Shared Ownership – a Low Cost Option for First Time Buyers

Shared Ownership - a Low Cost Option for First Time Buyers

by Caleb James on 16 Sep, 2011

First time buyers would do well to look at this government-backed scheme if they cannot afford to raise a deposit for a first home. Put simply, you buy part of a home (shared ownership)and rent the rest of it from one of the appointed operators of the scheme, known as HomeBuy agents. These schemes are sometimes known as ‘part buy, part rent’ schemes.

Who can benefit from the scheme?

• Those who rent council or housing association properties
• Those who have not owned a property before (first time buyers)
• Households who earn less than £60,000 a year
• Those who can’t otherwise afford to buy a home in their area

To look into whether HomeBuy is for you, the first step is to contact your area’s HomeBuy agent who can advise if you are definitely eligible. They are housing associations that run the schemes and have been authorised by the government.

How does Shared Ownership work?

You decide what share you want to own of the property. This can be between 25 per cent and 75 per cent and the housing association own what’s left. You pay the housing association (your landlord) rent on their share, which can cost up to 3 per cent of the shared value. For example:

Purchase price £100,000

Your share, say 50% £50,000

Housing association share £50,000

Monthly mortgage repayments at say 6% £322

Rent at 3 per cent on £50,000 (£1,500 / 12) £125

Total monthly payments £447

It is important to note that with HomeBuy, you actually own a lease on the property. The HomeBuy agent leases the property for a fixed period, which is usually 99 years so you become the owner of the lease. This document will define what your responsibilities and rights are and will specify what service charges you will have to pay. These service charges are in addition to the rent and cover essential costs such as maintain the building’s exterior and roof, stair wells and corridor maintenance, or communal gardening costs. You would be responsible for all interior maintenance.

Flexibility to own more of the shared ownership home.

This is become known as ‘staircasing’. After a few years, your financial income may have grown and you feel you could afford to buy more of your property. You would need to write to your housing association with your proposed new share. They will have the property valued and advise you of the increased costs. Assuming you wish to proceed, you would be given three months to arrange an increase on your mortgage and complete the legal paperwork with your solicitor. Note that you would be liable for all the legal and valuation costs.

What if I need to sell?

This can be at any time. You need to write to the housing association and they have the right to find an alternative buyer. If you already own 100 per cent of the property, the housing association will have first refusal as to whether they wish to buy it back and this right last for 21 years after you fully own the property.

Over 55?

Again, through the HomeBuy agent, you can apply for an ‘Older Peoples’ Shared Ownership’ scheme. It is very similar to what has so far been described above but you can only buy up to 75 per cent of the property but once this has been achieved, you will not have to pay rent on the remaining 25 per cent.

Next steps?

If you want to proceed further, contact your local HomeBuy agent. They are listed halfway down this page:

About the Author

Caleb James

Caleb James is a financial advisor and journalist, who contributes regularly to financial blogs and industry publications.