If you are fed up with paying your landlord's mortgage and want to buy your own home, but simply cannot afford it, then shared ownership may be the answer. Contrary to popular belief, shared ownership has nothing to do with buying a house with friends, a spouse or your family - this is known as joint ownership. Shared ownership is when you buy a percentage amount of a property’s value from a housing association or housing developer.
As time goes by you may be able to buy more and more of the house until you own it all. This way you can get on the property ladder at a fraction of the price. Stop throwing money away and see a return from your financial investment that you normally waste on rent.
The UK government runs several shared ownership schemes but refers to them as HomeBuy. This also refers to the terms Shared Equity and Part Buy/Part Rent. Don't be confused, they are all ways of referring to the same thing.
Shared ownership basics
Before we get started on shared ownership and how to get your foot in that door, let's take a look at the government initiatives on offer, the different official bodies at work, and how it all fits together to help you, the potential homeowner.
Why does the Government need to provide cheaper housing?
UK house prices continue to rise unabated, especially in major metropolitan centres like Edinburgh, London and Newcastle. Low paid professionals, considered essential to the infrastructure of the UK workplace, such as teachers, nurses and fireman (known as key workers) are among those least able to buy their own home. This says nothing of the millions of other young professionals who are being simply priced out of the ever inflating housing market.
In an effort to ease this situation and see that key workers are not driven away from their jobs and preferred places to live, the government has introduced a number of affordable housing schemes to help people buy homes. These schemes are all administered through a national government agency called The Housing Corporation which works in conjunction with various housing associations.
What is the Housing Corporation?
The Housing Corporation was introduced by the UK government in 1964 to ensure that enough affordable homes were being produced for the UK populace and that they were of a reasonably high quality. The Housing Corporation gets money from the central government and funds homes built by housing associations. Only registered housing associations get funding and once registered their management and financial performance is monitored for quality assurance.
What is a Housing Association?
Housing associations are non-profit organisations set up to provide and manage low-cost housing for rent and for sale to people that cannot afford housing otherwise. While the majority of housing associations use government money from The Housing Corporation to provide housing, some may use their own money. Housing associations registered by the Housing Corporation are also known as registered social landlords.
What Government Schemes are available?
The schemes are known collectively as HomeBuy and are split into 3 separate initiatives:
- New Build HomeBuy Where you purchase a percentage of your home from a Housing Association.
- Open Market HomeBuy Where the government gives a low interest loan to help you meet the cost of your house.
- Social HomeBuy Where social housing tenants are assisted in buying their own home on a shared ownership basis with the help of a government loan.
We will address only the first scheme, New Build HomeBuy in this article. Open Market HomeBuy is not shared ownership as it relies on a Government loan to reduce the cost of your mortgage, and Social HomeBuy is for pre-existing council tenants only.
Who can apply for a HomeBuy Scheme?
The three different schemes have different eligibility criteria as they are targeted at different sectors of the population, however, there is some overlap. They are all targeted at people in need of housing but unable to buy a house in the normal way. Priority is given to key workers, existing public sector tenants, and people already on housing association waiting lists. So if you are not on a list, get yourself on one now! See our step by step guide below.
Are there any other ways to get into shared ownership?
Besides the housing association-run initiatives, some private developers run their own shared ownership programs. The details vary between developers but they all let you buy a percentage at the outset with the idea to increase this as time goes by, they then recoup their percentage when you sell up and move on or after a given time period. Have a look at some of the private shared ownership initiatives on offer:
- Crest Nicholson runs an initiative for first time buyers.
- Rent-2-Buy is a new idea where you, as the tenant, agree to a fixed, 6-year lease and to take over maintenance of the property. In return for your commitment and work you receive 6% of any increase to the property’s value on an annual basis. Additionally, you may sign an ‘option to purchase’ contract at the outset of your tenancy. This contract gives you the right to buy, from the end of the third year until the end of the sixth year of your tenancy, at a discount of 36% of the growth in property value. You do not have to buy and you can exit your lease with one month’s written notice after you have lived there for six months. It is not the same as shared ownership but at least you are getting a small return on the money you pay as rent.
How Shared Ownership Works
New Build HomeBuy allows you to purchase a percentage, starting at a minimum of 25%, of a property from a housing association. You must arrange a mortgage to cover this amount through a mortgage lender. In addition to your mortgage you pay rent on the remaining percentage (in this case 75%) which remains the property of the housing association.
The term New Build, means that the properties offered in this scheme are new or recently renovated and they can be houses or flats.
At the outset, the maximum you can buy is 75% of the property value. However, as time goes by you can purchase more of the property, thereby increasing your mortgage but decreasing the amount of rent you have to pay. Gradually increasing your ownership percentage this way is known as staircasing.
Many housing associations will let you buy 100% of the property but this varies, so you must check the terms of the contract in each case. If you decide to move on you will benefit from any extra market value that the property has gained during your occupancy. Likewise, if the house has fallen in value you will get back less than that which you contributed.
Bear in mind that you will have additional costs such as council tax, service charges, maintenance costs, insurance, and others. So aim for a percentage that you can comfortably cover in monthly mortgage repayments.
Whatever the percentage you pay on rent, you will pay a discounted amount. This is owing to the fact that you are responsible for most of the maintenance and upkeep in a shared ownership property.
If you live in a shared ownership house you will be responsible for all interior and exterior decoration. The housing association will cover the actual structure of your home, though you will have to pay a small charge for this and rent collection.
If you live in a shared ownership flat, you are responsible for interior decoration only while the housing association is responsible for the building in which the flat is situated. Flats also come with a service charge to cover communal areas like halls, staircases and even leisure facilities. A sinking fund must be contributed to by all tenants to cover the cost of any major future repairs - the exact amount will be detailed in your contract.
Step by Step Guide to buying a Shared Ownership Home through Help to Buy
Stage 1: Making an application
Contact your local Help to Buy Agent or the agency where you wish to live. You can complete an application form online or by telephone, in which case an agent may be able to assess your eligibility on the spot. Help to Buy agents must be the initial point of contact for anyone interested in buying a shared ownership property through New Build Help to Buy.
- www.helptobuy.gov.uk lists local Help to Buy agents in your area.
Help to Buy agents have details of all the shared ownership schemes in your areas of interest, whichever areas you find appealing. The agency then keeps track of your applications and keeps you informed of their progress. If any new shared ownership schemes become available they will advise you accordingly. If new housing associations come up they will send your details on to them too.
Stage 2: The housing association's reply
If the housing association sees you as an eligible applicant it may wish to meet you in person and talk over the details. After this you will be given an opportunity to view the property. Normally the price of a shared ownership property is based on a fully qualified, independent valuation and therefore reflects its real market value.
With all the information at your disposal it is up to you to decide if you wish to buy and how much you can afford to get a mortgage on (usually between 25 - 75%).
Stage 3: Arranging a mortgage
You must arrange a mortgage based on the percentage of the property you wish to buy. Although some banks do not give mortgages for shared ownership properties, an increasing number do. The housing association itself may be able to recommend an Independent Financial Adviser (IFA) who can help steer you in the right direction. A copy of the lease will be made available to you should you need it in obtaining mortgage. In some cases the housing association might be able to actually help you arrange a mortgage. All in all, there's plenty of help available at the point which the housing association decides to pursue your application.
Stage 4: Purchasing your home
Once you have your mortgage offer confirmed you must contact your solicitor or conveyancer to begin the conveyancing process with the housing association. All the legalities such as local authority searches and title searches will be carried out on your behalf (and at your expense) by your conveyancers.
Prior to this you will receive a draft copy of the contract from the housing association via your conveyancers who will explain the ramifications of the contract to you. The housing association, soon to be your new landlord, will advise you of the due and the service charge on the percentage which you have not bought. Contracts are exchanged and you can officially move into your new shared ownership home.
Stage 5: Staircasing your way up the property ladder
At any time you wish to buy more of a share in your home you must first submit this in writing to the housing association. They must arrange a valuation on the property, which you have to pay for. Any increase in market value of the property owing to renovations that you yourself have undertaken will be valued at the time and discounted from the price you will be asked to pay. You are then granted a window of three months to arrange a mortgage and purchase the additional percentage.
In this way you can usually purchase 100% of your home and sell it in the normal way if and when you wish to move. Alternately, the housing association may want to buy the property back from you in order to offer it to other people in need of low cost housing. In this case it will be sold at current market value.
- The Help to Buy website has all the information you will need to get started on shared ownership.