With average house prices at an all-time high and those prices often completely out of proportion to the average income, saving for a deposit can take significantly longer than ever before.
This is often felt most acutely by first-time buyers and whilst the ‘Bank of Mum & Dad’ is an increasingly popular option, it’s not one that everyone can fall back on. For those who don’t have the ability to borrow from family members, or who otherwise struggle to raise the money for that essential deposit, shared ownership can provide an alternative means on getting your foot on the first rung of the property ladder.
Jarna Rahman, an Associate in FBC Manby Bowdler’s residential property team, explains what to be aware of when considering this as a purchasing option.
Shared ownership properties are only available through housing associations. Put simply, you go into partnership with the association and buy a stake in a property of between 25-75%. You will still need a deposit and a mortgage, but depending on how big a stake you purchase, that will be considerably less than you would have to find for an outright purchase.
In England, these properties are sold on a leasehold basis and you’ll pay rent on the percentage of the property owned by the housing association. This rent is calculated as a fixed percentage of the property value (up to 3%) and tends to work out as far less than you would pay in normal private rented accommodation. However, it is, of course, in addition to your monthly mortgage installments.
Another financial incentive with a purchase of this type can be the option to pay Stamp Duty in stages where you pay any applicable Stamp Duty for the first transaction, and then again only once your share in the property reaches 80% - another potentially significant saving in those early days!
However, shared ownership isn’t necessarily for everyone.
Whilst it’s technically available to anyone who is a first-time buyer, if you’ve owned a property before but cannot afford to buy one again, then you may apply for shared ownership. The likelihood is, however, that first-time buyers will be more likely to be accepted and military personnel also receive priority treatment.
If your household income is less than £80,000 a year (and £90,000 in London) then you’re eligible to apply for a shared ownership home – being eligible doesn’t always mean you’ll be approved though, so don’t rely on this as a means for getting on the property ladder.
However, if this sounds like it might be a feasible purchasing option for you, the good news is that at any stage during your time in the property you can buy a larger percentage so that you get a little closer to owning the property outright. This is called ‘staircasing’ and the cost will entirely depend on the value of the property at the time you decided to staircase – not the original value when you first agreed to a shared ownership deal.
Terms and conditions in situations like this vary from one housing association to another, but you’d generally make additional purchases of at least 10% and can normally only do this three times, with some associations stipulating that the third staircase purchase can only be made if you intend to go for 100% ownership and buy the property outright.
Of course, you can also sell your ‘share’ of the property at any time should you change your mind, or your circumstances change.
So, with the legal and financial aspects considered, shared ownership is generally a great idea if you’re desperate to get onto the property ladder but just don’t have the funds for an outright buy.
It does, however, have some other limitations. The location of where you can make such a purchase may not be in line with your preferred location and in some instances, local residents already in situ will have priority. This is often the case in more rural locations.
It is also worth checking with the housing association before proceeding with a mortgage application whether it has any specific mortgage criteria that need to be adhered to. They’ll invariably want to approve your lender and you won’t want to pursue an application for what could be the ‘wrong’ mortgage.
Finally, don’t forget that whilst this may be an alternative form of home purchase, it is nonetheless a home purchase and the one thing you need in your corner is expert legal advice. The intricacies of buying a property are complex enough, but with shared ownership, it’s essential to have a legal expert who can take you through the process. They’ll be able to advise you on whether the shared ownership contract on the table is the right one for you, and if you do decide to staircase later, you’ll need their advice and help to sort out the paperwork, too.
If this is something you’re keen to find out more about, contact the FBC Manby Bowdler residential property team on 01902 578000 or make an enquiry below.