It can be tough for first-time buyers to get onto the property ladder. You need to save up a deposit for a start and despite the tabloid rumours, giving up your avocado toast won’t swell your coffers anywhere near enough!
Even when you have a half-decent deposit, you still need to jump through the credit and affordability checks before you can even start looking at suitable properties. There are, however, several government schemes aimed at making home ownership more achievable for first timers, including shared ownership initiatives.
What is shared ownership?
It doesn’t actually mean you’re sharing the property with other people (other than your nearest and dearest, of course); you’re actually sharing it with a housing association (HA). The fact that the HA owns part of the property means that you can take out a smaller mortgage and save up a smaller deposit.
There are a few things to consider before jumping into shared ownership. For a start, you’ll be paying rent on the portion of the property you don’t own and then there’s other costs such as ground rent and monthly service charges.
You might also be restricted in your choice of properties. Shared ownership houses and flats tend to be new builds and they’ll also usually be leasehold.
On the upside, however, you’ll be building up equity every month as you’ll be paying off some of your mortgage as well as paying rent. When it’s time to sell up and move, you’ll have a bigger deposit to take with you.
Who’s eligible for a shared ownership property?
There are a few criteria which you need to meet in order to buy a shared ownership property. You need to be over the age of 18 and either a first-time buyer, an existing shared ownership homeowner or someone who used to be a homeowner but now can’t afford to buy anew.
Shared ownership schemes are aimed at people onn lower incomes – under £80,000 (£90,000 in London) – so that more people have a chance at home ownership.
How does shared ownership work in practice?
When you’ve decided upon your shared ownership home, you then need to decide how much of it you want to buy from the HA. In most cases, the minimum is 10% and the maximum is 75%.
You’ll also need to put down your deposit – usually 5% of your mortgaged share – and then take out the mortgage for the rest of that share.
You can, via a process called “staircasing”, buy more of the property as you go along. Most HAs allow this up to 75% of the property’s value, but some allow it up to 100%. Each time you ascend a step of the “staircase”, you’ll pay an additional fee, so it’s best to save up to buy bigger chunks less frequently to save on these fees.
The pros and cons of shared ownership
Everything has an upside and a downside, so it’s important to consider both sides before entering into shared ownership.
By far the biggest advantage is getting onto the property ladder with a smaller income or a smaller deposit. Being able to staircase is also really helpful as you’ll be building up your equity faster. With some HAs, you may end up owning the property outright in the end.
One big downside is the fact that shared ownership properties are leasehold, so you’ll never own the land the property is on. This comes with some restrictions on what you can do with the property, as well as paying ground rent and service charges.
Another potential pitfall is that you probably won’t be able to sell the property on the open market when you want to move. You’ll have to sell it through the HA and this means a smaller pool of potential buyers.
If you’re thinking about a shared ownership scheme, then talk to a mortgage advisor or a financial advisor to make sure it’s the right choice for you in the short term and the long term.
