These little-known Government schemes can enable you to buy your first home with a smaller mortgage and very low deposit. Here’s how they work.
Take this scenario, one all too familiar to many first-time buyers.
You’ve got a job with a decent income, enough for a deposit for a small mortgage. Unfortunately, it’s not enough for a property in the area you want to live in, leaving you facing a long commute or another year paying someone else’s mortgage whilst you save up.
This is where shared ownership – sometimes known as ‘share to buy’ – can help you.
Shared ownership allows you to buy between 25% to 75% of a property, with a local authority or housing association buying the rest.
You only need a mortgage for your share – meaning your mortgage could get you a much more expensive property than if you’d done it yourself.
The catch? Well, you don’t actually share your home with anyone else, but you do have to pay a discounted level of rent on the part you don’t yet own. When you move out, the local authority or housing association will get their percentage share of the sale price.
In this article we look at the nuts and bolts of shared ownership, applying for this scheme and we discuss shared ownership’s drawbacks.
Who is eligible
If you’re a first-time buyer and your household earns £80,000 or less a year (£90,000 in London), then you’ll be eligible for a Help to Buy: Shared Ownership property (if you're buying in Scotland, Wales or Northern Ireland please click here).
For shared ownership, you’ll need proof that you can afford mortgage repayments as well as rent payments.
To give you a real-life example of the maths, a 2-bed apartment in London was on sale for £580,000.
You’d need to buy a 25% share, so £145,000, translating to £726 a month (assuming a 95% mortgage with a rate of 3.99%). You’d also need to pay £906 in rent and a £150 service charge per month: a substantial £1,782 a month in total.
Of course, you'd most likely pay less if you were buying a smaller property or outside of London.
You’ll also need approximately £2,500 in savings to cover fees and your mortgage deposit and don’t forget about moving costs and furniture.
Certain groups get priority access to shared ownership properties, but the rules on this depend on your local housing association. Contact the housing association behind your chosen property directly to ask about these. If you’re in the military, you’ll get priority nationwide.
How to apply
Go to the Help to Buy website, find your region and apply for the local shared ownership scheme.
Once approved you can search on the local scheme’s website for shared ownership properties, many of which are also listed on Rightmove and Zoopla.
Both new build and existing properties through shared ownership, ranging from one-bed apartments to country cottages. It's even possible to get shared ownership properties in luxurious developments, such as Arsenal's old Highbury stadium.
You don’t make an offer on a shared ownership property; instead you ‘register interest’. This is because you can only make an offer on the asking price, hence no bidding wars or gazumping, and it should be first-come, first-served.
As with buying any home, there can be complications, as this piece from Business Insider illustrates, but with any luck, you’ll soon be in your new home.
You can always increase your share of the property by ‘staircasing’, where you gradually buy the share of the housing association, usually in increments of 10%.
Getting a mortgage
It’s up to you to get a mortgage on your share of the property.
According to David Hollingworth of mortgage broker London & Country, “many lenders will be happy to offer mortgages on shared ownership but there are still plenty that won’t.” At the time of writing, NatWest and Coventry Building Society were in the ‘no’ camp.
“Although that means that borrowers won’t have the choice of the whole market there will still be plenty of mainstream high street lenders that can offer standard priced deals on shared ownership”, says Hollingworth.
There are also mortgages specially made for shared ownership. Kent Reliance will lend you up to 100% of your share, whilst Leeds Building Society will lend up to 95%, although note that the interest rates on these products are relatively high.
Also keep in mind that you can’t use guarantor mortgages, like the Barclays Family Springboard mortgage, for shared ownership properties.
Given the differences between lenders, using a broker to find suitable lenders could save you time.
Shared ownership vs Help to Buy
Although run by the same Government agency, confusingly named ‘Help to Buy’, shared ownership is separate to the Help to Buy equity loan.
In short, shared ownership is more complicated to arrange, but could be more affordable, because you don’t need to buy as much of the property – as little as 25%, compared to 80% with the Help to Buy equity loan (60% in London).
Equity loan properties are always new builds, with an upper limit of £600,000, whereas shared ownership homes can be pre-owned, making the process of getting the two properties distinctly different.
Is shared ownership better than buying yourself?
If you can afford to get a mortgage yourself, or with help from your family, you may be able to avoid many of the restrictions of shared ownership schemes.
To start with, you’ll have access to all the properties on the market, rather than just shared ownership properties.
Your rent might start low, but there’s nothing stopping the housing provider from raising it later, unlike a fixed rate mortgage where you have certainty for a number of years. Plus, that rent isn’t helping to pay down your mortgage.
You’re not allowed to sublet a shared ownership property, you may need to ask the housing provider’s permission to make structural alterations and it’s more difficult to sell your home (read more about selling on the Home Owners Alliance’s website).
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