With many households struggling to make ends meet, let alone save a deposit to buy a property, affordable housing schemes are keeping the industry afloat, for homebuyers and lenders alike. Rebekah Commane uncovers why shared ownership can be a viable option for aspiring homeowners who are looking to make their rental payments count.
There are many reasons why the average age of the first-time buyer has risen considerably in the last decade and, for most, the crux of the matter is that they can’t manage to raise a sufficient deposit to secure a mortgage. Having a home to truly call your own may seem like an unrealistic goal as house prices soar and rents also increasing, making it more difficult to save for a down-payment, but don’t throw in the towel just yet.
Affordable housing programmes, such as shared ownership, can offer a solution to paying someone else’s mortgage while renting and provide the opportunity to put your earned money towards something tangible and worthwhile.
Shared ownership is run through housing associations and allows potential homeowners to buy a share of their property (between 25 and 75 per cent) and they will pay rent on the remainder.
To be eligible, your household must earn £60,000 a year or less and you must be a first-time buyer or no longer in a position to pay a standard mortgage.
Staircasing
Participants in the scheme can choose to purchase further shares in the property through a process called ‘staircasing’ and could continue until they own the home outright, should they so choose.
If the entire property has been purchased through shared ownership the buyer has the option to sell the residence. However, when the property is put up for sale the housing association has first refusal on buying the property back and this will be the case for 21 years after the purchase is complete.
The combined mortgage payment and rent of a shared ownership property should be less than the mortgage payment you would pay without the scheme, less your deposit.
Shared ownership mortgage holders have sole right of occupancy, meaning they cannot let out the property; it is considered fraudulent to do so.
Not all mortgage lenders support shared ownership mortgages. Where they are offered, most banks or building societies will make them available across their entire product range.
There are also shared ownership products available for those with long-term disabilities and an older person’s scheme.
The way forward
Housing and homelessness charity Shelter have pointed to the shared ownership model as the most likely of all government schemes to help solve the housing crisis facing so many families.
In a recent report the charity found that the shared ownership model was most affordable for low to middle income families and that 95 per cent of this demographic could afford a three bedroom home with the programme.
However, it called for a ‘shake up’ of the scheme to help increasing numbers to sign up.
The Shelter report claims that the market hasn’t been designed around consumer needs, with conflicting information on council and scheme websites leading many to believe they are ineligible, when they are.
According to the report, a lot more shared ownership is needed and it needs to operate much more like the mainstream market.
Get advice
Tony Davis, Director at intermediary Censeo Financial, explained the process behind shared ownership to What Mortgage.
“Shared ownership is not just for social tenants, it’s not just for poor people; it’s there as an accessibility product for first-time buyers who don’t have the bank of mum and dad behind them.
“Mortgages for shared ownership properties are not as straight forward as those for standard house purchases, so our first piece of advice is to speak to a mortgage advisor who really understands the scheme.
“Typically your housing provider will have a list of advisors that they recommend; this is a good place to start in understanding what your options are in obtaining a mortgage for your new home.
“Whilst you are free to apply to your local bank for a shared ownership mortgage, it is important to note that not all banks lend for this purpose and the advisor you will be seeing will only be able to inform you of the products offered by that particular banks; so it is that they will be in a position to offer you the very best deal based on your circumstances.”
Specialist firms, such as Censeo, will often have relationships with banks and building societies that are not high street names but who support shared ownership; this can prove invaluable, particularly if your circumstances are not straight forward.
“Any mortgage advisor, before they can provide any meaningful advice, will need to work out how much money you can borrow”, Davis continued. “To enable this they will need to know details of your income, outgoings, deposit and credit history.”
Popular product
David Bogle, CEO of Hightown Praetorian & Churches Housing Association, operating principally in Hertfordshire and Buckinghamshire, provide affordable housing and services for people who cannot afford to buy or rent at market rates.
For some years the housing association has been building houses for the shared ownership market, as well as mainstream housing for rent.
Bogle told What Mortgage: “Shared Ownership has proved to be very popular, as it allows people to access property with a much lower deposit than they require for full ownership.
“It offers people, including key workers, the opportunity to get a start on the home ownership ladder. Last year we sold 104 properties under the shared ownership scheme and hit all of our sales targets; this year we are already ahead of sales projections.”
The most recent shared ownership product to be launched comes from Legal and General Mortgage Club, who have released a two-year fixed rate product with Leeds Building Society. It is available to Mortgage Club members only and offers a rate of 4.79 per cent with a 90 per cent maximum borrower share.
Martyn Smith, head of mortgage products, Legal & General Network, said: “This new shared ownership exclusive from Leeds Building Society offers great value for those customers with a 10 per cent deposit, that can’t yet afford to purchase a property outright. Upfront fees have been deliberately kept to a minimum to make this Legal & General exclusive as accessible as possible.”
Phil Coombes, Head of Intermediary Sales at Leeds Building Society, said: “We are all well aware of the difficulties facing first time buyers. This shared ownership product facilitates that first step, and provides a starting point to staircase up to full home ownership as earning potential increases. . There is no doubt that it will prove attractive to those customers who are ready to make the initial move onto the property ladder.”
Among the other lenders offering shared ownership mortgages are Santander, Halifax, Woolwich, HSBC and Nationwide.
Loading ...