Recently the government has pledged to invest £12.2 billion into increasing affordable housing across the UK. One of its main outcomes will be to introduce a new shared ownership model to help more first time buyers onto the property ladder. Question is, what is shared ownership and is it any good?
What is shared ownership?
Shared ownership is an alternative route to a traditional home purchase. Instead of taking out a mortgage for the full purchase price, you BUY A SHARE of a property. On this share you pay a mortgage each month. Then for the remaining figure you pay a rent to your local housing association.
These are independent non-profit organisations, regulated and sometimes funded by the government. Housing associations typically deal with shared ownership, social and Right To Buy houses, while also helping vulnerable people across the community.
What are the pros and cons of shared ownership?
Shared Ownership properties come with various pros and cons, which it’s well worth looking into before signing on the dotted like. But, so we don’t bore you with them all, here’s three of each to consider…
Pros of Shared Ownership
Shared Ownership deposits are low
With shared ownership schemes, the deposit you pay will be far lower than if you were to get a mortgage for the whole property. If you don’t have many funds to start out with, Shared Ownership could help you avoid living in a ‘not so nice’ part of town or waiting around to scrape a deposit together.
You can sell your shares in your home at any time.
Pretty much is what it says on the tin – you can sell your shares in your home at any given time. So, if after a year you’ve been able to get together enough money to purchase something else, you could sell your shares back to the housing association. A great way to boost the deposit for an onward purchase.
Shared Ownership gives you security of tenure
Unlike if you were to privately rent, Shared Ownership gives you security of tenure. This means that you are entitled to live in your property for the duration of the lease – the majority of shared ownership properties are leasehold. This is providing that your mortgage and rental charges are paid.
Cons of Shared Ownership
Costs may still be steep
While opting for a Shared Ownership property will mean you can have smaller mortgage payments, it does require you to pay 100% of any ground rents and services charges – another area for you to do your research around before signing on the dotted line.
If you’re not attracted to Shared Ownership because of the smaller deposit, but instead the decreased the amount of outgoings, then you may be better off pumping this money into a mortgage and opting for a traditional purchase.
But it’s not just maintenance and leasehold fees you’ll have to pay on a Shared Ownership home. You’ll also have to cover the Stamp Duty based on the property’s full purchase price, not the value of your shares!
However, with the Stamp Duty Holiday meaning that the majority of Shared Ownership houses are exempt from Stamp Duty, if you’re considering joining the scheme, now is a wise time to do so. The holiday will last until March 31, 2021.
Restrictions to home improvements
By financing the whole of your property, some DIY restrictions will apply. While you should be okay to redecorate (paint, wallpaper etc.), things like knocking down walls, re-landscaping the garden, and repaving the driveway may be off the cards until you purchase the property outright. To find out what you could do to a Shared Ownership property, get in touch with you housing association.
Not all lenders offer mortgages on a shared ownership basis, although the majority will. A smaller pool of lenders means you’ve got less options to choose from, which could see your mortgage costs be slightly higher than you expected.
If you wish to evaluate Shared Ownership even further, you can discover more Pros & Cons here
Is Shared Ownership only for first time buyers?
The short answer to this is yes, unless you used to own a home but can’t afford to buy one anymore. For instance, if you’ve lost your job or divorcing a partner has left you unable to fund a deposit.
Is Shared Ownership Halal?
Kooky question we know, and one that may only apply to some of our readers, but nevertheless it’s something worth knowing beforehand.
See, Sharia law states that the payment or receipt of interest is prohibited, be it fixed or variable. Therefore, any Muslim looking to get a mortgage for a Shared Ownership property or the Right To Buy scheme would be unable to do so. Even if a Muslim was to turn to an alternative Sharia-based finance product, the Shared Ownership lessee would be liable for double the stamp duty. How the Stamp Duty Holiday would affect this situation, we’re not entirely sure. If you’re having the predicament it may be one to pose to your housing association.
Shared ownership new rules: what are they for 2020?
Remember the £12.2bn investment mentioned at the start? In the run-up to 2026, it’s hoped that will fund 180,000 new affordable homes, many of which will be available for purchase through the Shared Ownership scheme. We outline the main changes you can expect to Shared Ownership below…
- The minimum share required to buy into a Shared Ownership property will be decreased from 25% to 10%.
- Shared owners can increase the shares in their home by 1% opposed to 5%
- New shared owners will have a 10-year period where their repairs would be covered by their landlord.
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