Understanding SHARED OWNERSHIP, is it right for you?
One of the biggest obstacles first-time buyers face is being able to afford to buy a property, one solution that may be worth looking at is shared ownership.
For many people, shared ownership can provide a stepping-stone out of renting and onto the property ladder, and it can set you on the road to full homeownership.
There are pros and cons to shared ownership so it’s important to take your time to decide whether this is best for you.
What is shared ownership?
Shared ownership schemes are run by housing associations, and are usually open only to first-time buyers. They enable you to take out a mortgage on a portion of your home (ranging from 25% to 75%) and pay rent on the remainder. This means you don’t need as big a mortgage as you would if buying the home outright.
Advantages of shared ownership-
- Easier to get unto the property market compared to full ownership
- Smaller mortgage means reduced deposits
- Preferable to renting as the portion of the home you own will grow in value as the property goes up meaning you will have some equity that will help you take the next step on the property ladder.
Can I buy the rest of the property?
If your circumstances improve such as earning more meaning you can afford a bigger mortgage, you can increase your owned share of the property this is called “staircasing”
Staircasing is available for a total of 3 times, some people staircase first to 50%, then 75% and finally buy the whole property. Each time you staircase, a property valuation of your home will be carried out meaning each share will be bought at the current market price
How does stamp duty work with shared ownership?
Although most first-time buyers do not pay stamp duty, this exemption doesn’t always apply to shared ownership purchases.
You have two options when it comes to paying stamp duty: pay it on the full value of the home up front, or just on the portion you are buying. If you choose to pay it on just a portion, you won’t qualify for the exemption (and you’ll also have to pay it every time you buy a bigger share in the property).
If you opt to pay the full amount upfront, you will qualify for the exemption – but this only covers properties up to £300,000 (or £500,000 in London). Talk to your mortgage broker about which option will be most cost-effective for you.
How do I sell a shared ownership home?
This process is similar to selling a home, the only difference is you must give the housing association the option of finding an alternative buyer before you put it on the open market. So if the home sells for £300,000 and you have a 25% share, you will receive £75,000.
Are there any downsides to shared ownership?
As the name suggests, shared ownership doesn’t grant you all the benefits of complete ownership. As such, as well as pros there are some cons too:
- You are still a tenant -this means you can be evicted on a number of grounds, such as failure to pay the rent, nuisance behaviour or sub-letting. The housing association is not legally obliged to reimburse you for this if you are evicted – you are only legally entitled to be paid for your share upon the sale of the property. This is why it’s vital to be sure that you can afford both your mortgage payments and your rent before embarking on shared ownership.
- Stamp duty- you may not qualify for the first-time buyer exemption.
- Service charge - You’ll have to pay a service charge to cover the maintenance of communal parts of the building.
- The lease-shared ownership properties are leasehold, and homes with a short lease (under 80 years) become increasingly hard to sell.
- Sub-letting- you are not allowed to sub-let a shared ownership property (unless you have staircased to 100% ownership). You are allowed to let out one or more rooms to lodgers/flatmates, but you must be living in the property permanently yourself.
Can I apply for shared ownership?
In England, you may qualify for shared ownership if your combined household income is less than £80,000 (or £90,000 in London).
- Usually you will also have to be a first-time buyer – if you do own a home, you must already be in the process of selling it.
- Good credit is essentiall, rent and/or mortgage history,
- Enough savings to cover both the mortgage deposit and the moving costs.
Not all mortgage providers will offer mortgages for shared ownership if you need a mortgage broker please contact us and we will be happy to forward you to one of our trusted brokers.
Tel:0121 681 6327
Email: info@mecsproperty.co.uk