Are you thinking about owning your own home, but only have a small deposit? Then shared ownership could be the answer...
What is shared ownership?
In a nutshell, shared ownership is where you buy a share of a house and you rent the remaining share. Because you’re buying a smaller percentage of the house, this means you can take out a smaller mortgage, and therefore put down a smaller deposit, which, all of a sudden, makes homeownership achievable!
Shared ownership is a really good way for those currently renting who are looking for that long term security.
Will I have to share a house with other people?
Despite how it sounds, you will not have to share a house with anyone else. Yes, it’s called shared ownership, but this is because you share the ownership of the house with the housing association, not other people.
How does a shared ownership mortgage work?
You buy a share in a house or flat of between 25% and 75% of the value of the property, depending on what your mortgage lender says you can afford.
- You only need a mortgage for the share you are buying
- You pay the mortgage on your share and you pay rent on the rest to the housing association
- Because you only need a mortgage to cover your share of the house, your deposit could be a lot lower than if you were buying a whole house outright
For example, the minimum deposit and income requirements for a £230,000 home are:
- 50% share requires a 5% deposit which equates to £5,750, and a minimum income of £27,600 and you then pay rent on the other 50% share to the housing association.
- 25% share requires a 5% deposit which equates to £2,875, and a minimum income of £21,600, and you then pay rent on the other 75% share to the housing association*.
You’ll receive a lease that sets out everything, for instance, the amount of share you’ve bought, how long you can keep the house for (usually 125 years), how much your monthly rental payments are, as well as your responsibilities while living there. Make sure you take the time to thoroughly read the lease and ask your solicitor any questions you have - no matter how silly you think they are.
So how much might it cost me?
You’ll have to pay a 5% deposit based on the share you’ve bought, stamp duty on the value of your share, and any legal fees to your solicitor. These exact amounts will depend on the purchase price of the house and the amount of deposit/rent you pay.
Who can apply?
The beauty of shared ownership is that it’s for anyone who fits the following criteria:
- Be able to put down a deposit of 5-10%
- Must not already own another property
- Have a total household income of £80,000 or less (under £90,000 in London)
- You need a good credit history and prove you can afford the costs (as you would when buying any other house)
Am I restricted to the type of house I can buy?
Shared ownership schemes are usually available on either new build houses or resales from current shared ownership homeowners. The housing association will be able to show you their property listings.
What is ‘staircasing’?
Staircasing is the process of increasing your share of the house. You can keep increasing your amount until you own the property outright. Although a handful of housing associations (the people you brought the property from) do cap the amount of shares you can buy, so make sure you check this out first.
With every increase of your share, the amount of rent you pay will be recalculated and reduced accordingly.
Please note - you are under no obligation to increase your sharehold. It can remain as it was the day you first started the scheme.
Is there anything else I need to know about shared ownership?
- You can decorate, hang pictures etc. to make the place your own. However, you’ll have to run any bigger renovation plans past the housing association first
- If you have a pet, or would like one, make sure you read your lease. If you’re buying a house, this is usually fine, but the rules are sometimes different for a flat or an apartment
- You can sell your share at any time to another shared ownership buyer through the housing association, or by yourself if you own 100% of the house
Do your research
Different rules often apply when looking at shared ownership properties in certain rural areas, so please bear this in mind when viewing houses and you check this with the housing association.
Please feel free to visit the shared ownership website for more information, or if you’d like to speak to one of our mortgage advisers, book a free consultation here.
