Shared Ownership is part of the Government’s ‘Help to Buy’ programme. This scheme aims to help buyers who cannot afford the mortgage on 100 percent of an existing or new-build home. Shared Ownership is available to people with an income less than £80,000.
Under the Shared Ownership scheme, you purchase a share of the home for a price that is currently between 25 and 75 percent of the home’s estimated value. You pay rent on the remaining share, generally to a housing association. You can buy further shares in the home, currently in 5 or 10 percent instalments.
Shared Ownership can help you overcome the problem of high deposits and acquire a home that might be out of reach under other forms of financing.
For example, buying 25 percent of a larger home worth £600,000 would require a contribution of £150,000 - a deposit of £15,000 and a mortgage to cover the remaining £135,000, which would require a salary of around £30,000.
Key changes make Shared Ownership more affordable
From April next year, the scheme will become even more affordable. These are the key changes to the scheme which the Ministry of Housing released this month, which will operate in 2021 under the Government’s new ‘Affordable Homes Programme’:
- The minimum initial share will be reduced from 25 to 10 percent.
- You must be a first-time buyer with an annual household income less than £80,000, down from £90,000 in London.
- Homeowners can purchase additional shares in 1 percent instalments, down from 5 or 10 percent.
- Fees for buying additional shares will be reduced.
- Landlords will pay the costs of repairs and maintenance for the first 10 years of ownership.
- The rules on selling the property will change.
Smaller first stake and easier to increase your share
The reduction of the minimum share to 10 percent will be a great relief if you’ve been trying to get together a deposit or find a mortgage at a time when affordable deals from High Street lenders have been in short supply.
Getting together the finance for a home valued at £150,000, for example, means you will only have to get together £15,000, rather than £37,500, funded by a deposit and a mortgage to cover the balance.
You will also have to pay a subsidised rent to the owners of the property as well as annual ground rent and service charges as your home will be a leasehold property.
If you want to increase your ownership of the property, you can buy additional shares of just 1 percent at a time. This process is known as ‘staircasing.’
Using the example of the £150,000 property, you could pay as little as £1500 for an additional 1 percent share, rather than £7500 or £15,000 for 5 or 10 percent under the current rules.
The amount you pay for the additional share may change as it will be based on the value of the property at the time you make the increase, not the original price.
For more information on mortgages or if you’re interested in utilising Help to Buy or Shared Ownership, get in touch with our experts at Portico Finance.
Lower fees for increasing shares and no maintenance costs
Under current rules you pay a number of fees each time you purchase an increased share.
You would have to pay a surveyor to get a current property valuation and legal fees — costs that could add as much as £2,000 to the instalment figure.
Although the Government has not given specific figures, they have indicated that those fees will be “heavily reduced.”
If you buy in 1 percent instalments, the surveyor’s fee would be replaced by a free estimated valuation and there would be no landlord’s administration fees. Legal fees may be subsidised, depending on the Government’s final policy, but could cost up to £1,000 without a subsidy.
However, if you want to increase your share by an instalment of 5 percent or more, you will still incur mortgage and landlord’s administration fees, as well as full survey and legal fees.
One further saving is the abolition of repair and maintenance charges. They are now the responsibility of the landlord for the first ten years.
That could be a significant saving as some current occupants found themselves paying large sums for repairs, although they only owned a small share of the property.
You can sell your share, but new rules apply
Although you may only buy a small share of the property, you still have the right to sell that share. If you own less than 100 percent of the property, the landlord has the right to find a new buyer. You cannot make a direct sale of your share.If you own the whole property, the landlord retains the right to buy it back from you – if they want it. This is known as ‘first refusal’ and their right to buy back remains in place for up to 21 years after you acquire full ownership.
Related: Property Finance And Mortgage Update For First-time Buyers, Homeowners And Landlords
Brighter prospects for first-time buyers
The changes in the Shared Ownership scheme only apply to anyone joining from April 2021. They don’t apply to existing occupants or anyone joining before the changes come into effect.
However, the existing scheme still offers good savings and opportunities to buy at a time when affordable mortgages are harder to obtain. There are also other options, including the ‘Help to Buy’ scheme, ‘Lifetime ISAs’ and the ‘Starter Homes’ scheme. And, the Chancellor’s Stamp Duty holiday has reduced some of the costs of buying a home, so overall prospects are looking better:
Save On Properties For Sale In South London.
Save On Properties For Sale In North London.If you would like advice on buying your first home, as well as a great selection of affordable properties for sale in London, get in touch. The team at Portico Finance can help secure you the best mortgage possible, while our trusted estate agents can help you find the home of your dreams.