Shared Ownership Schemes for Home Buyers
It is difficult for first-time buyers to get on the property ladder these days. Many are now looking to the option of "shared ownership". Most buyers would think of this as the consideration of buying a home with someone else you know, such as a friend, brother, sister, parent – or even someone you don't know. However, when the property industry use the term they’re talking about buying a home through a special scheme.
The reason that shared ownership has become more prevalent is because properties have become so expensive that first-time buyers cannot afford to buy. New Build HomeBuy is a government scheme designed to assist key workers, such as police, nurses, teachers, fire fighters, and other prioritised buyers with buying a home.
In shared owner schemes, a first-time buyer only needs a mortgage of 25-75% of the cost of the property. The rest is bought by the local housing association. As well as their mortgage repayments, the buyer will pay a subsidised rent to the housing association on the part of the house owned by the association. The amounts obviously depend on the exact level of the shares owned. The scheme also includes the opportunity for the buyer to purchase an extra portion of the property whenever they can afford it (a the current market value), in a process called staircasing.
When the buyer has paid the housing association for all its share, the association is removed from the deeds and the buyer is finally the full owner. A solicitor has to do this final piece of work.
Although there are no definitive rules for qualification for shared ownership, there are some housing associations that restrict the scheme to current social housing tenants and key workers, but others also consider assisting those on low incomes.
Not all developments that have shared ownership schemes are wholly set aside for this purpose. Many are split between shared schemes, priority first-time buyers and private purchase.
If you would like to know if you might be eligible of a shared ownership scheme, register at the government’s HomeBuy website where there are 23 agents taking part in the scheme.
You will still need a mortgage to pay for your share in the house. You will need a lender that provides mortgages for shared ownership participants. Lenders such as Nationwide and Portman offer such mortgages. Criteria vary between lenders: Britannia need the borrower to buy a minimum share of 50%, whereas Abbey only requires 25%. Also, there are differences in loan-to-values on the share of the home you are buying. Kent Reliance will lend 100% of your portion, whereas Leeds Building Society want a 25% deposit.
To give an illustration, if you are buying a 40% share in a £180,000 home, the mortgage available to you would be between £54,000 and £72,000.
Open Market HomeBuy is an addition to the HomeBuy range. Launched in October 2006. This is a shared equity scheme. In this case the buyer must be able to get a mortgage for at least 75% of the price of the property, and the remainder is provided by the government and a “shared equity” lender equally. Four lenders currently make this provision: Halifax, Nationwide, Yorkshire and Advantage.
In the first five years, the lender’s equity loan is returned at a subsidised interest rate and the government’s share is interest free. If the value of the property rises, all parties benefit by their share. If the value falls, the government takes the fall on its 12.5%, and the borrower next. This scheme does not allow for staircasing or buyout.
Key workers and priority first-time buyers are the only buyers who can qualify for Open Market HomeBuy, but there is no restriction on properties. Priority first-time buyer definitions can vary depending upon a housing association’s definition.
Despite the fact that shared ownership schemes assist with the costs of the property itself, there is no similar assistance for additional costs such as surveys, searches and legal fees. Indeed, the legal fees may even be higher because there is actually more paperwork involved that with a regular house purchase. There are also likely to be mortgage charges. If the part of the property you’re buying is worth more than £125,000, then you will also be liable for stamp duty at the relevant rate. In shared ownership, you can elect to pay the stamp duty on the full value of the property at purchase, or the stamp duty only on your share. But be aware, that at the time of any future staircasing, you will be liable for further shares of stamp duty, based on current market prices at that time.
The
New Build HomeBuy and
Open Market HomeBuy schemes are a useful addition to the ways first-time buyers can get onto the property ladder. You can see this is vastly different proposition from sharing costs with your mates.
Tom Smith
11th June 2007
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