Welcome to our helpful guide on shared ownership housing. If you would like to understand how to enhance your changes of gaining a mortgage for your shared ownership property see https://stuartjamesfinancialsolutions.co.uk/pdf/16-ways.pdf that may assist you in gaining a mortgage. It’s good to have some time from deciding you would like to take out a mortgage to applying, so you can make any changes to enhance your chances.
How shared ownership works
With shared ownership, you buy between a quarter and three-quarters of a property. You have the option to buy a bigger share in the property at a later date. These schemes are aimed at people who don’t earn enough to buy a home outright. Up to 75% ownership you will have to pay rent to the housing association.
Most of the homes available are newly built, but some are properties being re-sold by housing associations. All shared ownership homes in England are offered on a leasehold only basis, which is not a problem as long as the lease has a long time still left to run.
Who can apply for Shared Ownership?
The criteria for who’s eligible for the shared ownership in England:
First-time buyers or those who used to own a home but can’t afford one now
People whose combined household income is less than £80,000 (in London, it’s less than £90,000)
You rent a council or housing association property.
You don’t have to be a key worker, such as a nurse or teacher, to apply for shared ownership.
Military personnel will be given priority over other applicants.
Once you own 75%, you won’t have to pay rent on the remaining share.
If you have a long-term disability and cannot find a suitable home for your needs, you can get help with the ‘Home Ownership for People with long-term Disabilities (HOLD)’ scheme.
Stamp Duty and shared ownership
In the 2018 Budget, the government announced that first-time buyers would be exempt from paying stamp duty if their shared ownership property is worth up to £500,000 – and this is back-dated to 22 November, 2017. This means that any first-time buyers that have paid stamp duty on an eligible shared ownership property after 22 November, 2017, can apply for a refund.
How to claim a stamp duty refund
If you’re eligible for a stamp duty refund, you need to contact HMRC in writing. Make sure you do this by the deadline of October 28, 2019. In your letter, you should provide details of your purchase and share the UTRN, which is the unique reference number on the original stamp duty return.
What are the downsides to shared ownership?
1. Maintenance charges
Hopefully the monthly mortgage repayments, plus rent will still make shared ownership far cheaper than buying a property outright. But don’t forget to add on maintenance charges and be prepared for possible increases in the future. As well as a general monthly service charge for caretaking and maintenance of communal areas. Make sure you ask how you will be expected to pay for more significant works e.g. for structural issues or roof maintenance.
Be aware that even though you own a share of the property, say 30%, you are responsible for paying the full maintenance and repair costs.
2. Renting is generally not allowed
There are also likely to be restrictions on whether you can rent the property out. In the great majority of cases, sub-letting is not allowed.
3. Buying up increased shares in your property can be expensive
Once you have purchased your stake in the house and you wish to increase your stake at a later date or “staircase” – it’s not just buying the share you need to think about. There are other costs you need to consider:
Valuation fee – your housing provider will instruct a surveyor to confirm the current market value of the property and this will include a valuation fee.
Legal expenses – staircasing will involve changes to your existing lease which will require a solicitor to complete.
Stamp duty – if you’re not eligible for first-time buyers relief, and the stamp duty holiday is finished (March 2021) there are two ways to pay.
The first involves one-off payment in advance based on market value of the property and the second is by paying in stages. You will need to calculate the best option for you.
Mortgage fees – If you are applying to change lenders to buy your additional share or to access better interest rates you will need to pay the lenders valuation fee and a mortgage arrangement fee, plus any penalty your existing lender may charge for terminating your mortgage with them. However working with Stuart James Financial Solutions we will help you manage fees and advise to avoid early termination, where possible.
Check with your housing provider whether there are any restrictions when it comes to buying up a greater share in your property e.g. What is the upper limit you can staircase to? Can you start staircasing immediately? What are the maximum number of times you can staircase? What’s the minimum share you can buy at any one time?
4. Restrictions on what you can do
Check for restrictions within your lease. You are likely to be required to ask the housing provider’s permission in writing before you make any structural alterations to your home. In some cases the lease will require you to ask permission for redecorating as well.
5. The risk of negative equity
Buying a new build property – whether through shared ownership or on the open market – is more likely to make sense if you expect to stay put for a number of years. This is because new-build properties include an extra premium on the sale price that, like a new car, depreciates as soon as you move in. If house prices fall, you may fall into negative equity and lose money if you try to move.
To avoid the risk of feeling trapped in the event of negative equity, be honest about the properties you are looking at. Is there enough storage? Are you expecting to start a family in the next few years? Is the garden big enough for your family now and future? Is it in the right neighbourhood for the schools you want?
6. Issues around selling your share when moving home
When you are ready to sell your home, the process is can be a little complicated and can stall your progress on to the next rung of the property ladder. First of all, the housing provider is likely to have the right to buy back the property before it is marketed to anyone else (this is called “right of first refusal”), even in some cases if you have purchased 100% of the property through staircasing. This is so your property can be put to other people on the waiting list who are unable to buy on the open market.
After a period of time, if your housing provider fails to find a buyer you are free to market your share of the property yourself or using an estate agent. But you will need to find a buyer who fulfils the housing providers eligibility criteria for shared ownership. As not all banks provide shared ownership friendly mortgages, your pool of potential buyers may be reduced. However we can help with this.
7. You don’t have greater protection under shared ownership
Just because this is a government backed scheme doesn’t mean you get any more protection.
Costs can spiral. Check you can afford increased maintenance charges. While rents start low, expect these to increase, it is your responsibility to keep up repayments on your mortgage loan. Be aware that as rent is paid on the part of the property not owned by you, the housing provider can take action to repossess the property for rent arrears in the County Court.
What should I do before I apply?
If you find a property you like, research the housing provider on-line. See what customers say on forums. Are they satisfied? How well are they maintaining the property and at what cost? How well do they treat their customers?
Check the eligibility criteria of that specific housing provider for the property you like read and understand your lease and what restrictions it sets out, price up the various costs, work out your monthly payments.
Think about your long-term plans and when you could afford to start staircasing
Check out our other unbiased guides on buying, selling and running your home. Talk to us so we can help secure the home you want and the mortgage you need. Read our guide on 16 ways to enhance your changes of getting a mortgage.
What’s the application process?
Speak to the Housing team in your local council, or housing association, to see whether you’re eligible to apply.
You don’t have to live in a council owned home to be eligible. Look on the Share to Buy website to see what properties are available in England, or Homes for Londoners if you live in London.
Not all lenders will lend to you for shared ownership but we have access lenders who do. We will apply for a mortgage for you to pay for your share but you will have to undergo strict affordability checks, criteria checks and a credit reference search by the lender. You will also be expected to be able to provide a deposit of at least 5% but 10% is better (July 2020).
Make sure you will be able to afford all the costs of home ownership; including mortgage fees, moving costs, stamp duty, insurance, repairs, maintenance and, if it’s a flat in a block, your service charge.
You can use us for your mortgage for shared ownership and we will walk you through the whole process
As experienced whole of market mortgage and protection brokers, If you would like any assistance with gaining your mortgage, please get in touch on 01423 561060 or email email@example.com