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With current housing prices once again increasing, despite the fact that the economy is still struggling and people’s purse strings are still tightened, people are looking for more creative ways to get their foot on the property ladder. One such way is shared ownership properties, which offer purchasers the chance to own part of their home.
With shared ownership properties, you are effectively purchasing a share in a property, which you pay outright/with a mortgage, and then pay rent on the remaining share. Generally speaking, you can purchase a share of between 25 and 75% of the full value property price. The share that you pay rent on is owned by the housing association. The rent charged can be up to 3% of the value of the share.
Because of the way the shared ownership scheme works, the type of properties available are leasehold properties. When you purchase your share, you become the owner of the lease, which the housing association (as the freeholder) will grant you. This will detail the terms of your lease, including the duration of the lease (although this is normally 99 years).
Many people may be put off by the thought of having to pay both a mortgage and rent each month but the two payments combined will; quite possibly be less that the cost of a full mortgage on the property.
It will also be possible, further down the line, to increase your stake in the property and, but this does involve additional costs such as a new valuation to be carried out so they can establish the value of that stake.
Obtaining a mortgage for a shared ownership property can sometimes prove tricky as not all mortgage companies are happy to lend on these types of properties. Two of the bigger lenders that are willing to lend on shared ownerships are Nationwide and Halifax.
Generally mortgage providers lend around 80% of the share on a new build flat or apartment and 90% on a new build house so it pays to ensure you have a deposit already in place.
Most housing associations providing shared ownership properties will be able to offer advice on the mortgage lenders who are willing to lend and it is highly recommended that the individual also seeks financial advice before taking out a mortgage.
Prospective purchasers will need to take into consideration the fact that they will need to pay an upfront cost for their share (whether that money is from savings or from a mortgage), the monthly rental for the remaining share, and a service charge if the property is a flat. On a property which costs around £100,000.00, this means that those who use the shared ownership scheme will be paying around £450.00 (approximately).
What is Staircasing?
The process known as ‘staircasing’ is where you continue to buy greater shares in your property over time. For example, you may have initially bought a 50% share of your property, but now want to buy a further 25%. In order to do this, you would need to contact your housing association in writing, requesting the share. They will then get the property valued (which you will have to fund), and then give you the price of the share you are willing to purchase. This price will depend on property market conditions at the time you wish to buy, and so may be higher or lower than the initial price you paid. Once this has been done you will normally have 3 months to organise a mortgage and purchase the requested share.
This process can be repeated over a period of time until you own the whole value.
It is possible to sell your home. In order to be able to do this, you will need to inform your housing association. This must be done in writing. The procedure will differ depending on whether you still own a share of the property, or you own the whole value of the property.
If you own a share of the property, your housing association has the right to look for a buyer themselves for the property.
If you own the whole value of the property however, you have a right to sell the property yourself. The housing association does not have the right to impose a buyer on you. They do however, have the right to buy the property back from you once you put the property up for sale. This process is called the ‘right of first refusal’. This right lasts for 21 years from the initial date where you fully owned the home.