If you’re on the market for your very first property, you’re probably aware of the many different options that are available to you. With everything from renting, equity loans and shared ownership to consider for example, it can easily become quite confusing.
There has however been a notable rise in the popularity of shared ownership, with many first-time buyers looking to housing associations within their area that offer such a scheme.
So, what is shared ownership?
Shared ownership is a specific scheme put in place to provide those that can’t afford to buy on the open market the opportunity to buy a portion of a home, with the rest being owned by the housing association providing the opportunity. It’s designed to be flexible, and the largest implication of the scheme is that the necessary deposit can be a whole load less than that of a traditional mortgage. The minimum shares a buyer can purchase is 25% and the maximum at the point of original purchase is 75%.
In theory, this means that buyers could need as little as a 5% of 25% deposit, reducing the strain of saving for a hefty lump sum. Putting this theory into practise, let’s say you are looking at one of the many shared ownership homes in Surrey, and are considering purchasing. If the original price of the home is £450,000, through a shared ownership scheme you could purchase as little as 25% at £112,500*, requiring a 5% deposit of just £5,625*.
Buyers are then given the opportunity to have a mortgage on the portion owned by themselves and pay rent to the housing association on the rest. Buyers also have the opportunity to purchase more shares in the home as they go, often owning outright in the future, known in the industry as staircasing.
Why has it become so popular?
With various shared ownership schemes operating throughout the UK, and more than 200,000 shared ownership properties, it’s clear that the rise in demand for the scheme is only rising. For so many the issues that hinder taking that first step onto the property ladder centre around saving for a deposit, and shared ownership schemes can often take the sting out of saving and shorten the amount of taking waiting around. In an age where we are all eager to have things there and now, shared ownership can prove a fast paced and effective solution which might be an explanation for the rise. This is particularly useful for those currently renting and hindered by the many rules surrounding their property. By partaking in a shared ownership scheme, renters can begin the process of owning their own home, whilst also being able to decorate and live as they wish within the property, without landlord constraints.
What restrictions are there?
In order to be eligible, buyer’s yearly household income must be below that of £80,000 outside of London, or below £90,000 within London itself. There are other restraints too, applicants must be either first time buyers, or a buyer who has previously owned a home but doesn’t currently. When it comes down to selling the home, there are also actions that need to be considered, with the homeowner required to provide evidence of the EPC and RIC valuations. The housing association must be notified of any intent to move on, and they control the sale, which can take around 8 weeks to finalise. This period is known as a nomination period, in which the housing association takes the time to find a new buyer for the home. There is also a fee associated with selling the home, which is usually around 1.5% excluding VAT of he agreed sale price of the home owners share at the point of sale.
Whether you’re in a position to save a large deposit or not, it’s worth considering a shared ownership scheme in order to support your first-time buying journey.
*Price advertised based on a 40% share and a 95% LTV mortgage. Shared ownership is a part buy, part rent scheme and homes are initially bought as leasehold. Full terms apply, for more information speak to Aster Group sales team on 01380 735 480.