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Being able to buy that all-important first home is a huge struggle, and with wages stagnating and house prices only ever seeming to rise, more and more people are resigning themselves to the fact that it may never happen. But what if there was another way to own bricks and mortar, without needing to stump up the whole deposit yourself? Shared ownership could be the solution.
Shared ownership is where you buy a share of a property – typically between 25% and 75% – from a UK housing association, then pay the association an "affordable rent" on the part you don't own. You'll still need to get a mortgage for the portion of the property you own and will be expected to put up a deposit, but because you're only buying a share of the property, the deposit requirement will be smaller.
The rent you pay can vary, but it can be up to 3% of the housing association's share of the property. Let's take a look at how much this could cost.
EXAMPLE: You buy 40% of a property worth £150,000. This means your share is £60,000, while the housing association owns £90,000 of that property, and can charge rent of 3% on that amount. This works out at a maximum of £2,700 a year, or £225 a month. However, remember that you'll need to make your mortgage repayments too (the amount of which will depend on how big your deposit is and the rate you're charged), but they'll probably be smaller than if you bought your home outright – if you put up a 10% deposit for your £60,000 share, you'd pay £6,000 upfront and would be left with a mortgage of just £54,000.
Yes, through a process known as "staircasing". This allows you to buy more shares in your home, the price of which will depend on the value of the property when you want to buy another share; the housing association will get the property valued (you'll have to pay the valuation fee) and let you know the cost of your new share.
You'll typically be allowed to increase your share by a minimum of 10% with each staircase, and will need to have the cash or mortgage finance in place to pay for that extra share. You'll generally only be allowed to staircase three times, and some associations will only let you staircase a final time if you intend to bring your ownership to 100% and buy them out.
It's worth pointing out that shared ownership properties are typically leasehold, rather than freehold, so you'll have to pay a service charge.
You can sell shared ownership houses at any time, but if the housing association still owns shares in your property, they have the right to buy it first (known as first refusal) and to find a buyer. However, if you own 100% of the property, you're free to sell it yourself.
You'll be able to buy through the shared ownership scheme if your household earns £80,000 a year or less (or £90,000 in London) and you're a first-time buyer (or used to own a home but can't afford to buy one now) or an existing shared owner.
Securing a shared ownership mortgage is similar to the process for a traditional residential mortgage, in that you'll still need to put up a deposit and pass affordability checks. However, not all lenders offer mortgages for shared ownership, so it could be slightly more difficult to track one down.
Our figures show that there are currently 88 shared ownership mortgages available, a tiny portion of the 4,500+ residential mortgages available overall, so it could be worth heading to a specialist mortgage broker who will be able to help (you can speak to our mortgage adviser partners to get started).
The rates on offer tend to be higher, too, with the average rate for a two-year shared ownership mortgage standing at 3.92%, while the average two-year fixed mortgage rate overall is just 2.31%. Again, this is why you'll want to get additional support to find the best mortgage rates for your circumstances.
It's worth pointing out that the Help to Buy Equity Loan scheme is slightly different, in that it's shared equity rather than shared ownership. You get an equity loan in addition to your mortgage, and simply have to make your mortgage repayments rather than pay rent – it's designed so that you pay off the equity loan when you sell the property and move up the ladder, or if you decide to pay it off earlier, but you essentially own 100% of the property from the outset (albeit with finance).
This could be another great option for those who are struggling to get on the ladder; you can find out more about the Help to Buy scheme by reading our guide.
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