What is shared ownership?
If an individual cannot manage to pay 100% for the mortgage of a residential property or home, he/she can avail a shared ownership home through a housing association. An individual can purchase a home by paying a share between 25% and 75% of the value of the place and rent can be paid on the remaining amount. As compared to the UK, the rules might differ for Scotland and Northern Ireland. Through Shared Ownership, an individual can purchase a newly built or an existing home through resale scheme from housing associations. It is imperative to note that properties under Shared Ownership are leasehold.
The recently conducted Shared Ownership Week 2017 (held on 21-27 Sep-17) aimed at assisting homebuyers to understand the eligibility criteria of securing a property under the Shared Ownership scheme, which was initially introduced in the 1980s. According to a research conducted, 54% of individuals in the age group of 21 to 30-year-old were completely unaware of Shared Ownership. The campaign which was run in September-2017 was directed towards educating the young home-buyer aspirants and providing them with insights about how the Shared Ownership scheme can aid them in the property matter.
This year, Wayne Hemingway MBE, supported the week – through his prior role as Chairman of ‘Building for Life’ he helped to understand the significance of decent quality, reasonably priced housing. According to Wayne, it was imperative to increase awareness of the work of Housing Associations which is working towards helping individuals in the UK to attain home ownership. He further added, that, Shared Ownership has been every helpful and has come a long way in the five year period. The week not only provides options to affordably living, also, offer a wide variety of homes and vivacious community living. Furthermore, the Housing and Planning Minister, Alok Sharma said that the UK Government is firm about making housing more reasonably priced, thereby, increasing supply and helping additional UK citizens on top of the housing ladder. To enable the Government to achieve this, Shared Ownership plays a crucial part by aspiring young home buyers to accomplish their desire of home ownership.
Shared ownership housing schemes
Introduced in 1980s, Shared Ownership has been constrained with Local Councils who decide based on the priority of range of factors from an individual’s salary to the place a buyer comes from. However, there has been some relaxation to the admissibility criteria in FY2016, wherein the scheme was open to individuals from any occupation, and gave equal priority to first time buyers as compared to the ones who already owned a property. In addition, the cap on the number of bedrooms a contender could request has been withdrawn, provided the respective individual earns less than £80,000 per annum, or £90,000 in London.
Shared Ownership permits homebuyers to buy a share in a newly-built home for which they have funds to pay for – this is generally a minimum of 25% of market value. Post the minimum payment, a buyer is liable to pay a subsidised rent on the outstanding amount for the property, typically consequential to reduced monthly costs as compared to open market.
An individual in the UK can purchase a home through Shared Ownership, if he/she earns £80,000 per annum or less (or £90,000 per annum or less in London) and either of the below mentioned apply:
- the individual is a first-time buyer
- an individual used to own a home, however, the current scenario doesn’t permit him/her to pay for a one now
- an individual is an existing shared owner
How shared ownership works
Shared ownership properties are mostly leasehold which means that property is owned only for a fixed period of time. Let’s understand this in detail:
If an individual is aged 55 or above, he/she can purchase up-to 75% of the home and this can be done through the Older People’s Shared Ownership (OPSO) scheme. Once an individual owns 75% he/she won’t have to pay rent on the rest.
For individuals with long-term disability, they can apply for a scheme called home ownership for long-term disability (HOLD). This scheme can be put into use if other “Help to Buy” scheme properties do not meet the requirement, for example if an individual needs a ground-floor property. Under this HOLD scheme, an individual will have the privilege to purchase up to 25% of the home. Additionally, if an individual is disabled, he/she can also apply for the common Shared Ownership scheme and hold charge of 75% of the property or home.
Buying more shares
An individual can purchase more portion of the home after he/she becomes the owner. This is usually termed as ‘staircasing’. The price of new share will be determined by how much the home is worth when an individual wants to purchase the share. It will cost:
- in excess of the first share if the price of the property has increased in the area
- less than the first share if the price of property has reduced in the area
It will be the responsibility of the housing association to get the property valued and will inform the concerned person about the cost of new share. In this case, an individual will have to pay the valuer’s fee.
Selling a home
If an individual own a share of the home and plans to dispose it, the housing association has the authority to purchase it first. This process is termed as ‘first refusal’. Additionally, the housing association also has the authority to find another buyer for the home. It may be noted that if an individual owns 100% of the home, he/she can sell it themselves.
How to apply for Shared Ownership
In order to purchase a home through a Shared Ownership scheme individuals can contact the “Help to Buy” agents in the respective areas where would want to reside. With Help to Buy, individuals can purchase a lately built home or a previously built one through resale programmes from housing associations. Through Shared Ownership individuals can purchase a share of a property that he/she want to live in. With the help of a local “Help to Buy” agent can individual can purchase a home based around these 3 main points:
- An individual can purchase between 25% and 75% of the desired property from a housing association
- An individual can pay mortgage for his/her share and pay rent on the remaining amount to the housing association
- An individual can purchase a larger share later which will be determined by the value of the property at that particular time
Shared Ownership pros and cons
Below mentioned are a few pros and cons of Shared Ownership:
|Accessible to lower-income households||Individuals staying do not own house outright|
|Additional shares can be bought from landlord||Restricted to specific properties|
|Potentially cheaper than renting||Valuation fees payable while purchasing shares|
|Can be sold at anytime||Rent still paid to landlord; there can be some restrictions on further renting it out|
|Rent on landlord’s share in normally under market rates||100% of maintenance cost must be paid|
|Benefit of increased value of the share purchased||Restrictions on sale; limited re-sale of shared ownership property is applicable|
Few important things to remember
- The scheme is provided by housing association – it is not similar to purchasing a property from a friend or relative
- An individual will have to find a shared ownership property in the particular area in which he/she wants to live – it is important to find the right contact in the region
- An individual can purchase a larger share of the property until he/she owns it completely
- In case the property prices increase, he/she will pay more for increasing the share, however, for reduced prices an individual will end up paying less
- If an individual has bought the remaining share and plans to sell the home, the housing association has the first option to buy it back for 21 years after an individual reaches 100% ownership
|Buy-out of landlord||
|Cost of buying out landlord||
|Costs and other outgoings||
|Initial share of ownership||
|Minimum buyer deposit||
|Rent to landlord||