’ schemes are usually for the over 55s and are generally the same as shared ownership schemes but you can only buy up to 75% of the property and once you get to 75% there is no rent to pay on the additional 25%.
‘Home Ownership for People with Long Term Disabilities’ schemes (HOLD) are available for people with long term disabilities who can’t find properties in the other ‘Help to Buy’ schemes to meet their needs.
Can I sell a shared ownership property?
If you own the house outright you can sell it, but the housing association has to be given first refusal. It has this right for 21 years from you owning 100% of the house.
If you only own a share, the housing association has the right to find a buyer when you decide you want to sell. It may charge a fee for dealing with the sale as it is effectively acting as your estate agent, but this will be detailed in the lease and we will explain it all to you before completion.
How will I be able to ‘staircase’ on my shared ownership property?
You may be able to afford to do this if your circumstances change, for example if you save up some additional funds, receive a gift from a family member or get a salary increase that allows you to borrow/save that bit more.
You can then contact the relevant housing association and arrange to buy further shares.
Is shared ownership just for new builds?
No, you may be able to buy into the resale of an older house owned by the housing association. This would usually be a property that has been built a few years previously as part of an affordable housing scheme, but the current buyers have decided to sell their share of it, and the housing association (the other part-owner) needs to find a new buyer. However, shared ownership properties are generally newer houses or flats, and it is very rare that a period property would be available as part of a shared ownership scheme.
Can I make a joint application with my partner or spouse to buy a shared ownership property?
Yes, providing your joint household income is less than £80,000 a year (or £90,000 in London).
Can I apply for a shared ownership scheme without a mortgage?
Yes, if you have enough savings for your share of the property. However, if you have savings of this amount then you may be able to afford to use it as a deposit to buy a house on the open market – which could mean that you are no longer eligible for a shared ownership scheme.
Do I need a deposit to buy a shared ownership property?
Usually you will need a deposit for the bank to agree to lend you the money to buy your share of the property. There are also schemes to help you if you have a small deposit, such as the Help to Buy Equity Loan scheme, or the Mortgage Guarantee scheme.
Can I remortgage on a shared ownership property?
It’s possible you could, especially if you have already paid off a significant amount of your mortgage, you have progressed to owning the property outright (i.e., 100% of the shares), or the value of the property has increased since you purchased it. This is something you should discuss with your mortgage lender (i.e., the bank or building society etc.).
Who is responsible for repairs on a shared ownership property?
Even though you are only a part owner of the property, you’ll be responsible for all of the maintenance and repair costs, unless you’re buying a leasehold flat (where a management company would usually do this). Flats are nearly always leasehold, so the freeholder (who owns the building and the land it is built on) will usually be responsible for the management of the property. A freeholder landlord would usually employ a managing agent or company to manage a building in this way.
What’s the difference between shared ownership and Help to Buy/Rent to Buy schemes?
Help to Buy and Rent to Buy schemes are two different government schemes.
Shared Ownership is one part of the Help to Buy scheme. There are other options as part of the Help to Buy scheme, including equity loans and mortgage guarantees.
Rent to Buy is a separate scheme whereby the government made loans available to housing associations and other providers to build properties suitable for renting and make available at below usual market rent (usually 20% below). Tenants can rent these properties for up to 5 years or a different term agreed with the landlord/housing association), giving them the opportunity to save up for a deposit. They may then opt to purchase the property and may be able to take part in the shared ownership scheme.
Are there priority groups for shared ownership schemes?
Only for military personnel, who are given priority over other applicants. There used to be many more restrictions on the eligibility for the shared ownership scheme, such as being a key worker like a nurse or teacher, but now these have been lifted so that the main qualifier is a household income of below £80,000.
What is shared equity?
There are a number of shared equity schemes: some are part of the government’s Help To Buy scheme (Help to Buy: Equity Loan), and some are schemes offered by individual property developers. Some developers will therefore offer additional loans that are not part of the government’s Help To Buy scheme.
These schemes differ from development to development. However, we’ll advise you on the specifics of your particular scheme once we get the paperwork in from the seller.
Shared equity is when you buy 100% of the house and, as well as your normal mortgage, you obtain a further loan that is registered as a second charge/mortgage on the property. With the government backed scheme, the most you can borrow is 20% of the purchase price, and you must already have a 5% deposit yourself. You won’t be charged loan fees on the second charge (second mortgage) for the first 5 years, but after that fees will be incurred. The loan is repayable 25 years after taking it out or upon sale of the property if earlier.
Properties can be freehold or leasehold, and, as you own 100% of the property, there’s no further rent to pay.
How much will Graysons’ fees be?
Our property team has lots of experience in dealing with shared ownership and shared equity scheme properties, and don’t forget that Graysons is an accredited member of the Law Society Conveyancing Quality Scheme (CQS), so you can rest assured that our expertise and quality of service is second to none. Contact us now for further information or to make an appointment.