If you cannot afford the deposit on a property, you may be eligible to purchase a home through the shared ownership scheme.
How Does Shared Ownership Work?
When you buy a property through the shared ownership scheme, you buy a share of the property and pay rent to a landlord on the rest. The share you buy is usually between 25% and 75% but some providers allow you to buy a 10% share.
You can either pay for your share with savings or take out a mortgage. You will also need to pay a deposit which is usually between 5% and 10% of the share you are buying.
In the future, you may wish to buy more shares in your property. This is called “staircasing”. The more shares you buy, the less rent you will pay as this is based on the landlord’s share.
Which Properties Can I Buy Through Shared Ownership?
Properties you can buy through Shared Ownership are:
- New Build homes
- An existing home through a shared ownership resale scheme
- A home that meets your specific needs, such as if you have a long-term disability that requires a ground floor property.
Who Can Apply For the Shared Ownership Scheme?
To buy a property through the shared ownership scheme, your household income must be £80,000 or less (£90,000 in London), and you are not able to afford all the deposit and mortgage payments for a property that meets your needs. As well as this, one of the following must also be true:
- You are a first-time buyer
- You used to own a home but cannot afford to buy one now
- You are forming a new household
- You are an existing shared owner and want to move
- You own a home and want to move but can’t afford a new home that meets your needs.
If you have a home before buying a shared ownership property, you must have completed the sale on or before the date you complete buying your shared ownership home.
The Costs of Shared Ownership
Once you have found the home you wish to buy, the landlord will pass you over to a mortgage adviser who will assess your ingoing’s and outgoings to make sure you can afford the payments for your new home.
When you find a home you wish to buy, you will usually need to pay a reservation fee of up to £500 to the landlord. This means no one else will then be able to reserve the home for a fixed period. The fee will then be taken off the final amount you pay on the day you buy your home. If you choose not to buy the home, this fee will normally not be returned.
You will need to pay a deposit when you exchange contracts, this is usually between 5% and 10% of the share you are buying.
You will also need to pay solicitors’ fees, monthly mortgage payments, rent to the landlord, and any extra monthly charges. You may also need to pay stamp duty land tax.
We will provide you with a list of buying costs and go through this together, explaining what you need to do.
Once you own your home, you must either pay building’s insurance or contribute to the landlord’s insurance policy. You may also need to pay:
- Service charge – covers the cost of cleaning and maintaining communal areas such as gardens or windows
- Estate charge – covers the cost of maintaining any communal areas that aren’t covered by the service charge, e.g. roads
- Management fee – covers the landlords administration costs
- Into a repairs reserve fund – covers major works such as replacing the roof. This usually applies to flats.
You will pay rent on the share of your home that you do not own. This is usually reviewed each year and may increase. However, there is a limit on how much rent the landlord can charge. If you buy a new build, the rent limit is 3% of the value of the share the landlord owns. Most landlords, however, charge 2.75%.
|Price of Property||Your share||Landlords Share||3% (rent limit per year)||Rent cost per month|
For re-sale homes, the starting rent will be set at the same level as the previous shared owner was paying.
If you subsequently buy more shares in your home, you will pay less rent.
You own a 40% share and pay £300pm in rent on the 60% the landlord owns. You buy another 20% so you now own 60% and the landlord owns 40%.
The rent is now reduced to £200pm.
|Price of Property||Your Share||Landlords Share||Rent per month|
How to Buy a Shared Ownership Home
- Register and complete a shared ownership application.
Register with the Help To Buy agent in the area of England you wish to live. You can then sign in to your account on the Help To Buy agent website and complete a Shared Ownership application form. The agent will then confirm you are eligible.
- Contact the Landlord of the property you wish to buy
Once it has been confirmed that you are eligible, you can look for a shared ownership property you wish to buy and register your interest with the landlord. The landlord will pass you to a mortgage adviser who will assess your ingoing and outgoings to ensure you can afford the payments for the property.
- Reserve your home
Pay a fee to the landlord to reserve the property.
- Choose a solicitor
Contact us on 01603 677077 or through our online contact form. We will then explain the terms of the shared ownership lease to you and also check the conditions of your mortgage offer. We will always be on hand to answer any questions, and ensure the transaction occurs efficiently and in your best interests.
Buying More Shares (Staircasing)
You can buy more shares in your home in the future. This is known as staircasing. The more shares you buy, the less rent you will pay as this is based on the landlord’s share.
Usually, you can buy shares of 10% or more at any time. Some older leases only allow 25% or more, whereas newer leases will allow you to buy shares of 5% or more. This has further reduced in 2021, where some homes allow you to buy shares of 1% each year for the first 15 years.
You can usually buy more shares at any time. However, for some homes you may need to wait for a certain time after you buy the property.
The cost of your new share will depend on how much your home is worth at the time of buying the share. You will need to pay for a valuation for this to be calculated. The landlord may also charge an administration fee each time you buy a share of 5% or more. This can vary from around £150 – £500.
Usually, the maximum share you can own of your property is 100%. However, there are some exceptions. In some places called ‘designated protected areas’, you may only be able to buy shares of up to 80%. If you buy an older person’s shared ownership, the maximum is 75%.
Selling Your Home
You can sell your shared ownership property at any time. If you own 100% you can usually sell it on the open market.
If you don’t own 100% of your home, you need to tell your landlord when you wish to sell. This allows the landlord to find a qualifying buyer for your share. This period is called the ‘nomination period’ and length of which depends on the lease. If the landlord doesn’t find a buyer in this period, you can sell your shares on the open market.
The landlord may charge you a fee when you sell your home. This should be in the key information document or lease for your home.
If you would like to discuss any points in this article further, or would like to begin the process of buying a Shared Ownership home, please contact Spire Solicitors LLP on 01603 677077.