Shared Ownership

Shared ownership could provide the solution for getting on to the property ladder

In a Nutshell...

• Shared ownership means that you buy shares of a home that a housing association has either built or renovated, and pay a subsidised rent on the remaining share.
• There is more risk for the lender since you are only buying a portion of the property, as it doesn't have as much control over it.
• Aimed at people with moderate incomes who are unable to buy outright in their local areas, such as first-time buyers and families with children.
• The costs of buying are the same as for buying any property.
• You can increase the share you own in stages of, say, 25% at a time. This is known as staircasing.

What is it?

Thanks to an active network of not-for-profit housing associations, many people are finding homes that they can afford to buy or rent. They operate diverse schemes to help you buy property, such as Homebuy, flexible homeownership, shared equity, and shared ownership. Shared ownership consists of you buying shares of a home the housing association has either built or renovated, usually between 25% and 75% depending on what you can afford, and pay a subsidised rent on the remaining share. Gradually you can buy more shares until you eventually own it all.

There are mortgage products suitable for all of these schemes. With Homebuy and key worker schemes, you are effectively buying the whole property, so you can use a standard mortgage. However, Shared ownership is different. You are only buying a portion of the property so there is more risk for the lender, as it doesn't have as much control over it. Usually, the housing association is required to include a mortgage protection clause into the lease. This guarantees the lender gets its money before it goes back to the housing association if the borrower defaults on the loan and the property has to be sold.

Only a limited number of providers will lend to shared ownership borrowers. It's best to go to a mortgage broker or advisor that has experience of shared ownership. Your local housing association will be able to give you a list of suitable firms. While there are some lenders that will provide 100% of the share value, others require that you put some deposit, for example 5%, towards the purchase. Some lenders offer up to 97% but only a handful will advance 100% of the amount you need, and only then after extensive consultation. The borrower is then consulted about how much they can afford, taking into account the amount of rent they will also be paying.

With most shared ownership schemes you can increase the share you own in stages of, say, 25% at a time. This is known as staircasing. The housing association will have the property re-valued each time you staircase up to give an estimate of how much it will cost to buy the new share. You would usually fund this by getting a further advance on your mortgage rather than changing product or lender. When it comes to selling on the property, you will receive any increase in value on your share.

Who qualifies?

Affordable homeownership schemes are aimed at people with moderate incomes who are unable to buy outright in their local areas, such as first-time buyers and families with children. You may have to go on a waiting list, since places are limited and popular so and, as many schemes are funded through government grants, priority is generally given to applicants in dire housing need or key workers, such as nurses and police. However, there are priority groups but often those groups are unwilling or unable to buy, so then ordinary buyers are eligible.

The best place to start finding out about whether you qualify is on the Internet. Your local authority web site will give housing advice, and all housing associations advertise and have their own websites. While shared ownership schemes can help you become a homeowner, as with any property purchase you should make sure you don't overstretch your finances to help ensure the experience is stress free.

Costs and charges

In addition to your deposit and mortgage, the costs of buying are the same as for buying any property. For example, you'll have to pay for a survey, land registry fees and stamp duty. Your legal fees shouldn't be any higher, although you should choose a solicitor used to dealing with shared ownership - again, the housing association will be able to help.

Once you have moved in, your ongoing running costs will be monthly mortgage payments for the portion you have bought, rent and service charges to the housing association, as well as all the bills, insurance and repairs you would pay on any home.

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