With house prices on a seemingly never ending rise, ways have been introduced to help give people struggling to get on the property ladder a better chance.
These ways include the help to buy scheme, lowering the minimum deposit allowance to 5% (depending on certain circumstances) and shared ownership. Speaking to an online mortgage broker can help see if any of these ways are right for you.
In this article, we’re going to help you learn more about shared ownership so you can decide if it could be an option for you.
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What Does Shared Ownership Mean?
Shared ownership is a government home ownership scheme that can help people who otherwise can’t afford to own a property get on the property ladder by owning a share of a property instead.
Eligibility for Shared Ownership
As the scheme is meant to help those in need of an affordable way of owning property, not just anyone can get a shared ownership home. The eligibility criteria may differ between different housing associations and parts of the UK.
The general criteria of who can get a shared ownership home is as follows:
- Permanent resident of the UK
- Aged 18 or over
- First time buyers
- People who want to move from one shared ownership property to another
- Don’t already own a home outright
- Unable to afford a home
- Annual household income of less than £80,000 (or £90,000 in London)
- Be able to prove you can afford the monthly rent and mortgage payments as well as have a good credit score
Paying A Deposit
The good news with paying a deposit is that you only have to pay it on the percentage of your share, so it can be much cheaper than a regular deposit. If you have a 50% share of a £200,000 property, then you only pay a deposit of 5%, 10% or higher on the £100,000 share value.
How Paying Rent and a Mortgage Works
Renting will be much less on a shared property than it usually is. You only pay rent on the share you don’t own, and it’ll usually be around 2.75% of the value of that share per year.
For example, if you have a £200,000 property and you buy a 50% share, you’ll be paying 2.75% of £100,000 – which is £2,750 a year, or divided by 12 it means you’ll have a rent of £230 a month.
The monthly mortgage payment is more dependent on various factors such as how much of a share you purchased and how big your deposit was, as well as the length of the mortgage term plus the interest rate on top of all that.
How Much Of The Property Can I Own?
To start with you can buy between 10% and 75% (the previous minimum was 25%). While living there, you can later purchase more and more of the property over time. This is called “staircasing” and involves you purchasing shares. You have to buy increments of at least 1%.
How Does Staircasing Work?
You can staircase up to 100%, buying the freehold and owning the entire property if you choose to. But you also don’t have to use the staircase at all.
The smaller the share you own the less you benefit from price increases, but it also minimises the negative effects if the property value decreases.
There are some circumstances where staircasing is capped, usually to a maximum of 80%. This is to stop buyers from turning the shared property into a second home, as shared ownership is for those who need help purchasing a property and the scheme has measures to stop people from taking advantage of it. This restriction is usually more common in rural areas.
One of the downsides to staircasing is that every time you do it, you will have to pay for legal fees, mortgage fees and surveys – as opposed to buying a house traditionally where you only have to do it once.
Shared ownership can offer a way to get on the property ladder for people that would otherwise be unable to, however, there are drawbacks to it as well. Do as much research as you can and speak to a mortgage advisor to see if it’s right for you.