Can I Buy My Shared Ownership Home Outright?
We are often asked by customers what percentage they are able to buy when first purchasing their home, and whether they can buy more shares straight away.
How much of my Shared Ownership property can I buy initially?
At the time of the first purchase, Shared Ownership buyers can buy between 30% and 75% share in their property. The actual share percentage they purchase will be determined by the mortgage adviser once a financial assessment has been completed. As Shared Ownership is a scheme designed to help people who cannot afford the full mortgage, you would not normally be able to buy a Shared Ownership property outright.
How can I buy 100% of Shared Ownership property?
You can gain full ownership of your Shared Ownership property through a process called 'staircasing'. Once you've bought your initial stake in you home you can staircase to 100% ownership in chunks of 10% or larger.
When can you not staircase to 100%?
There are some specific schemes that don't allow you to staircase to 100%. This is because properties sold under these schemes usually have been adapted to certain particular needs.
Older People's Shared Ownership (OPSO)
The OPSO scheme is similar to standard Shared Ownership but it's aimed specifically at people aged 55 and over. The difference is that many of these developments have been either specifically developed or altered to meet the needs of older people. Some of OPSO developments offer sheltered Shared Ownership schemes (sometimes known as Extra Care) with on-site support tailored to residents' individual needs.
Another important difference between OPSO and regular Shared Ownership is that the former does not allow you to ever own your home outright. You are only allowed to staircase up to 75%. This is because if the shared owners were able to staircase to 100%, they would be able to sell their property to whomever they wish, whereas the idea behind OPSO is that it provides housing to people with a particular need.
Home Ownership for People with Long-term Disabilities (HOLD)
A similar principle governs the HOLD scheme aimed at disabled home buyers. Under this scheme, people with long-term disabilities are able to purchase a home on the open market if they cannot find a suitable property within the Shared Ownership scheme. They would then purchase the property under the same terms as Shared Ownership with the difference that they would only be able to staircase to maximum 75% ownership. This, again, has been put in place to make sure that the properties will always go to people whose needs are best met by this type of housing.
How do we determine the share percentage you can buy?
We need to make sure that you can afford a Shared Ownership property; that you’re not over stretching yourself financially and that you qualify for a mortgage. To do this, we ask that you arrange a meeting with a mortgage adviser who will carry out a financial assessment that will determine what percentage of a Shared Ownership property you can purchase.
You will need to have undertaken the financial assessment and we must have the report before you view any homes you are interested in. This is so that we know that you are able to afford the viewed property. Also, doing the assessment early on in the process will save time later.
When you see the mortgage adviser, they will:
- Check the information on your application form is correct and decide if you can afford to buy.
- Agree the share percentage that you can purchase based on your income, savings and outstanding credit commitments (please note: this is based on government guidelines and not necessarily what a lender would be willing to lend).
- Give you information about choosing a solicitor and information about choosing the right mortgage for you.
Arranging a mortgage
The mortgage adviser can look at the mortgage market and help you arrange a mortgage – if you want them to. They will help you fill in the mortgage application form, submit the application and handle the processing of the application for you – saving you valuable time and ensuring the right type of mortgage is obtained.
If you want to arrange your own mortgage, you should talk to banks and building societies, making sure that you advise them that you are buying a Shared Ownership property and the share value you are buying. You will need to make mortgage decisions fairly quickly as lenders take at least 21 days to issue a mortgage offer and by this stage in the process you will be expected to have a mortgage granted within four to five weeks.
How do we calculate the maximum share you can buy?
The maximum share you can buy will be confirmed by the mortgage adviser during the financial assessment. This is the maximum share we will allow as we must follow the Homes & Communities Agency (HCA) affordability assessment guidelines and we cannot be guided by what a lender may lend. You must also act quickly to arrange your mortgage as you are required to exchange contracts within four weeks of the contracts being issued by our solicitors (approximately six weeks from your reservation).
Determining the share percentage you can buy – an example
If we consider a couple buying their first home with a gross household income of £68,045 (net household income £51,907) and an available deposit of £30,000. If they wished to purchase a three bedroom Shared Ownership property with a full market value of £485,000, they would only be allowed to buy between 30% (£145,500) and 75% (£363,750) in the first purchase.
The HCA states that the debt-to-income ratio must be below 45% for a property to be deemed affordable to purchase. However, how much you are able to purchase is not only determined by the HCA, but also by the lender, as you are required to take out a mortgage so must also meet their requirements.
According to the HCA, the couple in the example above would be able to buy a greater share percentage than 30%, as their debt to income ratio would only be 29% for a 30% share. However, the lender’s mortgage deposit requirement is 20% in this instance of the share purchased, and with only a £30,000 deposit available, the mortgage lender would determine the maximum share percentage to be 30% (£145,500), as this just satisfies the minimum deposit requirement (20.62%).
*The example above is calculated using a 25 year mortgage at a 2.34% p.a. interest rate. The total monthly outgoings would be £1,257 including mortgage, service charge and rent payments at 2%.
Please consult a mortgage adviser for your individual needs when determining your affordability for a Shared Ownership property.
Staircasing – buying further shares in your home
At a later stage, if your situation changes and you have the finances available, you have the choice to buy a larger share in your home if you want to. This is called “staircasing”.
The greater the share you buy in your home, the less rent you will pay to Family Mosaic. If you staircase to 100% you become an outright owner and pay no rent, although you may be required to start to pay ground rent. There are no restrictions in the majority of cases; however, we would recommend in the first instance that you refer to your lease. This may require assistance from your legal representative.
The price you pay for any extra share is based on the market value of your home at the time you wish to buy, which could go up or down from the initial purchase price. The value will be set by an independent RICS-qualified valuer. There will be some costs involved in staircasing such as a valuation fee and solicitor’s fees, although it shouldn’t cost as much as buying your first share.
For more information on buying more shares in your home take a look at our staircasing page.