Buying a home might be one of the most important and difficult decisions you will make in your life. However, finding the right home might be even harder.
Nowadays, everyone uses online platforms to look for a property to buy. For instance, if you’re looking for new build homes, on Korter.co.uk you can find more than 800 new projects. But what do you do if you’re struggling to find a home you can afford?
In that case, you may want to consider shared ownership. The scheme helps eligible purchasers get on the property ladder. Moreover, you may even get full home ownership in the end. However, before making a decision, you need to weigh up all the pros and cons as well as do some research on the matter.
What is shared ownership?
Shared ownership schemes are managed by housing associations. Mostly, they are aimed to help first-time buyers purchase their first homes. Homebuyers pay a mortgage on the share they own, which ranges from 25% to 75%, and then pay rent to a housing association on the remainder. That way, you don’t have to get as big a mortgage as you would if you would’ve bought the home outright.
It’s also important to note that not all properties can be bought on a shared ownership basis. You can only purchase those homes that have been purposefully built for that scheme. If you are not sure where to find them, you can check what shared ownership properties are available here.
What are the pros of shared ownership?
First of all, it can be easier to afford than full ownership. If you get a smaller mortgage, then the deposit will also be smaller. However, sometimes mortgage repayments, coupled with rent, exceed the amount of the repayments you would get if you had a full mortgage. Still, the difference between the deposits in both cases makes shared ownership worth it as it tends to be harder to provide a larger sum for a deposit at the beginning.
In addition, you can sell your portion of the home later to take your next step on the property ladder, and your share will rise in value if the price of the home grows, meaning that you can earn more.
Can you purchase the rest of the home?
You can buy more shares over time and reach 100% in the end, getting full ownership of the property. This is called ‘staircasing’. Sometimes, homebuyers’ financial matters get better, and later they may even feel that they can afford a bigger mortgage or make a lump-sum payment.
Usually, you are allowed to buy more shares of your home only three times during your tenancy. For instance, you start by acquiring 25%, then buy 25% more, meaning that now you own half of the property or 50%. At a later date, you decide to purchase another 25%, increasing your share to 75%, and then finally buy the whole property.
Every time you buy more of your home, the housing association will have to re-evaluate your property. Therefore, when you buy another share, you will pay its up-to-date market price rather than the one you initially purchased your first share for. It’s important to take it into account in case you decide to staircase.
Do you need to pay stamp duty?
Although first-time buyers usually don’t pay stamp duty, you might still have to pay it even with shared ownership.
If you’re purchasing your first home, you won’t have to pay stamp duty on properties that cost up to £300,000 (or £500,000 in London).
When getting shared ownership, you are presented with two options: pay stamp duty on the full value of the property or just on the share you’re acquiring.
How to sell a shared ownership home?
There is not much difference between selling a shared ownership home and a home in general. However, when you decide to sell the home, the housing association gets the right to find a buyer first as well as buy the property themselves.
What are the drawbacks to shared ownership?
- The need to pay rent makes you a tenant, which, in turn, means that you can be evicted. In addition, you can lose your share after being evicted as the housing association is under no legal obligation to pay it back.
- Shared ownership doesn’t exempt you from stamp duty.
- There are service charges to cover the maintenance of the building’s common areas.
- Shared ownership homes are leasehold, so be aware of the expiration date and check if you’ll be able to extend the lease.
- Shared ownership properties can’t be sub-let.
Who is eligible for shared ownership?
In England, you are eligible if your household earns £80,000 or less (or £90,000 in London). To buy a shared ownership property, you need to be a first-time buyer. In addition, if you used to own a home, you can apply for shared ownership in case you can’t afford to buy a new one. The buyers who do own a home and want to move must be in the process of selling it.
Furthermore, to successfully buy a shared ownership home, you should have no issues with your credit, rent, or mortgage history.