The price of properties, even so-called ‘first-time homes’, is completely out of proportion to the average income. To save for a deposit on your first home is now taking house hunters (especially first-time buyers) years longer than before. The ‘Bank of Mum and Dad’ is an option if you are struggling to get the funds together on your own. If you don’t have the ability to borrow from family members, or you are unable to raise the money for that essential deposit on your own, there is another way to get your foot on the first rung of the property ladder: shared ownership.
Shared ownership properties are available through housing associations. Put simply, you go into partnership with the association and buy a share in a property of between 25-75%. You’ll still need a deposit and a mortgage but, depending on how big a share you purchase, the deposit and mortgage will be considerably less than the sum you would have to find for a purchase of 100%.
The housing association continues to own the remaining share of the property and you pay rent on that remaining share of the property. The housing association charge a fixed amount of rent based on the value of the property, up to 3%. So for example, if you have a 40% share in a house worth £150,000 (£60,000), you would then pay the rentable value on the remaining £90,000 at a rate of 3%. So your rent would be around £2,700 a year, or approximately £225/month. That’s far less than you would pay in normal private rented accommodation.
Technically anyone who is a first-time buyer can apply for shared ownership. If you’ve owned a property before but cannot afford to buy one again, then you may apply for shared ownership, but be aware that first-time buyers will be more likely to be accepted. Military personnel will be given priority treatment.
If your household income is less than £80,000 a year (and £90,000 in London) then you are also eligible to apply for a shared ownership home. You can sell your ‘share’ of the property at any time.
At any stage during your time in the property you can buy a larger percentage to bring you a little closer to owning the property outright. This is called ‘staircasing’. The cost will depend entirely on the value of the property at the time you decide to staircase, not the original value when you first bought your shared ownership property.
Generally you will have to purchase a minimum of 10% each time you staircase, although this does vary, and you will probably only be able to do it three times. Some housing associations will only let you staircase for the third time if you intend staircase to 100% ownership and buy the property outright.
Shared ownership is a great idea if you’re desperate to get onto the property ladder but you simply don’t have the funds to buy 100% of a property. It is also generally cheaper than private renting, and you can sell your share in the property at any time.
However you are limited to where you can buy shared ownership properties. If you have a preferred location you should do some intensive research first to see if shared ownership properties are available in that area. You should also check whether local residents who already live in the area have priority for the shared ownership properties as can be the case in more rural locations.
Staircasing means you can decide when (and if) you want to make a lump-sum payment towards owning the property outright, which will also decrease your rent and increase your share in the house. But staircasing can be difficult and expensive, as the payment for the additional share will be based on the current value of the property, not the original purchase price. You may also have to pay service charges, especially if the property is on a leasehold agreement, even after you have staircased to 100%.
Remember, like any other property purchase, it is important to have your finances in place before you go house hunting. You will still need both a deposit and a mortgage to buy into a shared ownership property.
As with any house purchase, the one thing you need in your corner is expert legal advice. The intricacies of buying a property are complex enough, but with shared ownership it’s absolutely essential to have a legal expert who can take you through the process. Your solicitor will be able to advise you on whether the shared ownership contract on the table is the right one for you and, if you do decide to staircase later on, you will need their advice and help to sort out that paperwork too.