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Shared ownership schemes for first time buyers

By Dominic Welling dominic.welling@consumerchoices.co.uk

For first-time buyers not keen on shared equity schemes, there is also the option of a shared ownership deal.

Shared ownership schemes are different to shared equity schemes for a number of reasons, but they are still another way of getting hold of a property without having to pay the full market price.

With a shared ownership scheme, also known as "New Build HomeBuy", you buy a percentage of the property and rent the remainder from the government or housing association.

This article covers shared ownership scheme. Click here if you're looking for information on shared equity schemes.

How do they work?

With a shared ownership scheme, you buy a percentage of a property - you can choose either 25%, 50%, or 75% - and the housing association or government then owns the remaining share.

You will then pay rent on the remainder of the property, which will be up to 3% of that portion’s value.

Shared ownership properties are always leasehold homes. This means you own them for a fixed period of time, usually 99 years.

The basics of a shared ownership scheme are:
• Allows a purchaser to buy a portion of a property (either 25%, 50% or 75%)
• Share can be increased over time (in 25% sections)
• Purchaser can eventually own 100%
• Both the landlord and the sharing owner enter into an agreement showing who is responsible for what at the property including insuring and maintaining the home
• The initial agreement explains how the sharing owner can acquire further 25% shares in the property over time to allow them to attain 100% of the property title

Shared ownership costs example

The table below shows how much this could cost you per month in mortgage payments and rent (The rent is up to a maximum of 3% a year of the share’s value, in this case £1,500 rent per year divided by 12):

Your rights and responsibilities

As the owner of the lease, you have rights and responsibilities just like any other property owner. This usually means you’re responsible for repairs inside the property while the housing association takes care of the outside (e.g. the roof if you own a flat).

To cover the costs for any outside work that might be necessary, you pay a service charge each year. This could be charged either on a monthly or annual basis.

Increasing your share in the house

You can increase your share in the property as time goes on, but you must buy in 25% blocks. This is known as “staircasing”.

So for example if you own 25% of your home you can decide to buy either another 25% or 50% or 75% - until you own the whole thing.

The cost of your new share will depend on how much your home is worth when you increase your ownership.

So if property prices in your area have gone up, you will pay more than you did for your first share. If your home has dropped in value, your new share will be cheaper.

Selling your share

If you decide you want to sell your share in the property, you can do so whenever you want. However you have to tell the housing authority in writing.

If you only own a share of the house, the housing authority has the right to find a buyer for it.

If however you own the whole property, then although you can sell it yourself, the housing authority has the right of first refusal.

Who is eligible for shared ownership schemes?

The scheme is only available for people who:

• Live in a household that earns £60,000 a year or less
• Can’t afford to buy a home in any other way.

People who can apply for the schemes must be:

• People who rent council or housing association properties, or
• ”Key workers” in the public sector, for example teachers or nurses, who work in the area, or
• First-time buyers.

You can also get help through the shared ownership scheme if you used to own a home, but can no longer afford to buy one.

However, determining who actually meets the criteria for one of these schemes is not a cut and dry process.

For example, some shared ownership schemes are restricted to first-time buyers and others to applicants living within a certain borough.

Also, priority will often be given to people who are on local authority or housing association waiting lists.

How to apply

If you are interested in shared ownership housing you have to fill in the required application form and apply to your local authority.

THINK CAREFULLY BEFORE SECURING ANY DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.