Shared ownership mortgages have provided an alternative financial solution since the 1970s to a market who may have previously not been able to get onto the property ladder. Today we’re going to be talking about the ins and outs of a shared ownership, what their benefits and drawbacks are, as well as the costs involved in this type of property purchase.
What Is Shared Ownership?
Compared to a traditional mortgage, in which you would pay a deposit in return for ownership of a house and mortgage to boot, shared ownership can allow you to purchase a share of the property. This share could be anywhere between 25-75%, with a UK housing association owning the other part. You would then pay a rental payment on top of this to the housing association. Advertisements for this type of property are usually plastered all over new builds, but they are also available on existing properties. If this is suitable for you, certain criteria will usually need to be met: you are a first-time buyer or don’t currently own a home, but you may have done in the past, and your household must earn under £80,000 a year combined, with this rising to £90,000 if you’re purchasing a home in London. When you’re ready, additional shares in the property can be purchased from your housing association until you own 100% of the property. It’s very common nowadays for a certain number of shared ownership units to be available in most new builds.
What Costs Are Involved In Shared Ownership?
The primary costs involved in shared ownership would be a mortgage based on the share of the property you own and a deposit (again, based on your percentage share). You should also take into consideration the normal costs involved in purchasing a home, usually at least £4,000 but is entirely dependant on the options made available to you at the time. The ongoing fees would then be paying for your mortgage, rent to your housing association (which is normally cheaper than private renting, usually around 2.75% of the property’s value a year), and annual service charges if necessary to maintain any common areas.
What Are The Advantages Of A Shared Ownership Property?
Obviously one of the main attractions of a shared ownership property is being able to own a property if you’re on a lower income and you might find it more challenging to purchase a home on the regular market. The costs involved can be lower, as you’ll be paying these as a percentage of the property share that you own – this means you will have a lower mortgage, and lower deposit amount needed. You then have the flexibility of being able to stash any extra cash away in order to invest later on in a greater share. When you want to purchase more shares, the cost may be slightly different to first time around, as this will depend on the change in housing prices of the area. Your home will be valued, and the shares may go up or down in price depending on how the properties in the area have aged. Equally, you’re free to also sell any shares that you own at any time. Furthermore, stamp duty is not always a necessary fee on the initial purchase, but may be later if you choose to buy further shares. You would also have security on your living, since the property is partially owned by you, as long as your rent and mortgage are paid then you can live in the property indefinitely.
What Are The Disadvantages Of A Shared Ownership Property?
The drawbacks are often in the minor details. Firstly, not every lender will be able to offer you a mortgage for a shared ownership home – so you may be more limited in choice. You may have to review your lease agreement to see if you’re able to make any household improvements or renovation, as it may be necessary that you consult the landlord about this before going ahead. This may be limited to just structural changes but it’s worth double checking! You may also have a restriction on whether pets can be owned as well. Furthermore, if you decide to sell the property you will need to consult with your housing association, who will then request you choose one of their recommended surveyors to value the property. The cost is yours to bear, but getting the valuation done doesn’t tie you into selling the home, a great way to avoid getting yourself into negative equity if the price of the house has fallen. Depending on your contract, you may need to give the housing association first refusal of the property, even if you own 100% of your home. As shared ownership properties are, by their nature, leasehold, ground rent may need to be paid in full. Buying further shares can also be a costly endeavour in itself. Your property will need to be surveyed, you will need a deposit for the share and will have the associated mortgage and legal fees to pay as well. This will be done each time you buy further shares, and there may be a limit on how many times you can accumulate a further share so it’s worth checking this. There is also a cool-down period after these transactions, and you may be unable to buy any further shares for a certain amount of time after this point.
Overall, shared ownership might well be the best option for you when it comes to purchasing a home if you’re on a lower income but want to get onto the property market, and have the funds to be able to afford the purchasing costs. There are quite a few drawbacks to shared ownership, in particular with being aware of what your lease terms are – as these are much more restrictive than a traditionally owned property, and also the terms of selling the property can be much more complicated. Make sure that you’re reading all the terms of agreement when purchasing a shared ownership property to ensure you’re as protected as you can be.