Is Shared Ownership a Good Idea?
If you plan to buy a house but are finding it extremely difficult to come up with the deposit needed to purchase one, there is another option that may be more accessible and affordable for you. This scheme is known as Shared Ownership and like anything else, it has its own advantages as well as disadvantages.
Learn more about it before going ahead with your plan if you have already decided to go with the Shared Ownership scheme or simply check it out to get more information and see if it will work for you.
How Does Shared Ownership Work?
When you are renting, no matter how long you pay for your rent will not give you the opportunity to own that property you are living in and this is what Shared Ownership can provide. With this scheme, you get the chance to own a certain percentage of the property which you can later own 100%.
In Shared Ownership, you pay for the mortgage of the portion of the property that you own and build equity in the process. At the same time, you also pay for rent but at a reduced rate for the percentage that you do not own. It is like being a tenant and a homeowner altogether, and you share the property with the Housing Association.
This scheme is intended for those who are first time buyers, those who do not have much money to put for deposit, and those with low incomes but wish to own a property. Originally, a 25% purchase was required if you want to take part in Shared Ownership, but due to some changes, those who are interested with this can now start owning a portion of the property for only 10% making it much affordable.
As mentioned, the remaining part of the property that you do not own yet still belongs to the Housing Association. For this, they will charge you a minimal rental fee which will be under a tenancy agreement. Though this scheme can be really attractive, you must know that Shared Ownership properties are not always funded by all the mortgage lenders.
In order to own the property 100%, there is a process to go about this and is called staircasing. What staircasing means is that you can increase your share in the property over time until you solely own the entire property, and when that happens, you no longer have to pay for rent, and you are now a homeowner.
Who Can Avail of This Scheme?
Though Shared Ownership is available to most people, it has criteria that you need to meet before you can be qualified to avail the program. Among the requirements is that you still have no other properties owned, and another is that your income should be not more than £80,000. But if you are in London, then it should be less than £90,000.
The Housing Association also issues an affordability calculator which you need to fit in before you can be eligible to be a part of the Shared Ownership scheme. If all criteria applies to you, then you are welcome to take part in this program. This type of properties though are leasehold and will not be a freehold until such time that you own the property 100%.
Since it is a leasehold property, the solicitor must also check the lease terms as there may be an ongoing yearly ground rent or there may be other restrictions. Lease terms should also be checked as there may be a regular increase in the service charge and other items as such.
Advantages and Disadvantages of Shared Ownership
Prior to making a decision about getting involved in Shared Ownership, there are some pros and cons that you need to learn about. Some of the things that make this scheme attractive is that you will only need a smaller mortgage to get a share of the property, and you have the option to purchase additional shares over time until you own it for 100%.
Since you will only be owning a certain percentage of the property, you also only need to put down the same corresponding amount as deposit. For Shared Ownership, you are required to put down 5% cash for deposit plus the mortgage, but if you are purchasing outright, the cash deposit will be 10% along with the mortgage.
Among the disadvantages of Shared Ownership is that your options are limited as there are not many shared properties around. Also, since you are like a tenant as well, you can be in danger of eviction if you do not uphold the terms of the lease. When this happens, you can lose a part of your purchased share.
Another downside to this scheme is that your rent payments would not reduce your mortgage nor increase your ownership percentage. And even if you do not own the property 100%, you are still entirely responsible for the costs of maintenance such as repairs in the property, service charges, ground rents and the like.
The process of staircasing also comes with a fee as you need to pay for costs that come with it such as legal, valuation, and mortgage lender if it applies. Also, the price of the additional shares for the property changes based on the present market value at the time of staircasing. If however you already own the entire property, and you want to sell, you cannot simply sell it, but instead, the Housing Association has the first refusal.
Part of the cons of Shared Ownership is that there will be some restrictions such as before proceeding with any major renovation or improvement, you would still need to ask for permission, and you will not be allowed to rent it out to another individual.
Shared Ownership makes owning a home accessible to many who cannot readily afford the required deposit for regular homeownership, but even if this scheme can be really attractive, you still have to weigh its pros and cons.