From how to buy a shared ownership property to increasing your share and then selling it, everything you need to know about shared ownership.
Stepping onto the first rung of the property ladder may feel daunting – but shared ownership could give you a leg up and help you to own a property that may otherwise have been unaffordable.
With shared ownership, you only pay the deposit on - and need a mortgage for - the share of the property you are buying. This means the amount of money needed for the deposit is usually a lot lower than it would be if you were buying the whole property outright.
To help more people buy a shared ownership property, the government recently reduced the deposit amount needed for the scheme from 25% to 10%
In the meantime, you pay a subsidised rent on the remainder.
When your financial situation improves, you can increase your share in the property by buying more of it in increments, until you own all of it or are ready to sell it.
Here, we take a closer look at how this initiative works.
What is shared ownership?
With shared ownership you buy a share of the property, typically between 25% and 75%, with the option to buy more or all of the property at a later date.
However, to help more people onto the property ladder, the government recently overhauled the scheme and reduced the minimum deposit needed from 25% to 10%.
The changes have also made it possible for people to purchase more of their property in 1% increments, with slightly reduced fees. Previously, it had only been possible to increase your share in 5% or 10% instalments.
You pay a mortgage on the share you own, and reduced rent on the portion you don’t own, which is usually owned by a housing association, private developer or local authority. Rental payments are typically set at around 3% on the remaining equity.
The majority of properties that can be bought in this way are either new build or older shared ownership properties being re-sold by housing associations.
Shared ownership properties are always leasehold – so come with service charges, and for the time being, ground rent. However, new proposals from the government regarding ground rent may mean leaseholders wont need to pay it later this year (see 'service charges and ground rent' section below).
What are the eligibility rules for buying a shared ownership property?
This shared ownership scheme used to be focused on public-sector workers such as nurses and teachers. But provided you meet the following criteria, these days, anyone can apply:
- You must be at least 18 years old.
- You’re a first-time buyer or don’t currently own a property, though you may have owned one in the past.
- You have a household income of less than £80,000 a year, or up to £90,000 in London.
- Buying a home on the open market is unaffordable for you.
- You have a good financial history of tackling debts, and can afford the costs involved.
If you’re aged 55 or over, you may qualify for Older People’s Shared Ownership. This is similar to the standard scheme, but you’re only able to buy up to 75% of the property. Once you own this proportion, you won’t need to pay any rent.
How do you buy a shared ownership property?
The application process may vary depending on where you’re looking to buy.
Once you’ve decided on a property and been to view it, you put down a reservation fee, which is usually around £200. You’ll then undergo a financial assessment with the housing provider to work out what share of the property you can buy.
After that stage, it’s a fairly similar process to buying on the open market. You’ll need to secure a mortgage for your share of the property. Not all lenders offer mortgages on a shared ownership basis, so be sure to research your options.
How much deposit will I need for a shared ownership property, and what are the ongoing costs?
You’ll typically need a deposit of at least 10% of the share of the property you’re buying.
There are also the standard buying costs, such as mortgage arrangement fees, solicitor fees, surveys and stamp duty, although first-time buyers don’t pay stamp duty on the first £300,000 of properties, up to a value of £500,000.
Then there’s the rent you’ll pay on the remaining portion, alongside your mortgage repayments, as ongoing costs. Plus any service charges and ground rent for a leasehold property.
Who pays the service charges/ground rent on a shared ownership property?
That depends on your lease, so check this carefully. Even if you only own a small proportion of the property, you may find you must pay most or all of the service charge. The charges can vary each year, depending on what maintenance is needed. Typically, service charges are lower on houses and higher on flats, which have more communal areas to maintain.
Currently, home owners may also be responsible for paying a proportion or all of the ground rent. However, last month the government pledged to give leaseholders the right to extend the lease on their home to a new standard term of 990 years, meaning they will no longer have to pay the ground rent.
The legislation is expected to be brought forward in the upcoming session of Parliament, which starts in the spring.
How do I purchase more of a shared ownership property?
You can increase the portion of the property you own through a process known as ‘staircasing’, until you own it outright. How much you pay, though, depends on the value of the property at the time. So, if prices rocket, the amount you’ll pay to own more of your home will increase, too. But if they fall, you’ll pay less.
You can now purchase additional shares in your property in 1% instalments. Previously it was only possible to buy in 5% or 10% instalments but the government changed this last year, to help people buy more of their homes.
Each time you buy another share, there’ll be some legal and admin costs involved, though these will be reduced if you're buying in 1% instalments.
The more of the property you own, the less you’ll pay in rent on the remainder. If you manage to buy the entire property, you won’t pay any more rent.
What happens when I want to sell a shared ownership property?
If you want to sell and haven’t increased your share to 100% of the property, the housing association has the right to find a buyer for a period – typically, eight to 12 weeks. But this can work in your favour as they may have heaps of eligible buyers on their books. Alternatively, if you own the entire property, you can sell it yourself through the usual processes.
Interested in buying a shared ownership property?
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