April 2021 has brought about changes to the way Shared Ownership works in the UK. Shared Ownership is the process of buying a percentage of a property, and then paying a reduced rent on the remaining portion you don’t own. The scheme makes buying property more affordable for many First Time Buyers.
Find out more about Shared Ownership
The changes to Shared Ownership are coming into effect alongside the construction of new build, Shared Ownership homes that are delivered through the Affordable Homes Programme, which will run until 2026.
Here’s what’s changed:
Previously the minimum share you could buy into a Shared Ownership property with was 25%. Now the minimum has lowered, and you can now purchase just 10% and rent the remaining 90%.
This will make buying much easier for those who cannot afford the typical deposit, an issue particularly present among First Time Buyers.
A key aspect of Shared Ownership properties is the ability to staircase; buying a larger percentage of the property until you can eventually own the whole thing (though some properties do cap around 80%). Until now, staircasing had to be carried out in increments of 10%, meaning you had to save a significant lump sum to staircase.
Now, however, you can staircase in a minimum of 1% increments. Meaning you can be more flexible with staircasing and can staircase with a smaller budget.
Value of property: £250,000
Staircase 10% value: £25,000
New 1% value: £2,500
It is important to be aware, you will need to pay for legal fees and mortgage fees
each time you staircase. So be aware of all these costs as well as what percentage you can afford to buy. It may make more sense to save up a sum and staircase in one go, rather than multiple times over the years. This will be down to your finances and the impact it will have on your mortgage/rent etc.
You should not need to get a RICS surveyor to carry out a new valuation each time you want to buy a 1% share, as the price will be based on an estimated valuation linked to the original purchase price. This has been stated in the Gov.uk Shared Ownership model
Repairs & maintenance
Shared Ownership now includes a 10-year period when the landlord or housing association will cover the cost of any repairs and maintenance.
This will be useful for keeping your costs down in those first 10 years, helping First Time Buyers to better financially recover from the expense of buying and renting. This way you can also focus on saving to staircase. It also seems like a fair move, with the typical advantages of renting (landlord maintenance and repairs) becoming part of this system.
Originally Shared Ownership properties were built as part of a new build plot and belong to the housing association. This allowed property developers to fulfil ‘affordable housing’ obligations that allow them to build.
Now, the vast majority of rental homes delivered through the new Affordable Homes Programme have a right to Shared Ownership. Though tenants in these homes must meet certain eligibility requirements in order to become shared owners. They:
- Must have lived in the property for at least 12 months and been a social tenant for at least 3 years
- Must have a maximum household income of £80,000 or less (£90,000 in London)
- Will be required to undertake an affordability assessment to prove they can afford to own a home
- Must not be going through bankruptcy proceedings
What hasn’t changed?
While the Shared Ownership scheme is undergoing many changes, the amount that mortgage lenders are willing to offer looks as yet unchanged. Most mortgage lenders will still only consider a minimum share of 25% when purchasing a Shared Ownership property.
However, as the new rules of Shared Ownership take effect, we may see more mortgage lenders begin to adjust their criteria to be more in line with the scheme.
Though these new changes come into effect this month, it is important to be aware that we may not feel the full impact of the change for some time, while the Affordable Homes Programme takes off and new build homes are constructed.