Are you eligible for Government help onto the housing ladder - and should you take it?
Does this sound familiar? You've been scrimping and saving for a deposit, but no matter how hard you try, you're finding it difficult to take that first step onto the property ladder. Perhaps your income isn't high enough to fund an affordable mortgage, or your home town is so desirable that local people are simply being priced out of the housing market. Either way, you're beginning to despair of ever becoming a homeowner.
If that paints a picture that is a little too close for comfort, then take heart. You may be able to get a leg up onto the property ladder via one of the Government's shared ownership schemes.
With a shared ownership scheme, you only need to get a mortgage on a certain percentage of the property value - usually 25% to 75%. The Government normally buys the remaining share, via a housing association, but you retain full rights to the property title and have all the regular responsibilities and rights of an owner-occupier.
Because you are not asked to cough up the full price of the property, the theory is that you will be able to keep your mortgage payments down to an affordable level. Later, if you can afford it, you can go on to buy up the Government's share of the property at the market value (known as `staircasing').
On the surface, this seems like a great deal. But, as usual, there are strings attached.
Are you eligible?
There are many different types of shared ownership schemes, including Open Market Homebuy, New Build Homebuy, Social Homebuy and the First Time Buyers Initiative (FTBI).
Each scheme has different eligibility requirements, but priority will normally be given to:
- Social tenants who work in the public sector
- Those on local authority or housing association waiting lists with priority housing needs
- 'Key workers' in the public sector, such as firefighters, nurses and teachers, whose annual household income is less than £60,000.
You can find out more about whether you would be eligible by visiting your Regional Housing Board or speaking to a Homebuy Agent.
Is it affordable?
The main aim of these schemes is to provide affordable housing. But what is `affordable'?
Each scheme works in different ways, but you are likely to have to pay a fee or rent to the housing association every year for the privilege of living in a property that is partly owned by the association. This fee/rent usually works out to be around 3% of the value of the housing association's share in the property (although it can be less). This payment is on top of your monthly mortgage payments.
The problem is, to qualify for a shared ownership scheme, you have to take out the largest `affordable' mortgage that you can. This minimises the amount of money the Government contributes to each home purchase.
According to the Tower Homes housing association, which is based in the South East, most buyers under its shared ownership schemes are expected to shell out up to 50% of their take home pay on monthly mortgage and rent payments.
That's perhaps a relatively affordable arrangement in certain areas of the South East. But nationally, a typical two-income British couple buying their first property only has to commit 34% of their take home pay to their initial mortgage payments - and that's the highest level since 1996, according to the Council of Mortgage Lenders.
Is it a good deal?
It is your responsibility alone to repair and maintain your home. If you want to purchase a second home, you must first buy up the Government's share of the property. You cannot increase your mortgage or take out another loan without permission (although advances used for repaying the Government's contribution will usually be welcomed). You cannot alter or extend the property without permission, and this is unlikely to be given without good reason (such as property modifications required for a disability), as the Government would prefer you spent your money on buying up the Government's share of the property.
If a key worker changes their job to a non-key worker occupation, he or she must repay the Government's contribution within five years - either by buying up the Government's share or by selling the property.
But selling a shared ownership property presents another hurdle. First, an independent surveyor will usually decide what the property is worth. The association will then normally have several months to locate a buyer from its register, and will charge a fee for this service, usually around 0.75%. If it cannot locate a buyer, you are then usually free to sell it on open market.
A helping hand
In some ways, shared ownership is a bit like learning to swim with armbands, or riding a bike with stabilisers. It's easy to start with - but what helps you now may one day also start to restrict you.
As long as you can live with that, you'll be OK.
But if you can't, you may want to consider waiting until you can afford to buy all by yourself. Perhaps Audrey Hepburn summed it up best when she said: "If you really want a helping hand, remember: there is one at the bottom of your arm."
More: Help for first-time buyers
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