Shared Ownership Myths Dispelled
As a product such as Shared Ownership gains popularity, so does the level of commentary. The number of press articles increases, housing specialists comment and journalists put forward their opinions, some well-informed and some misguided. There are two sides to every story, and so we've asked one of our panel mortgage advisers, Censeo, to help us explain and dispel some common Shared Ownership myths.
Does Shared Ownership mean sharing with someone else?
No, not unless you want to! Some people do buy their home with a friend but that’s not the same as Shared Ownership. With Shared Ownership, the ownership of the property is shared with the housing association, not a friend or family member. You own a share in the property of between 30% and 75%, the exact share being subject to the amount you can afford, and have all the same rights as afforded to any homeowner. As time and funds allow, you can increase your share in the property in a process known as staircasing, until at some point in the future you own the property outright.
Are Shared Ownership homes just starter flats?
Some of them may be starter homes, but Shared Ownership homes come in all shapes and sizes. They may be a house or flat and can be anything from studios to family-sized homes. In addition, they have to meet higher standards of space, storage and eco-efficiency than typical new builds, so you could actually get more home and quality for your money.
Is it cheaper to rent?
Well, buying a home does cost... but then so does renting. If you buy through Shared Ownership you’ll have a mortgage on the share you buy, and pay a subsidised rent on the share you don’t. Comparisons between the monthly outlay for buying a 30% share in a property as opposed to renting privately show that Shared Ownership is generally the cheaper option. The exact savings will depend on the location of the property but most comparisons show the monthly outlay on Shared Ownership to be 20-25% less than for privately renting a comparable property. Plus, in the vast majority of cases, it is definitely less than buying the full 100% of your home.
Is there an income limit?
Shared Ownership is designed for first time buyers, specifically those that can’t stretch to buying the home they need without a little leg up on the ladder. So you’ll need to earn enough to cover a mortgage and other household outgoings. In London, the household income to qualify for can’t exceed £90,000 per annum. Outside of London the income cap is set at £80,000 per year. These bands are regularly reviewed and will change from time to time to reflect property price inflation. A change in these income bands has been announced for April 2016 and further detail will be available at that time.
How much money do I need in savings?
You will need to have enough to cover purchase costs, setting up home and, of course, a deposit. Average purchase costs will be between £3,500 and £5,000. The amount will vary and will generally increase in line with the value of the property. That’s the case when buying any home. But with Shared Ownership, the deposit you need may be as little as 5% of the price of the share you’ll be buying – not the full price of the home. On a property with a market value of £400,000 being bought on 30% Shared Ownership the minimum deposit would be £6,000.
Do lenders make it hard to get a Shared Ownership mortgage?
It’s no harder to get a mortgage for a Shared Ownership property than any other property. The Mortgage Market Review laid down guidelines covering anybody getting any sort of mortgage, to try to make sure that they can comfortably make their repayments. The choice of lenders may be slightly reduced for Shared Ownership but the product range is just as competitively priced.
Aren’t you told how much you can afford and what share to buy?
Yes, that’s true, but it’s well-intentioned. When you buy a Shared Ownership property you will be financially assessed to make sure you can afford to buy the property and will be advised on the most appropriate share for your circumstances. As a rule of thumb, the combined cost of the mortgage payment, rent and service charge shouldn’t exceed 45% of your take home pay, as it’s important you don’t over-stretch yourself financially and try to borrow more than you can pay back. Plus, the larger the share you buy, the less rent you pay, and the more you’ll get of the property value when it comes time to sell.
Do you have to live or work in the same borough as the property you want to buy?
New-build Shared Ownership properties are often made available, in the first instance, to people who live or work in the area. But after quite a short period of time, this may be opened up to those who live further afield. With high demand for affordable housing, however, it’s fair to say that it’s easier to buy in the area where you work or live than relocate to a new area. There is also a supply of Shared Ownership properties up for resale and you may find the live/work in the borough criteria slightly more relaxed for these.
Is it complicated?
There’s no getting away from it, for any first time buyer the process of buying a home is relatively daunting. However, in practical terms there is no real difference in buying a new build home on an affordable housing scheme to buying the same home privately. The only part of the process that is additional for affordable housing is that you have to be assessed as qualifying for the scheme. This is relatively straightforward and will simply involve a financial assessment to confirm that you meet the criteria. In addition, there’s a whole industry of conveyancing solicitors and independent Mortgage Advisors, some of whom specialise in Shared Ownership transactions, on hand to help. For more information on these, speak to our sales team who can provide you with a list of people able to help you.