The chance to get a foot on the property ladder through a shared ownership scheme is an attractive prospect for many people.
So news that the Government is reviewing the national model for shared ownership to make it easier for people to buy more of their own home was a welcome boost for some.
Laurie Carruthers, a solicitor in our residential conveyancing department, examines what the changes mean:
Shared ownership helps people with smaller deposits and those who can’t afford a 95 per cent to 100 per cent mortgage by allowing them to part rent and part buy a home.
To qualify for shared ownership, annual household income must be £80,000 a year or less outside London, or £90,000 a year or less in London. You must also be a first-time buyer, be a previous owner of a home who can’t afford to buy one now or an existing shared owner looking to move.
Shared ownership allows you to buy between 25 per cent and 75 per cent of the home’s value and, at present, you can staircase – the term for increasing your share of a shared ownership property - up in 10 per cent portions as and when it is affordable.
But the Government proposals will see that changed to just one per cent. The main advantage is the much greater affordability of staircasing under the new rules. What could have once been £15,000 at a time, even for a lower-priced property, would now only be a far more affordable £1,500.
On the downside, of course, is that you only get a much smaller share – of one per cent each time – if you choose this staircase option, which means you will have to pay higher rent on the share you don’t own.
Although a one per cent increment might not seem worthwhile, it can make a dramatic difference over time. You will pay less rent on the share of the home owned outright, and benefit if the value of the property rises.
There are pros and cons for first time buyers. Shared ownership is arguably the best, easiest and cheapest way for first time purchasers to get on the ladder.
Those using the scheme will also often end up paying less in mortgage and rent payments combined than they would have been paying out in rent.
On the downside, however, all shared ownership properties are leasehold, which means owners not only have to pay things like service charge and ground rent, they could also be affected by the much-publicised issues of the leasehold scandal that revealed the difficulties owners of leasehold homes have had in selling.
There are also issues when it comes to getting a new valuation and paying for a solicitor every time you want to increase your share, which could prove costly although this could be improved by the government changes and the chance to staircase in small increments.
Laurie is a residential conveyancing solicitor in our Residential Property team. She helps clients deal with sales and purchases of property, remortgages, transfer of equity and lifetime mortgages. If you’d like advice on shared ownership, please contact Laurie on the details below.