Soaring house prices are driving first-time buyers into shared ownership and shared equity schemes.
An increasing number of homebuyers are having to share ownership of their home with housing associations or local developers.
House price growth has put full ownership out of the reach of many, according to the Council of Mortgage Lenders, leading to an increased interest in shared ownership and shared equity schemes.
The trade body called on all political parties to recognise that "for many, shared equity/shared ownership is becoming a permanent tenure rather than a stepping stone to full ownership".
How shared ownership works
This agreement involves you buying a share (25%, 50% or 75%) of a property while paying a subsidised rent on the part that you don’t.
The rent you pay can be up to 3% of the housing association’s share of the property value.
What’s more, you only need to raise a deposit on the part of the house that you own. You’ll also have to pay a monthly service charge on the property.
There are both Government backed and privately operated schemes.
As well as the standard shared ownership agreement, there are plans which cater to more specialist needs:
- Older People’s Shared Ownership: Aimed at the over 55s, this scheme works in the same way as general shared ownership. The key difference is that you can only buy up to 75% of your home, though you won’t have to buy rent on the remaining share if you reach 75%.
- Home Ownership for People with Long-Term Disabilities: HOLD can help you buy any home if you have a long-term disability. You can only apply for this if none of the other shared ownership properties on the market meet your needs.
To make things a little more complicated, some properties are only available to “key workers” such as nurses and teachers.
Shared ownership contracts are always leasehold. This means you will own the lease on them for a fixed period of time, typically 99 years.
Of course, you can buy more of the property as time goes on; this is known as ‘staircasing’. However, you are not obligated to reach the 100% ownership over your tenure.
The downside is that you’ll have to get your home revalued every time you want to buy a greater share of it. You’ll also have to pay a valuer’s fee each time.
Another thing to bear in mind is that if you don't own 100% of the property, then should you want to sell up the housing association will be in charge of trying to find a buyer, for the first two months. After that period you'll be able to try to find a buyer on the open market yourself.
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How shared equity works
Shared equity schemes are a little different. The best example is the Help to Buy: Equity Loan scheme. You stump up a deposit of at least 5%, get a mortgage worth up to 75% of the property's value and then this is bumped up with an equity loan from the Government worth up to 25% of the property.
That equity loan is free for the first five years. After that you pay a fee of 1.75% for the first year. That fee then increases each year by the Retail Prices Index measurement of inflation plus 1%.
You have to pay back the loan after 25 years or when you sell the home, whichever comes first, though you can pay it off earlier if you like.
When the time comes to sell, the equity loan you pay back depends on the selling price. If you sell for 10% more than you bought for, then the equity loan is bumped up by 10% too. Similarly if the price falls, so does the loan you have to pay back.
Making it simpler
The Council of Mortgage Lenders (CML) wants shared ownership to be easier to understand for younger people, who make up a key part of the market. This can partly be done by whittling down the varieties of shared schemes to make it more accessible.
Shared ownership mortgage
CML recognises that for many, this kind of arrangement is becoming a permanent tenure rather than a step up on the property ladder.
You can opt for shared ownership if your household earns £60,000 a year or less, you’re a first time buyer (or used to own a home but can’t afford one now) or live in a council or housing association rented property. You’ll also be considered in light of unexpected circumstances like a relationship breakdown.
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Why 40% of property sales collapse
The last place to buy an affordable home in England