Non Standard Mortgages - Shared Ownership
Shared ownership | Homebuy
Shared Ownership Mortgages
Rising property prices have put outright ownership of a
property beyond the means of a large portion of the population.
In many areas of the country it is virtually impossible
to buy a property unless you earn well above the average
salary.
However, even in the most expensive areas, home ownership
can still be a reality, thanks to the shared ownership schemes
that provide something of a halfway house between renting
and owning a property.
What is shared ownership?
Essentially, you buy a
share in a home, with the remainder being owned by a Registered
Social Landlord (RSL), to whom you pay rent on the proportion
they own. Registered Social Landlords include housing associations,
trusts, co-operatives and companies that are run as a business
but not for profit.
Under conventional shared ownership schemes, the property
in question is usually part of a stock of properties built
or purchased by RSLs, possibly with shared ownership in
mind.
Do-It-Yourself-Shared-Ownership (DIYSO) is offered by a
limited number of local authorities but allows a purchaser
to select a property on the open market and then buy it
on shared ownership terms, paying rent to an RSL on the
share they do not own.
Who is shared ownership for?
Shared ownership is not just for people on low incomes -
generally there is no minimum or maximum salary requirement.
However, you do need to be employed, able to take out a
mortgage, yet unable to afford to buy a suitable property
on the open market.
The criteria for acceptance vary from place to place. In
areas where there are housing shortages, priority is usually
given to council or housing association tenants, those on
the waiting lists and also to key workers in the public
sector.
As long as you have a reasonable credit history, you should
have no problem in finding a lender that is willing to give
you a mortgage for this type of scheme. If your credit history
is not so good, you may have to hunt around a bit more,
but you should still be able to find one, though the rate
you get might not be so competitive.
What percentage can I buy?
It is normally possible to buy anything from 25% to 75%
of the property under a shared ownership scheme, though
they are normally offered on a 50 percent share, split between
yourself and the Registered Social Landlord. As mentioned
earlier, you will have to pay rent on the portion that you
don't own, but the rent is normally kept artificially low
- around 4 percent of the value of the property, rising
each year in line with inflation. The rent is kept so low
that it is almost certain to be lower than the equivalent
mortgage repayment.
When deciding what stake to take up, you should take into
account what your mortgage repayments will be (don't forget
to make an allowance for potential rises in interest rates)
and work out what the rent will be on the stake owned by
the RSL. Also remember that you will be taking on full responsibility
for repairs and maintenance, service charges for cleaning
and upkeep of communal areas, lighting, gardening and so
on, all of which need to be factored into your expenditure.
Can I increase my share later on?
After a period of time usually a year, may well be able
to increase equity stake through a process known as staircasing.
This allows you to take ownership of the rest of the property,
often in 25 percent chunks. This can only be done once you
have had the property revalued by an independent valuer
through the housing association, as the price you pay will
take into account any increases in the value of the property.
This valuation can cost a couple of hundred pounds and your
mortgage lender may also want to revalue the property.
What happens when I decide to sell?
When you sell the property, the proceeds of the sale are
split according to the proportional ownership at the time
of sale. If you started out with 50% and then bought a further
25% later on, you would get 75% of the sale proceeds, the
RSL will get the other 25%.
