What is a shared ownership scheme?
Shared ownership schemes have traditionally operated through housing associations to enable those people on lower incomes to buy or part buy their own home. Borrowers need to be registered on a housing waiting list, either with a local authority or with a housing association, to qualify.
Who runs shared ownership schemes?
Shared ownership schemes are generally run by registered social landlords (RSLs). These are usually independent housing associations, although there are trusts, co-operatives and companies that operate such schemes. RSLs run as businesses but they do not trade for profit. Any money made is used to maintain existing homes and help finance new ones. Social landlords must be registered with the Housing Corporation before they can gain access to public money.
How does the scheme work?
Buyers can purchase an initial share of between 25% and 75% of the property at its market value, with the remaining proportion funded by the housing association. The borrower can secure a mortgage on that percentage of the property price. Rent must be paid on the remaining share of the house owned by the housing association, which is taken into account when assessing the affordability of the mortgage.
Borrowers on shared ownership schemes can choose to take a staircase approach to buying their house, meaning they can increase the percentage of the property they own. For example they can buy a further 25% each year up to 100%, increasing their mortgage, but reducing their rent.
For those who do not want to wait for the housing association or local authority to find them an appropriate house, borrowers on a housing waiting list can choose the Do It Yourself Shared Ownership Scheme route. This means they can search for a property on the open market before asking the housing association to assist in its purchase. Up to four people can become joint owners, but all joint applicants must individually and jointly meet the eligibility criteria.
What are the costs of a shared ownership scheme?
As with the purchase of all properties there are costs that need to be calculated before the borrower decides to move. The monthly rent will be a proportion of the total rent that the property would fetch if rented traditionally. The housing association will calculate rent based on the proportion of the property which is owned ‘ 50% would equal 50% rent. This rent will take into account the repayments made by the owner occupier and the share of any insurance or maintenance and repairs they will need to make. It will, therefore, be less than the normal rent that would be payable on the whole property.
Tenants must be able to afford the mortgage, the rent and running costs on at least a 25% share. Many housing associations will assess applications on an individual basis, but they may have minimum income criteria which may be worth investigating for the client. People on a council housing waiting list are usually given priority when a property becomes available, as are those already living in the area. Others are not excluded, however, and the criteria will depend on the housing association in question.
What does the shared ownership lease entitle the buyer to?
Under a shared ownership scheme, the housing association will grant the buyer a lease, usually for 99 years. It entitles the owner to live in the property as an owner-occupier as well as enabling them to buy further shares in the property at a later date, should they so wish. It also states they can sell the property or their share in it, should they wish to.
What other schemes are available?
The Housing Corporation funds a number of other low cost home ownership schemes designed to make it possible for people on lower incomes to buy a home of their own, including:
• Leasehold for the elderly ‘ enabling elderly people to buy a sheltered home from a housing association.
• Tenants’ Incentive Scheme (TIS) ‘ where housing associations offer their tenants a cash payment toward the cost of buying a home outright on the open market.
• Self Build ‘ enables a group of people living in the same area to form a ‘self-build housing association’ to build their own homes.
• Right to Buy ‘ enables tenants of non-charitable social landlords the right to buy their homes at a discount depending on the number of years they have been a public sector tenant, subject to certain conditions.
• Voluntary Purchase Grant ‘ some tenants of participating housing associations may be able to buy their homes at a fixed discount rate, which will depend on the area and on certain criteria.
• Right to Acquire ‘ this scheme gives some tenants of housing associations the right to buy certain properties at a fixed discount rate, depending on the area where they live.
Which lenders offer shared ownership loans?
Some lenders in this sector of the market offer 100% loans (100% of the purchased share), these include; Capital Home Loans and Leeds and Holbeck Building Society. Other lenders will require a 5%-10% deposit, including; Abbey National, Birmingham Midshires and Nationwide. It is worthwhile checking which housing associations lenders will work with and some lenders may restrict the product choice available to shared ownership borrowers.