Shared Ownership
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Shared Ownership
Richard Grigg talks about shared ownership, and how it can be an effective way to make buying a home more affordable.
What is shared ownership and how does it work?
Shared ownership is a method of housing purchase that allows you to buy a smaller percentage of a property, rather than having to find the deposit, income and mortgage to purchase a full property outright.
The benefit is you’ve got a much smaller mortgage and a smaller deposit. You will pay rent to the local housing association for the part of the property that you don’t own.
Who is eligible for shared ownership?
Anybody will have shared ownership available to them, although we tend to see more applicants with a single income or applicants with children, where there’s less disposable income available.
Inside of London there’s an income cap of £90,000, and elsewhere in the UK that cap is £80,000.
Which lenders offer shared ownership mortgages?
A good proportion of the market offer these mortgages. It changes quite a lot as to who is and isn’t lending in the shared ownership space. It’s an emerging market, and so we’re seeing a lot more lenders come into it.
As with anything, the more competition you’ve got, the better the rates are going to look for clients. We’ve got a good spread across that market. Some lenders have very tight requirements where you’re going to find good rates, but they don’t lend to a lot of people. There are also options for people who’ve got a poor credit history and difficulties with affordability, and where income is very tight.
What are the advantages and disadvantages of shared ownership?
The big advantage is that it’s significantly cheaper than your traditional property purchase. You’ve got to find a much smaller deposit – it’s still 5% or 10%, but only on the share of the property you’re buying. So your deposit requirement is much smaller.
The actual mortgage you need is also much smaller because it’s just for a certain percentage of the property. That being said, you still need to be able to afford the rent on the other side.
In terms of disadvantages, you’re not paying all the mortgage off. You’re only paying that mortgage over a period of time to clear your share. You’re always going to have rent to pay on the rest of the property.
The other big issue is that it’s your property and you’re liable for it. If you need to make repairs, that’s on you – there’s no assistance from the housing association.
Yet if you want to make upgrades to the property, such as changing windows or doors, you need permission from the housing association to do it – even though the cost is all yours to bear. Plus, if you don’t own the whole of the property, you’re not going to benefit from all the potential uplift to the property value.
Which properties are available for shared ownership?
A certain percentage of all new build homes have to be on an affordable housing scheme. That’s where the majority of those shared ownership properties are coming from.
That being said, there are also people in a shared ownership property who decide to sell. They may need a bigger property, possibly on the open market, or they will look for another shared ownership property. You can move from shared ownership to shared ownership. So you can buy a previously owned property this way as well.
How much deposit do I need for a shared ownership mortgage?
5% or 10% are the most common. A 5% deposit will get you in the door with most of the lenders. You’ll see a big rate difference if you can get to a 10% deposit.
Bear in mind that the deposit is purely based on your share of the property – so that deposit requirement is significantly lower than it would be otherwise. A couple of lenders out there, with the right conditions, may look at a 0% deposit. The rates are much higher, but they do exist in the market from time to time.
Will my shared ownership property be freehold or leasehold?
Because of the rental requirement from the housing association, it will always be a leasehold property. The housing association will own the freehold to the property.
If you gradually buy more and more of the property right up to 100% – which is possible on the majority of shared ownership schemes – the housing association will have the option to turn it into a freehold on completion.
Speak To an Expert
Come on in and be quite forward with what you’re after – just be very honest with your mortgage broker. It’s good to make sure that we know absolutely everything about you. That way we can’t be blindsided by a lender. An open book policy is very good when coming to see your mortgage broker.
Can I buy a bigger share of my home at a later date? Can I ever fully own a shared ownership home?
With the majority of schemes, yes, you can own the property outright. There are a couple of schemes that don’t allow this – the housing association requires that they hold a 1% share – commonly referred to as a golden share – in the property.
Those are few and far between, but it is worth just double checking the paperwork to be sure of what you’re dealing with.
So you absolutely can buy that bigger share. I do have a conversation with all of my shared ownership clients to check that this is the right thing for you. If the plan is to own the property outright, then yes, buy more and more as time goes on.
But bear in mind that shared ownership is designed to be accessible to people who are struggling to buy a house. You typically have to sell what you own. So if you build that share up to to say 60% or 80% of the property value, you may find it’s significantly more difficult to sell that property.
Ultimately if someone can afford 80% of a property, they’re not too far away from buying 100% of a slightly smaller property or hanging on longer to buy 100% of a bigger property.
So I encourage clients to look at how long they plan on staying in that property. Is it their forever home? With the longer term in mind, is it the right option to buy more of the property as they go on?
What happens if the value of my house changes?
That’s fairly simple. If you own, say, 40% of the property and the value of the house goes up, you maintain 40% of that property value. If the house goes up by £10,000 and you own a 40% share, your share will increase by £4,000.
It’s proportional based on the percentage, rather than the amount you paid at the beginning of the process.
What if I have bad credit? Can I still get a shared ownership mortgage?
Housing associations rarely have concerns around previous credit, as long as you can comfortably afford the rental payments after everything else has been taken care of.
We have a good range of mortgage providers, from high street lenders with very tight credit requirements all the way through to specialist lenders, whose job it is to provide mortgages to clients with credit issues.
How do I sell my shared ownership home?
Typically, the housing association will want to sell that property themselves. From past experience, they tend not to be particularly successful with it but most want to do that for a period of time.
Most commonly, if the housing association hasn’t been able to sell the property, they are happy for the owner to approach an estate agent direct.
Can I make home improvements to my shared ownership property?
Absolutely. Ultimately, it’s your property and you will want to make it a home. You do need to have home improvements signed off by the housing association. It needs to be checked and confirmed.
Just be aware that while you could potentially increase the value of the home, you will only see the proportional benefit of that based on the share that you own.
How does the remortgaging process work with shared ownership?
In the majority of cases, and I do see a lot of shared ownership clients, there are no differences from a traditional property remortgage. The market is very diverse and it’s well worth looking around, as lenders move up and down the sourcing tables.
We will have a look at the best option that’s available to you at the time. We run the numbers to see ultimately what that best bet is going to be for you.
Are there any other fees for shared ownership?
You may find that solicitors’ costs are slightly higher. Part of that is down to the fact that the property is leasehold, which means there’s a little bit more work to do for them in liaising with the housing association. But that’s not a dramatic increase in costs.
Typically, when you look to sell the property in the future, because it’s a housing association asset they will want a professional valuation done by a RICS surveyor. We can’t just base it on what one or two local estate agents believe the value of the property to be.
What are the alternatives to a shared ownership mortgage?
If your budget or affordability is limiting what you can buy on the open market, one option is to buy with a friend to help boost the income. But that could cause some problems in the future. Friends often want to separate and buy with partners in the end.
You could also look to buy a smaller property – but in a lot of cases that doesn’t suit the people trying to buy these houses in the first place. You could move to a different part of the country where property is significantly cheaper, or continue in private or social rented options.
The nice thing about shared ownership is that it does fill that gap between renting and home ownership. It’s a very useful stepping stone for a lot of people to get themselves on the housing ladder.
How do I apply for shared ownership?
You start by getting self-registered on the Help to Buy portal. I would strongly suggest you contact the housing associations in your area, to make them aware that you’re in the market and looking.
The majority of property is still sold through traditional estate agents, and listed on Rightmove, Prime Location and other property sites. Keep your eyes open because unfortunately shared ownership is an incredibly competitive market.
A lot of people are looking for shared ownership properties – and in fact there should be a lot more because not everyone knows it’s available. So do anything you can to make sure you’re at the top of the list when the right property becomes available.
What else do we need to know about shared ownership?
Especially if it’s your first property, reach out and speak to a broker. Have that conversation. Look through what’s available. I do a lot of backend work for my clients – we’ll have an initial conversation, cover off any questions and queries they have, but then I will do everything on an individual property basis.
A traditional Agreement in Principle doesn’t cut it for shared ownership, because as the rent changes, so does the client’s affordability. It’s important to have an adaptive approach to the process for shared ownership – because what fits with one doesn’t fit for another.
We make sure you get the right Agreement in Principle for each property as it’s found, because in such a competitive market things move very quickly.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.