Heide's Blog - 30th July 2020 - Swift Mortgages & Finance

What is the Shared Ownership Scheme?

The shared ownership scheme comes under the government’s affordable housing initiative.

Applicants purchase a percentage of the property and pay rent for the remaining share. The rent is normally paid to a Housing Association.

The deposit requirement is only against the value of the share that is being purchased rather than the value of the whole property.

The shared ownership scheme is available on new build properties as well as existing properties.

Once an applicant has purchased a share of a property, they may buy some or all of the remaining share in the future by “staircasing” when they can afford to do so by increasing their mortgage.

Who can utilise the Shared Ownership Scheme?

Often first-time buyers who are not able to afford to buy a property. Otherwise someone who may have previously been a homeowner but whose circumstances have changed, and they can no longer afford to buy a property. For example, someone who has split up from a partner.

To qualify for shared ownership, the combined household income must be less than £80,000 per year (£90,000 if living in London). Applicants must be 18 or older. And they must be able to purchase between 25% and 75% of the value of the property when they buy it.

How do I get the finance for a Shared Ownership Property?

There are many lenders who offer shared ownership mortgages. The Housing Association or equivalent will give you the details of the property you’re interested in.

You’ll need to know the percentage you’re buying, the value of the percentage you’re buying and the rent you’ll be paying for the share owned by the Housing Association.

You’ll need to have a deposit: at least 5% of the share you’re buying.

You’ll need to be able to pay the rent for the share that belongs to the Housing Association.

The mortgage lender will factor the rent into your mortgage affordability.

Example of Shared Ownership

A property valued at £300,000

Purchasing 50% would mean you finance £150,000 and pay rent on £150,000

Annual rent is calculated at around 2.75% of the remaining share. In this instance, £4,125. Which results in a monthly rent of around £344.

At least 5% deposit would mean you’d need £7,500 (5% of £150,000)

Resulting in a mortgage requirement of at least £142,500

The mortgage lender will factor in the rent payments to your mortgage affordability. It’s therefore important to know what the rent is going to be, before you speak to a mortgage advisor.

How can I get onto a Shared Ownership Scheme?

Many shared ownership schemes are in new build developments as there is a requirement for new developments to include a cross section of properties to accommodate all types of buyer. So it may be worth going to a new build development to see what they have available.

However, shared ownership properties do appear on the re-sale market. Perhaps the original buyers can now afford to buy outright but have decided to move somewhere else rather than re-mortgage and buy the remaining share. So you may also find shared ownership opportunities in estate agents or on other selling sites.

You will be given a financial assessment to ensure you qualify before being able to proceed.

Check out this link for all things shared ownership: https://www.sharetobuy.com/

What are the costs of the Shared Ownership Scheme?

You will need to provide the deposit of at least 5% of the share you’ll be buying.

You will be responsible for the legal (conveyancing costs) of purchasing the property.

You will be responsible for the rent to be paid on the share owned by the Housing Association.

You will be responsible for the maintenance and upkeep of the whole property.

At the point you want to re-mortgage to buy a bigger share (known as stair-casing) you will need to pay for an independent survey. This is the value the Housing Association will use to confirm how much you will need to pay, to buy additional shares.

Depending on the value of the share you purchase you may be subject to stamp duty charges at the prevailing rate.

Is there anything else I need to know about Shared Ownership?

Make a note of the value of any improvements you make to the property (for example, a conservatory). Disclose these to the Housing Association and it may be possible for them to “ringfence” any potential increase in value.

In other words, if you make improvements that in crease the value of the property by £25,000, this could mean you would pay an increased amount based on the value of the property at the time you want to stair-case.

When you’re looking for a shared ownership property, be aware of anything that is called “premium”. This is an additional cost and it cannot be added to the mortgage.

There are some rules that protect mortgage lenders, buyers and landlords when it comes to the Shared Ownership scheme.

The property must be used as your main residential home – it can’t be purchased for you to rent out to others.

It must be subject to Mortgage Protection which protects the mortgage lender – allowing them to claim losses to the whole value of the property rather than just the percentage being lent against. This comes into effect in the event of repossession of the property by the lender.

The applicant must be aware of the way rent is reviewed so they can budget for any future increases in rent.

The applicant must be given the opportunity to buy additional shares (stair casing) in the future as and when they can afford to do so. Meaning they can eventually own 100% of the property.