Shared Ownership - benefits, myths and what to watch out for
Shared ownership is an affordable housing product which enables you to get a foot on the property ladder or stay on the property ladder. Shared ownership is particularly good for first time buyers, downsizers and those purchasers who are starting again following relationship breakdown. The rental element can in certain circumstances be covered by housing benefit making it even more affordable.
- Shared ownership allows you to get onto the property ladder more quickly than you might if you wanted to buy a home outright.
- You’ll need less savings as you will be putting down a deposit on a share of the property. For example, a 25% share of a property worth 200k may only require a deposit of £2.5k
- You own as much of your home as you can afford, you can buy a larger share when you are able to, but the choice is yours.
- You can buy additional shares as time goes on and you save more, this process is called staircasing
- Your monthly mortgage payment plus rent can work out less than renting on the open market.
- Instead of paying rent every month and having nothing to show for it, you own a part of your home.
- You can sell a shared ownership property at any time and will benefit from any increase in value it's seen since you bought.
Shared ownership has been around for more than 30 years but still doesn’t enjoy the confidence that it deserves. The reason for this is the myths that are bandied about by those who know nothing about the product and bear no resemblance to the facts. A lack of understanding around several key points is what makes buyers nervous.
- More difficult to obtain a mortgage – This is simply not the case over recent years the number of high street lenders who offer shared ownership mortgages has seen a real increase. The same assessments are undertaken as if you were obtaining an ‘ordinary’ mortgage meaning if you have a deposit and a good credit rating it will be straightforward.
- Properties are in less desirable areas – While this has never been the case over recent years changes to planning requirements mean that on most new housing developments Housebuilders must provide a proportion of affordable homes. This means shared ownership homes are popping up in increasing numbers in highly sought after new residential developments.
- It’s expensive – The monthly payments required to live in a shared ownership property hover somewhere between full ownership and private renting. A report in 2013 by the National Housing Federation highlighted average shared ownership monthly payments were lower than market rent or full ownership in all regions of England except for the North East.
- Qualifying is difficult – Many people believe you can only purchase if you are on a very low income or are a key worker. In reality the product is open to a much wider market. Put simply if your combined household income is less than 80k and you don’t own another property you should qualify for most properties. (some shared ownership properties have additional local connection criteria)
- It’s not ‘real’ home ownership – Some disregard shared ownership as they see it in some ways as a lesser form of ownership. It should be seen as a tenure which allows homebuyers to get on the ladder and provides a stepping stone to 100% ownership, but it should also be a perfectly acceptable option to stay owning a share of your home. Part-Ownership gives you security of tenure and allows you to benefit from any appreciation in value when the property is eventually sold. It’s worth remembering that some equity large or small is better than none.
- I used to own a home, so I can’t apply for shared ownership - It is fine to have previously owned and sold a property. Your application is based on your current housing situation. You can apply if you are under offer on your current property.
What to be aware of.
As with all forms of housing tenure there are things that need consideration before making a decision. Below are things to be aware of;
- Is shared ownership affordable? - Whilst shared ownership is affordable due to the lower deposit required and the rent being below the market rate it doesn’t mean that everyone will be able to afford it because different developments require different income levels based on the open market values of the properties.
- Does having a poor credit rating rule me out? - A poor credit rating may rule you out of qualifying for a mortgage particularly if you only have a 5% deposit. If in doubt contact a financial advisor before viewing.
- What costs are involved when I first buy my home? - As with any house purchase you will need to have adequate funds to cover certain costs at the outset. You will need at least £5,000 in savings to consider shared ownership as an option. This level of savings will cover a deposit at 5%, reservation fee, solicitor’s fees and removal costs.
- Who’s responsible for maintaining my home? – With shared ownership however small the % you own (25%) you have full repairing obligation. Like any homeowner you will be responsible for the maintenance of your property including repairs and decoration. New build homes bought through shared ownership benefit from a new home warranty which normally lasts for 10 years from the time it was built and covers most major problems.