Shared Ownership Scheme
If you are desperately trying to get on the property ladder and want to own your first house but cannot afford to own 100% house, shared ownership is the scheme introduced by the government under the affordable housing scheme.
Some borrowers are facing problems in affording the property for which the government also came up with new rules. This article will try to answer the questions related to the scheme.
What is Shared Ownership Scheme?
Shared ownership properties enable you to buy a share of a property and pay rent on the remaining share. You can then buy the rest of the share of the property. But until then you can pay a subsidised amount as rent (at a rate of 4.3%). Also known as part buy part rent scheme, the shared ownership scheme delivers affordable housing from 2021 to 2026.
To be eligible under these criteria, you have to:
- You need to get formal approval from the local authority
- You need to identify or get a new house based on your needs and meeting certain standards so that it gets approved by the Housing association
- You need to demonstrate the capability of paying mortgage or rent to get the leaseholder agreement.
The shared ownership scheme saves you from the hefty deposit which you have to make while buying the whole house. Instead, you pay a lower amount and own the share of it. Although in the long run, this might be a more expensive idea.
Why do people get Shared Ownership homes?
According to a survey of 2020, Shared Ownership, especially in parts of southern England, London, or where the property prices are higher, is a popular scheme to take up.
With housing prices soaring, the cost of saving a deposit is rising, and a persons ability to get a mortgage is decreasing. Shared Ownership is an amazing opportunity to people where they can’t afford property due to higher deposit, mortgage, bad credit or fluctuating income.
What are the recent changes in Shared Ownership?
The housing department came up with recent changes in Shared Ownership property in April 2021. The minimum share required to buy into a Shared Ownership property has changed from 25% to 10%.
This automatically reduces the mortgage or deposit thus making it feasible for people from the lower-income group to afford to buy a house. The owners can increase the shares by 1% as compared to 10%. The shared owner has no property obligation to increase the shares and can continue to live in the property.
What is Stair casing in a Shared Ownership scheme?
Stair casing is the name given to the process where you can buy further shares of their Shared Ownership property from the developer who owns the remaining part.
Initially, the owner can purchase 10% of shares and can gradually grow with a max of 1% buy. It’s advisable to buy the maximum possible share initially. This gradual stair casing should be available for a minimum of 15 years. The government also came up with a new scheme to help people to move up the property ladder by reducing the minimum initial share.
Although there are certain criteria for stair casing too:
- You should be a tenant for at least three years and have been staying in the current property for at least 12 months.
- You should be having maximum household income of no more than £80,000
- You will need to undergo an affordability assessment exercise to demonstrate the capability of affording the property.
- You should not be involved in any bankruptcy proceedings.
What are the rules for home repairs and maintenance with a shared ownership scheme?
The renewed Shared Ownership scheme also granted a 10-year period for the Shared owners where the landlord will be responsible for the cost of the repair/maintenance of the house. This also says that shared owners can claim up to £500 in maintenance cost with any amount extra than this will be borne by the owner.
The owners can also roll the unused amount for repairs to next following year. It is to be informed, the rule is valid only when the property is in a shared ownership model and will be invalid if the owner reaches 100% ownership.
What if I want to sell my share in Shared Ownership property?
You can sell it in the open market if you own 100% of it. But in case you own a certain percentage then you sell the entire stake and not the part of your shares. To take care of this, the contract between the Shared ownership tenants and the owner is always a leasehold agreement. This allows the tenant to sell the property and not the land where the building is standing.
The earlier model gives an 8-week period to the housing association in which they have the rights to market the property. If the housing association is not able to find a buyer, then the owner can move to the open market. The new model will give Shared Owners an option to end the 8-week period with a 4-week mark to move to the open market giving them greater control over the resale process.
What will be the changes in mortgage schemes due to the change in the Shared Ownership scheme?
There is not much change in rules with the lenders considering the total amount of purchase has been reduced already. Most of the builders accept 5% deposits only if you have good credit reports and good income. Your deposit size will determine your mortgage rates so better to consult with your mortgage broker to get the best deal.
However, it will take some time before the majority of lenders can reflect the rules as per the new model of Shared ownership scheme.
If you think that shared ownership may be right for you, or you are unsure of the options available to you as a first time buyer, then please get in touch with us. We can have an initial conversation to assess your financial situation and find the best route possible for you to purchase your first home.
It is important to go through this process to ensure you get on the right scheme for you. Take advantage of what is available to help you get onto the housing ladder and secure your future.