In a world where escalating property costs are preventing many first time buyers from purchasing their first property, numerous schemes are now being developed, within both the public and commercial sectors, to allow individuals to purchase a property that they would not otherwise be able to afford.

What is Shared Ownership Mortgage

Shared ownership mortgage allows an individual to purchase a percentage of the property, such as 25 percent or 50 percent, and to pay rent on the remaining portion. This way, an individual is able to begin the process of owning their own property and reducing their monthly bills whilst still being able to obtain the necessary mortgage.

Shared Ownership Vendors

Most shared ownership properties are available to purchase from a housing association, with the remaining percentage of the property's value being paid for through a monthly rental payment. Apart from housing associations, some commercial vendors have also spotted the potential in the shared ownership market. They are now offering shared ownership style schemes in order to encourage those who would not necessarily be eligible for housing association properties to consider this method of purchasing a property, which they would not otherwise be able to afford.

Types of Properties Available For Shared Ownership Mortgages

Although the vast majority of properties offered on a shared ownership basis are from housing associations and are, therefore, housing association properties, which are normally flats or terraced properties in more populated areas, there are some commercial companies now offering properties for shared ownership.

With commercial companies, the choice of property is likely to be more varied, possibly in less populated areas or in other more rural areas. Of course, with a commercial company, the terms are variable and prospective purchasers will have to make further enquiries, on an individual basis, as the process is not regulated centrally by government.

Types of Shared Ownership

Although the basic principle of shared ownership remains the same, across the various different schemes, there are some subtle differences which should be borne in mind when trying to select the best overall package for your individual needs.

Home Buy Shared Ownership

Home Buy is a scheme that is, in theory, available to anyone who fits the eligibility criteria (more about this later). However, priority is given to current council and housing association tenants. In reality, this means non-council tenants will not generally be in a position to take advantage of the home buy scheme.

With Home Buy, the purchaser is still only purchasing a percentage of the property which is normally 75 percent. But, instead of paying rental on the remaining 25 percent, purchasers will be given a loan by the housing association for the value of the property, with the loan not being re-payable until the property is sold.

Property is selected by the purchaser on the open market and, therefore, purchasers are not restricted to the property or even the region that they currently live in.

Do it Yourself Shared Ownership

This scheme still requires the assistance of a housing association and works by the purchaser selecting the property they want to buy on the open market and then asking the housing association to purchase the remaining share of the property that the purchaser is unable to afford. Again, this is normally based on a 75 percent to 25 percent share, although this ratio can sometimes be negotiated.

Unlike the Home Buy scheme, the do it yourself strategy requires the purchaser to pay rent on the 25 percent share that is owned by the housing association. The advantage of this scheme is that the purchaser gets a free choice of the property that they can purchase. There is, however, an ongoing rental cost which makes this a pricier option compared with the Home Buy scheme.

Commercial Companies

Companies are now realising how popular the idea of shared ownership is and are offering the option to all potential purchasers. Commercial companies have total freedom in what they offer, which means that you can have a wide variety of options, including schemes that are similar to the Home Buy with no rental or, alternatively, do it yourself where a rental is payable. This offers a much wider choice of properties and flexibility in terms of the structuring of the finance. On the downside, there are not the same strict government regulations as housing associations have to comply with; this means that that any purchaser will have to be more astute and prepared to bargain, on an individual basis.

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Eligibility for Shared Ownership Property

Eligibility of purchasers for shared ownership varies depending on the scheme that you are considering. As a general rule, in order to make the most of housing association shared ownership schemes, it is normally necessary to prove that you would, otherwise, be unable to afford to purchase a property. For commercial companies, the opposite is normally true and as a potential purchaser you will have to prove that you have sufficient finance available to afford both the mortgage and the rent.

Housing Association Shared Ownership

Eligibility for shared ownership with regard to housing associations is normally dependent on two factors: the prospective purchaser’s type of employment and their income level.

Where shared ownership based on employment is concerned, this is normally referred to as a key worker scheme and requires the individual to be employed in sectors such as health work, teaching, police or other emergency services. To be eligible for key worker shared ownership, it will be necessary for the potential purchaser to prove their employment status; it is also common for the purchaser to have worked as a key worker, for a qualifying period of time.

Eligibility based on income varies depending on the local council area in which the person is resident. Some authorities will stipulate both a minimum and a maximum income. Maximum incomes are normally in the region of £25,000 to £30,000, with councils occasionally stating a minimum of around £15,000 to £20,000. Certain local councils also require the purchaser to prove that they have sufficient levels of savings to deal with the one-off costs involved, such as legal fees and surveys, normally in the region of £2,000. Those with rent arrears or bankruptcy proceedings may also find that they are ineligible for shared ownership.

Shared Ownership Eligibility with Commercial Companies

The process is slightly different when purchasing a shared ownership property through a commercial company. These vendors will normally be more focused on ensuring that the purchaser has sufficient funding to pay the mortgage and the rent. When it comes to this type of calculation, the company will normally use the total monthly payments (i.e. the rent and the mortgage) as a way of assessing the affordability and not simply the mortgage payments. As a general rule, those with an income of less than £20,000 may struggle to obtain a shared ownership property, although this varies depending on the type of property and the location.

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Locating Shared Ownership Property

Shared ownership property is becoming increasingly popular and as such, locating property that is available as part of a shared ownership is much easier than it was several years ago. In fact, shared ownership properties are now commonly advertised as part of the local property papers. Housing associations also have their own regular advertisements, making locating a shared ownership property a reasonably easy task.

Locating Housing Association Shared Ownership Properties

For those looking to purchase a shared ownership property from a housing association, the best initial step is to contact the council in question to ask about which properties are currently available and which properties are likely to become available, in the near future.

Remember, councils and government associations are required to plan their shared ownership activity, at least a year or two in advance, which means that by making enquiries it may be possible to obtain information on properties that are likely to become available in the next few years. This approach allows you to be first in line and to plan financing, in advance.

Commercial Companies Offering Shared Ownership

Aside from the standard property post advertisements for shared ownership properties, there are other ways of locating potential shared ownership options. Many larger developers will offer shared ownership as an option for potential purchasers, but will not necessarily advertise heavily; therefore, it may be necessary to make a few specific enquiries to ensure that you do not miss any opportunities.

brokers also exist who specialise in locating properties that are available from a wide range of suppliers and developers. This can be a great way to begin your research into which developers are offering shared ownership deals and in which areas properties are commonly available.

Resale Shared Ownership Property

Apart from the increasing number of new properties that are being offered for shared ownership, there is always the possibility of purchasing a shared ownership property from another owner who has already purchased a property as a shared owner. These properties can be located through traditional estate agent routes as well through shared ownership brokers and are treated in a similar way to any other purchase. Bear in mind, however, that you will have to consider the lease terms, as this will also pass with the sale and purchase of the shared ownership property.

Process of Purchasing Shared Ownership Property

Once the property has been decided upon and the price has been agreed, the actual conveyancing process is similar to that of any other property purchase. Despite the similar conveyancing issues, there are some additional steps that have to be taken, when attempting to purchase a shared ownership property.

Housing Association Properties

Once you have seen a property that you would like to purchase as part of a shared ownership scheme, one of the first things you have to do is write a letter of intent informing the relevant housing association that you are interested in purchasing the property in question. The letter needs to state your case as to why you feel you would be a good candidate for shared ownership and would typically include information such as where you currently live, your income, the people whom you intend to live with and any other relevant points such as why you are not able to purchase at full market value, as well as any links that you have with the locality.

Bear in mind that if there are several people all trying to secure the same property, the housing association will have to select the most eligible application based on the set criteria. So, it is important that you spend considerable time and thought making sure that the letter is as accurate and as detailed as possible.

The housing association will treat your letter of intent as a guarantee that you want to purchase the property. Consequently, make sure that you have considered whether you can continue financially with the sale, should you be selected by the housing association. When it comes to a housing association property, the price is set by an independent valuation and cannot be negotiated.

Resale and Properties from Developers

When it comes to resale properties, some will end up being sold through the housing association that originally sold the property. In this case, they will be sold in the same way as the housing association properties mentioned above.

If the current owner opts to sell their shared ownership through an estate agent, in a traditional manner, then the situation is very similar to any other sale where the price is negotiable by anyone who wishes to make the purchase. In this instance, you need to consider the remaining lease on the rental part as part of your calculation in a similar way to any other leasehold property.

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Financial Implications

Purchasing a shared ownership property is not just about securing a cheap mortgage and moving a few boxes of soft furnishings around! It can be tempting to believe that purchasing a shared ownership property is, in some way, less onerous than purchasing an entire property; this is a very dangerous perception to adopt.

Having unrealistic expectations of the costs of owning a property can have far reaching consequences, so accurate budgeting is an absolute must. This is particularly important as the majority of people opting for shared ownership are those who cannot afford to buy a property at full market value and are, therefore, not in a financially comfortable situation. For this reason, very accurate budgeting for the one-off costs and for the ongoing costs is going to be an essential part of the planning.

Additional One-Off Costs for Shared Ownership

When purchasing a share in a property, the same costs are applicable as if you were buying an entire property. A survey is always advisable; in fact, a basic survey will be compulsory for those who are applying for a mortgage as part of the application process. Even if you have obtained a basic survey as part of a mortgage application, a home buyer survey which offers more in-depth detail is always desirable to ensure that you are purchasing a valuable property.

Other costs to budget into your calculations are legal fees and conveyancing. Bear in mind that the legal charges are likely to be slightly higher than for a standard property purchase. This is because the solicitor has to deal with the terms of the lease on the remaining percentage that will not be owned as part of the ownership scheme. Stamp duty land tax is also payable, if applicable, but only on the value of the share that you have purchased.

Ongoing Monthly Costs for Shared Ownership

Once the purchase is complete, it will be necessary to ensure that the monthly bills are adequately covered. Firstly, there are the monthly mortgage payments which need to be made and also the monthly rental. This is entirely predictable and can be easily budgeted for. Other costs which are often overlooked include buildings insurance which, as tenants, most people will not be paying. Upon purchase, however, this insurance becomes an additional cost. Other insurances such as life and critical illness insurance will also be necessary as part of any mortgage loan package; these, too, become additional monthly bills.

Owners should also consider keeping a contingency fund to deal with one-off repair and maintenance costs that can cause substantial financial hardship, such as replacement windows or roof repairs.

Shared Ownership Lease

When a shared ownership property is purchased, the remaining percentage that is not purchased will be owned either by the social landlord (the most common scenario), or by the developer in commercial situations. This remaining percentage is then occupied under a lease which is its own legal document.

Terms of the Shared Ownership Lease

Almost invariably the lease granted is a 99 year lease. But, if you are purchasing a re-sale property that has already been a shared ownership property, previously, then the term may be shorter, as some of the years have already been 'used up'.

The lease will have terms that allow you to live in the property; it will deal with the issue of how you purchase further shares and what the process for selling the share would be, in the future. As well as the practicalities of being a shared owner, the lease will also govern the way that the responsibilities such as repair and maintenance are dealt with. In most residential leases, the landlord takes responsibility for the external and structural repair of the property; however, in the case of a shared ownership lease, it is common for the opposite to be true, whereby the tenant who is, in effect, the owner occupier becomes responsible for almost all of the ongoing costs.

Altering the Lease

As time goes on, you may wish to alter the lease by purchasing more shares, selling the share that you do have or even transferring the share, for instance, from your own name to a joint ownership. In almost every social lease there will be a term that states that the housing association's approval is required to vary the lease in anyway. This means that if you wish to change the wording of the lease in anyway, you will require permission, but you will not require permission to do anything already permitted under the terms of the lease.

Typically, the types of amendments that require permission include changing the way service charge calculations are apportioned, transferring common parts of the property to the leaseholder and making amendments to reflect legislative changes such as new regulations. In the case of a property being transferred, then a change in the lease will be required to reflect the fact that the housing association is now the landlord of a new tenant.

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