Are you hoping to buy your first home? Well, doubtless you’ll have heard that there are lots of Help to Buy schemes available, or even noticed that lots of the modern, well-built new properties you’re looking at are listed as ‘Shared Ownership’. But what does it mean, and is it a good idea for you?
What is Shared Ownership?
A Shared Ownership mortgage scheme is something devised by the government that helps first time buyers to get their foot on the property ladder. It’s perfect if you want to buy a house, but can’t afford to own one in its entirety.
The way it works is like this: you buy a share in your first home, while paying subsidised rent on the remaining share of the property. The remaining share is usually owned by a housing association or a private developer, which is why your rent is charged at a discounted price.
The scheme allows you to increase your share in the property as and when you can afford to. So, you might start by owning 30% of the property, gradually increasing your share by 10% until you own 100%.
Is the scheme the key to getting on the property ladder?
Well, if you’re buying a property on your own (i.e. not as part of a couple), or you’re buying together but earn a household income of less than £80,000 a year (or under £90,000 in London), Shared Ownership could be a really good idea.
Why? Well, for one thing, getting your foot on the ladder in this way means you won’t continue to ‘throw money away’ on renting at standard market rates. Instead, you’ll own a stake in your property (paying off your mortgage rather than giving a monthly payment to a landlord), and will pay rent on the rest of the property at a cheaper rate.
Second, it also means you’ll have a better chance of affording the kind of property you want to call home. Shared Ownership means you can own a share in a house that’s more expensive than you could ever afford alone, and is spacious enough for you and all the things you have planned for the future.
Are there any drawbacks you need to be aware of?
You do need to consider Shared Ownership carefully. There might be monthly or annual maintenance charges on the property that you’ll be expected to pay, and in the majority of cases, sub-letting isn’t allowed.
Also, if you take on a Shared Ownership mortgage, you’ll need to check whether there are any costs involved when buying additional shares in the house. For instance, you might have to pay mortgage fees as well as a valuation fee, legal costs and stamp duty each time you buy a bigger stake in the house, so make sure you can afford it in the long-term, not just right now.
A way of keeping these costs down is to save up and buy larger shares at once – i.e. another 30% in the property, rather than three payments of 10%. Just check with the developer or housing association you’re considering buying a property with, and confirm that there aren’t any restrictions on the amount you can increase your ownership by.