Catherine Houghton talks all about Shared Ownership.
What is Shared Ownership and how does it work?
Shared Ownership is a key part of the government’s affordable housing strategy. It’s a scheme that provides the option to purchase a share in a property whilst paying rent to the association who owns the remaining share, typically a housing association.
It’s been around for over fifty years and although it was originally geared towards key workers trying to get on the property ladder, it’s now opened up to anyone who meets the basic Shared Ownership criteria.
What are the criteria for Shared Ownership?
It’s somebody who can’t really afford to buy a property that would suit them best in the open market, at this stage of their lives. It’s either First Time Buyers unable to afford a home suitable for their needs or a previous homeowner who can no longer afford one.
There are restrictions on household income. In London you can’t earn more than £90,000 and outside London it’s £80,000 and it’s worth remembering that’s household income. So if a couple is buying together, for example, their combined income would need to be below the household threshold. In some areas they do restrict it to people who live and work in the area or who have other ties to the area, but in most cases, it’s open to all.
What if I have bad credit?
Bad credit would affect you the same way as if you’re buying a property in the open market. The number of lenders prepared to offer a mortgage will be reduced, and if you do qualify for one of their mortgages, the interest rate is likely to be much higher.
Can you ever own a Shared Ownership property?
You can in most cases, as you’re allowed to do what’s called ‘staircasing’ up to 100%. Once you’ve staircased up to 100%, you no longer pay any rent to the housing association and the property is 100% yours. In some areas they do restrict ownership to a maximum of 80%, but that’s quite unusual.
Staircasing is when you can buy further shares in the property and obviously the more shares you own the less shares the housing association owns, so the rent goes down and you own more. If you buy property that you’re able to staircase up to 100%, you can initially buy based on your circumstances now, but gradually as your circumstances improve, purchase more until you own the whole property.
Is Shared Ownership worth it?
You’re enabling yourself to purchase a property, which is probably greater value than you’d be able to buy in the open marketplace with lower income and a lower deposit, because your income and deposit for the mortgage are based on the share that you’re purchasing. So it allows you to buy a bigger property or property more suitable for your needs. It is a very good way of getting on the property ladder and giving yourself the opportunity to keep going with the property that would suit your future needs as well.
When you purchase future shares in the property, there are costs involved. Every time you staircase you have to approach the housing association for their permission to do so. Then you have to pay to have an official valuation done and you’ll have to pay legal fees involved in the staircasing process. Typically you would look at it when you’re reviewing your mortgage arrangements or you’d look at getting it further advanced from your current lender.
Even if buying additional shares outright, due to inheritance, or similar, they still involve a valuation fee and a solicitors fee, as well as possibly the housing association’s fee for reapproving the fact that another share has been purchased.
Another pro is that you can go down as low as a 5% deposit of your share, and you would only pay stamp duty on your share if you chose to, so again, it limits the initial costs involved with purchasing a property.
How do I apply for Shared Ownership?
The very first thing you have to do is register with the Help to Buy agent in the area that you want to purchase in. It’s a simple form that you fill in online or they can even post you a copy.
When they approve you for Shared Ownership, you simply get a registration number which once you find a property, you give to the landlord, housing association or builder dealing with the Shared Ownership on your behalf.
Once you’ve done that, the housing association would ask their financial advisers to run you through an affordability check. That’s where somebody like myself steps in, as a mortgage broker.. The first thing I would do is to run you through the Shared Ownership calculator. This takes into account a person’s income, credit commitments, number of dependents, ages, and the size of your potential deposit.
The calculator would tell me if you’re eligible to purchase the relevant share of the property, but also whether you can afford the mortgage payments, and the ongoing rent and service charge payments. Once we know that you can afford the minimum share that they’re selling, we then increase the share to see what the maximum share that you would be able to purchase is, of that particular property.
The idea with Shared Ownership is always to try and maximise the purchase, because the more you own the less rent you’ll be paying to the housing association. You would then go back to the housing association to reserve the property, and typically they would take around £500 from you to hold the property whilst the remaining financial checks take place.
Somebody like myself, the mortgage adviser, would then run through the process in a very similar way to how we would within a mortgage in the open market. I’d request bank statements, pay slips, proof of deposit, passports and proof of address. I would then research to see who would be the most suitable mortgage lender for you based on your circumstances.
We’d then get a mortgage offer, which would go back to the housing association to be approved. You’ll have a solicitor who will handle the legal side of things and they will then lead you through the exchange and then final completion.
Your property may be repossessed if you do not keep up with your mortgage repayments.