Buying a house can present all sorts of problems and difficulties to overcome for many people, especially those who don’t have as much capital to play with. Recently, however there have been measures taken to help those who can afford to pay a mortgage once it’s all set up but might struggle to gather the initial deposit together in order to secure it in the first place.
The Help-to-Buy schemes are a welcome addition to the UK housing market, but they are not the only way that those with less financial clout can get themselves onto the property ladder.
What Shared Ownership Means
Shared ownership means that the occupier owns a percentage of the property they live in and pays a mortgage based on that percentage, with the rest of the property owned by a housing association. The occupier and part-owner will then pay a rent to the housing association based on the percentage of the property that the association owns.
The amount that the part-owner can buy can range between 25 and 75% of the property. The first amount purchased is known as the ‘first tranche sale’, with the mortgage calculated according to the overall value of the property and the percentage of it that the occupier has bought. The rest of the property, called the ‘remaining equity’, is then (usually) held by a housing association who will charge the occupier an inflation-based rent on the percentage held by the association.
Is Shared Ownership Right For You?
First things first, shared ownership housing is only available to people earning below set income caps which are £90,000 for London-based households and £80,000 throughout the rest of England. These income caps are not restricted to one person but to the entire earning household who wish to buy a property via shared ownership. Thus, a couple who earn £50,000 a year each are not eligible, but a couple who earn £35,000 a year each are (or any combined number under £80,000 outside of London).
The shared owners are then able to purchase more and more of the property as time goes on, which is called ‘stair-casing’. It should also be noted that the shared owners are not considered proper owners until they have stair-cased their way to full ownership where they are paying the full mortgage on 100% of the property. Before then, the shared owner is considered something akin to a tenant, though issues such as repairs and insurance remain their responsibility rather than that of their ‘landlord’, the housing association.
It’s also possible to stair-case downwards and own less of the property by ‘selling’ another percentage of the property to the housing association, but instances of this are very rare and, according to research from 2012, only constitute about 2% of all stair-casing examples. So if you are struggling to get the funds together for a mortgage deposit, a shared ownership scheme is definitely an option you should investigate, though always conduct thorough research to ensure you are fully aware of any pitfalls and problems that may arise.
