Coronavirus has undoubtedly taken global control with each day providing new challenges. One of the recent challenges has been for those who are wishing to get on the property ladder but, may find they are less likely to do so with lenders becoming more stringent on loan amounts and lending criteria.
This week, we have seen high street banks start to relax the loan-to-value amounts in an attempt to salvage and kick-start the property market. However, people may still not be able to afford as much as they would have hoped for before Covid-19.
One group most likely to be affected is first-time buyers (FTB’s) and we are likely to see an increase in requirements for affordable market housing, such as shared ownership and discount market homes.
After the failure of its “Starter Homes” scheme, the Government is consulting on a new discount market housing scheme known as “First Homes”. This is not going to be a quick
fix, so this could be the time that Shared Ownership is the first choice solution for people otherwise locked out of the housing market.
Shared Ownership has been around since the 1970s, but has until recently been fairly niche. Below will give you a summary of Shared Ownership and opportunities it has for people who might otherwise not be able to access the residential market.
What is Shared Ownership?
Shared Ownership gives buyers the opportunity to purchase a share in a new build, or resale property. Shares in a Shared Ownership property can start from as little as 25%, with the option to staircase (buy more shares) until 100% ownership is reached. (This is restricted to 80% on some properties).
The buyer pays for the share they own and then pays rent to a landlord (usually a housing association) on the remaining share. The purchaser will only need a mortgage for the share they are purchasing, which also means the amount of money needed for the deposit is lower.
What are the benefits of buying a Shared Ownership home?
Shared Ownership homes give a further degree of flexibility to people who wish to own their very own home, but who may not have the affordability to purchase an open market home. Costs are generally lower for various reasons:
- The rent is less than the rate charged on the open market.
- You can start with a little as 25% share in many cases.
- Your deposit will be 5-10% of the price of your share, not of the full market value of the whole property.
- Stamp Duty Land Tax (SDLT or simply ‘stamp duty’) can generally be deferred until your share reaches 80%.
A further attractive quality of a Shared Ownership home is that they are often on new developments, so you get a brand new home with the benefit of a new build warranty.
What do you get with a Shared Ownership home?
When you purchase a Shared Ownership home it is important to remember you will be paying rent on top of the mortgage payments as well as insurance costs, service charge and consent fees.
You do have the option to staircase, meaning you buy more shares in the property, which in turn decreases the amount of rent payable.
All shared ownership homes are leasehold initially. If you buy a house, once you acquire all of the shares then you will usually be able to acquire the freehold for no additional cost. Flats remain leasehold, but once you have acquired all of the shares, you will no longer have to pay rent to the landlord, although you may still be liable for other costs such as service charge, insurance, ground rent and consent fees.
You can sell your shared ownership home before you have fully staircased, but there are additional restrictions and costs involved.
You can make your Shared Ownership home your own by decorating it and making alterations, but any significant or structural alterations will usually require consent from your landlord.
What are the eligibility rules for Shared Ownership?
You will need to apply via your local Help to Buy agent if you want to buy a Shared Ownership Home. The general eligibility criteria for Shared Ownership is as follows:
- You must be at least 18 years old.
- Outside of London your annual household income must be less than £80,000.
- In London, your annual household income must be less than £90,000.
- Shared Ownership purchasers are often first time buyers but if you do already own another home, you must be in the process of selling it.
- You should not be able to afford to buy a home suitable for your housing needs on the open market.
- You must show you are not in mortgage or rent arrears.
- You must be able to demonstrate that you have a good credit history (no bad debts or County Court Judgements) and can afford the regular payments and costs involved in buying a home.
You should have savings or be able to easily access at least £4,000 to cover the costs of buying a home (this is a guideline figure – the actual amount may vary). You will also need access to the deposit amount required. For Shared Ownership, this will usually be 5-10% of the equity share you are buying.
We are still yet to see the full extent of the disruption caused by Covid-19 to the residential market, but what we may see is a surge of people registering for Help to Buy to help them find Shared Ownership properties due to the affordability in the market compared to purchasing an open market property at the full value.
If you are considering buying a Shared Ownership property it is important to look at the pros and cons and to take legal advice from solicitors who have experience of dealing with Shared Ownership. At Spire Solicitors LLP, we can help you whether you are looking to purchase a new build shared ownership, as well as resale homes. Email info@spiresolicitors.co.uk, or call 01603 677 077 for more information.
