Affordable housing schemes are a great way to enable buyers who would not otherwise be able to afford a home to purchase a property through government-funded and privately-operated schemes.
Shared ownership and shared equity arrangements are available to first time buyers with an income of less than £60,000 who are unable to obtain a mortgage on the open market. The UK Government’s shared ownership scheme is called Homebuy and their scheme for First Time Buyers is First Buy.
What is shared equity?
Shared equity schemes in the UK form the basis of the Government’s FirstBuy scheme that launched in September 2011. The premise of shared equity is that the buyer can pay a small deposit – usually 5 per cent – and top up to 20 per cent of the purchase price with a low or no cost ‘equity loan’, with the remainder paid by your mortgage.
In the short term a shared equity agreement can be a very welcome deal as it enables first time buyers to acquire a home without paying a big deposit.
Nevertheless, you should always bear in mind the long-term consequences of shared equity. After 25 years of the loan period you will be required to pay it off in full. As an equity loan, the loan will be proportionate to the value of the property at the time 25 years on rather than a fixed figure, which means you could be paying back significantly more than you first borrowed if the housing market recovers.
What is shared ownership?
There are similar benefits to shared ownership schemes as shared equity arrangements. First time buyers usually enter into a shared ownership arrangement with a housing association or similar organisation, paying rent to them for the part of the property they own but you are allowed to live in.
For example, you may purchase a stake of 40 per cent of the market value of a property and pay rent on the remaining 60 per cent of the property that’s owned by your local housing association.
The rent you pay must be set at an ‘affordable rent’, usually around 3 per cent of the other party’s share of the property value. The most welcoming aspect of a shared ownership scheme is that you can increase your percentage stake in the equity of the building over time, as and when you can afford to do so.
In order to increase your stake in the property you will require a shared ownership mortgage. By part-owning your property you will therefore require a smaller mortgage and a smaller deposit – 10 per cent of the share you are buying.
Help to Buy
An additional affordable home ownership scheme aimed at helping buyers get onto the property ladder is the Help to Buy scheme. Help to Buy allows buyers with a small deposit to purchase a home.
There are two parts to this scheme: equity loans and mortgage guarantees. To be eligible for either aspect you must have at least 5% of the purchase price for the deposit and the property you are buying must be for your main place of residence and worth £600,000 or less.
For the full information about the scheme, take a look at our Help to Buy article.
Over the last few years the Homes and Communities Agency has invested around £8.4 billion in affordable housing programmes, with a further £500 million secured in January 2014 to fund the building of new affordable homes for rent across the UK. The scheme has already enabled many first time buyers with over 39,000 property sales through low-cost home ownership initiatives.
When going through the buying process, be careful to choose a property lawyer to represent you that has your best interests at heart, who will ensure guarantees are in place regarding planning permission, building regulations, structure and more. At reallymoving we can provide instant conveyancing quotes from a leading selection of property lawyers from top quality legal firms across the country that will be aware of the complexities involved in the conveyancing process for these schemes.
Help to buy and shared ownership in London
With prices in London being higher than the rest of the country, there are some slight differences when attempting to buy in the capital. Whilst the average price of a property in the UK is around £230,000, first time buyers in London are looking at property prices of an average of £410,000. As such, some of the schemes have adapted to encourage those looking to buy in London. The shared equity scheme, for example, will offer a loan of 40 percent of the property value, instead of the 20 percent offered across the rest of the UK.
There are also a variety of shared ownership schemes for London, with the earning thresholds being slightly different. For example, if you are looking to be part of a shared ownership buying scheme in London, you need a household income of under £90,000 and to be a first time buyer.
There is also a new scheme Starter Homes, which is part of a government initiative to provide more affordable housing. This scheme has not started yet, but it will be providing new builds at a discount of 20 percent, and will be available to those aged 23-40. For outside of London, the homes cost be no more than £250,000 and in London, no more than £450,000.
Special shared ownership schemes
Certain groups of people have access to shared ownership schemes with preferential conditions. For people aged over 55, the Older People’s Shared Ownership (OPSO) scheme allows you to buy a percentage of your home between 25 per cent and a maximum of 75 per cent. As with other shared ownership you pay proportional rent on the remainder. The greater the ownership share the less rent you have to pay, and once you own 75 per cent you no longer have to pay rent.
People with a disability can also buy a shared ownership property under the Home Ownership for People with Long-term Disabilities (HOLD) scheme. This scheme is particularly helpful for those who may have special housing needs due to their disability – for example needing a property on the ground floor – as it allows homes on the open market to bought on a shared ownership basis if there are no suitable properties available from the housing association.
Selling a shared ownership property
When you decide to sell your shared ownership property there are a number of factors that need to be considered. To make the process easier reallymoving have highlighted some important points to help get you started.
You are entitled to sell your shared ownership home at any point. If you have been staircasing and own 100% of your home, you can sell the property yourself.
If you own a share in your property, under the terms and conditions of your lease, the housing association will have 8 weeks to find a buyer for your home.
The 8 week process will only begin once the housing association receives your signed contract of sale. The contract of sale can only be completed once you have:
- Informed your housing association that you would like to sell your home.
- Paid the fee for a RICS surveyor to carry out a survey to value your home. A list of recommended surveyors will be provided by your housing association.
- Agreed your share of the house sale based on the valuation with the housing association.
- Include the details of your solicitor who will be working on the sale.
If you have bought the property with someone else, they will need to sign the contract of sale.
It is also a requirement for you confirm that an Energy Performance Certificate has been commissioned before you sell your home.
The advantage of selling your shared ownership property is that the housing association can help you find a nominated buyer that who is eligible to buy your property.
After 8 weeks, if a suitable buyer has not been found by the housing association, you can sell your property through an estate agent or privately. The estate agent will still need to complete a shared ownership form to ensure that the potential buyer is entitled to buy your home.
Last updated September 2017