The Government’s Help to Buy scheme has been hitting the headlines a lot over the past few months, with first-time homebuyers finding it harder than ever to get onto the property ladder. A recent survey by Home Let revealed that 71% of tenants would prefer to own their own home rather than rent. So it’s imperative that the Government continue its commitment to delivering more affordable housing in the UK.
One way in which you could assist your clients in owning their own home is through Shared Ownership.
What is Shared Ownership?
Shared Ownership is an extension of the government supported Help to Buy scheme to assist prospective, first-time homebuyers get a foot on the property ladder. It offers an affordable way for some of your clients to buy a newly built or resale property that would have usually been outside of their price range, in an area that they really want to be in, at a price that they can afford. Something that they probably wouldn’t have been able to do without the option of the Shared Ownership scheme.
The scheme allows people to part-buy and part-rent a home. The homebuyer is able to purchase an initial share of the value of the property (between 25% and 75%), obtaining a mortgage for their share, and pay a subsidised rent on the remainder that they don’t own through a Housing Association. All Shared Ownership properties are always leasehold.
So who’s suitable?
Not everyone is eligible to purchase a home through Shared Ownership, so it’s important for you to recognise which of your clients would match the scheme criteria.
According to the Government website, you can buy a home through Shared Ownership if your household earns £80,000 per annum or less (with this increasing to £90,000 per annum or less within London), and that either:
- You’re a first-time buyer;
- You used to own a home, but can’t afford to buy one now; or,
- You’re an existing shared owner.
The Shared Ownership scheme is aimed at people who don’t earn enough to buy a home outright. So if you have clients that are struggling to raise a large deposit, or have some savings but can’t commit to long-term mortgage repayments, then provide them with the option of a Shared Ownership home.
Homebuyers can also increase their shares in the property
Shared Ownership is a stepping stone for people to own their own home. The scheme will allow your client to buy what they can afford at the time of purchase, but they’ll also have the opportunity to (if they wish) buy additional shares in the property at a later date, as and when they can afford them, until they eventually own their home outright. This process is called ‘staircasing’.
Once the sale of the property is complete and the owner is in a position to buy greater shares in their home, they must first discuss their intentions with the Housing Association, along with their current lender or Financial Advisor when determining how much they wish to buy. The cost of the new share will depend on the valuation of the property at the time the owner intends to buy the share.
You should also make your client aware of…
In addition to the fees attached to a Shared Ownership mortgage (which vary between lenders), your client will still need to consider the costs involved when purchasing a property such as valuation and legal fees – exactly the same as if they were going through the process of purchasing a home outright.
Other costs that need to be taken into account when buying a Shared Ownership home include:
- The Reservation Fee: These differ with each Housing Association, although it will typically be offset against the service charge account once the sale completes.
- Advance Rent and Service Charge: As soon as the property purchase is complete, the first month’s rent and service charge will usually be payable.
You should advise your client to fully research and check all related fees with the Housing Provider before committing to the purchase.
Shared Ownership can open up the opportunities for those clients that want to purchase a house they want, in a location they want to reside in and at an affordable price. The combined cost of the mortgage on the share owned by the homebuyers and the monthly subsidised rent and service charge for the remaining share on the property can usually work out cheaper than if the client was to buy outright or privately rent.
Our comprehensive lender panel offers a large selection of products to cover a whole range of circumstances. Get in touch with one of our dedicated Business Development Manager’s today to discuss the products we have available for your clients looking at a Shared Ownership home.
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