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Shared ownership could suit first time buyers

Over recent years first time buyers have been experiencing huge difficulties when it comes to getting onto the property ladder, with a number of factors making things increasingly difficult.

UK houseThe rising cost of properties in the UK already posed a problem for first time buyers, with many being unable to get a mortgage for the amount needed as well as experiencing difficulties in raising a deposit for such a high amount of money. As a result of this many banks had to increase their income multiples to provide increased access to mortgages for first time buyers on lower incomes and with no equity from a previous property.

However, it wasn't long before another problem arose in the form of interest rate rises. Since August 2006 the Bank of England has hiked up interest rates five times, each by 0.25%. This has taken the base rate from 4.5% to 5.75%. First time buyers have now had to take on the additional problem of having to pay higher interest rates on larger loans, making life even more difficult and making the prospect of homeownership seem like an unachievable dream for many.

There is some light at the end of the tunnel for first time buyers however. Many have predicted that house prices in the UK are set to drop, and there has already been evidence of this as reflected in September's figures. Experts are also predicting that the Bank of England will cut interest rates twice by June of next year, so those that decide to wait it out may be able to benefit from lower house prices as well as lower interest rates.

Another thing that could help first time buyers to get onto the property ladder is the availability of shared ownership, which is a scheme that is run through housing associations. With shared ownership first time buyers are able to purchase a percentage of the property, which means that they do not have to take out such a high mortgage. For instance, they could purchase a 50% share of a property valued at £150,000, which means that they will only have to get a mortgage for £75,000, which is far more achievable. On the remaining 50% share the buyer pays rent, and is then able to purchase further shares as and when finances allow.

There are both new build properties and resale properties available on a shared ownership basis, and this type of scheme offers first time buyers a valuable platform to get them onto the property ladder. You will have to meet eligibility requirements to qualify for shared ownership – this scheme is extended to first time buyers and those coming out of a relationship that cannot afford to buy on the open market. You will also have to meet the necessary requirements in terms of credit rating and income, and this is something that you should check with the individual housing association that is marketing the property in which you are interested.

If you go for a shared ownership property you have the option to purchase further shares over time, which is known as staircasing. However, you do not have to do this and you can stick with the share that you have purchased on an ongoing basis if you prefer.

Tom Smith
2nd November 2007

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