Help to Buy: Shared Ownership

Help to Buy

Reading Time: 2 mins

How it works:
Shared Ownership is a scheme rolled out by the government to help people who would otherwise find difficulty getting on the property ladder via the traditional Mortgage route. Rather than having to magic up 10% deposit of a property, you can put down 10% deposit on 25% of a property. This means rather than £20,000 deposit for a £200,000 property, you will provide a £5,000 10% deposit (or with some lenders £2,500 5% deposit) of a £50,000 25% share and acquire a mortgage. You’d then pay monthly rent on the remaining 75% that you do not own.

 

Eligibility:

  • You will have to be buying your home through a shared ownership scheme and have a household income of less than £90,000 (£80,000 outside London)
  • You will have to be a first time buyer, or a previous home owner that cannot afford to buy a property now.

 

How is the rent calculated?

If you bought a 50% share of a property worth £300,000, you would pay rent on the other 50% – £150,000

You then divide the equity (£150,000) by 100 and times it by 3 to get the total rent payable per annum £4,500. That’s £375 a month.

Pros

  • Great for first time buyers who do not have a large deposit and generally cannot afford to get on the property ladder via the traditional standard Mortgage route
  • You buy a share of a property: as little as 25%
  • 10% deposit of 25% share
  • You can get on the property ladder with a smaller than average deposit

Cons

  • You can only buy a leasehold property under this scheme (Flat, Fairly New Build, New Build Flat)
  • You pay a Monthly mortgage on the share that you own and monthly rent on the share that you do not own. Like standard rent, over time, it increases.
  • You can only buy 25-75% of a property under shared ownership
  • When you decided to increase your ownership and buy more shares, like normal shares, with time, the price per share increases.
  • If your household income is more than £90,000 (£80,000 outside London) you are not eligible.
  • Around 0.4% of the housing market is available under the shared ownership scheme
  • The property is not yours until you own 100% of it. You can be evicted by the housing association due to rent arrears.

Securing more shares of your property at a later stage under shared ownership is also known as Stair-casing. With this comes more fees: valuation fees, legal fees, stamp duty (if you’re going on to own 80-100% of the property).

Be Careful: If you fall behind on your rental payments, you can be evicted. This means the not only do you lose your home, but you lose the money you’ve already paid to buy a percentage of it.

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