When it comes to buying your first home – property market in the UK is not cheap at all. This makes it hard for many first time buyers to get on the property ladder. There are schemes that can help in this process – shared ownership is one of these.
I have previously written about what exactly shared ownership is with all of its pros and cons. Lately, the scheme has slightly changed. Some of these changes are really positive in my personal view.
Below I will give a summary of the changes that have happened to the shared ownership scheme. While the changes didn’t get rid of some of the issues the scheme previously had – this might work much better for some looking to find a place they will be able to call their new home.
what is a shared ownership
First thing first – NO, you don’t have to buy and share the property with another person. This is a misunderstanding that many people have when they hear the name of this scheme.
You are however not owning property fully. The share in this context relates to you buying only a part of the property while agreeing to pay rent for the other part.
The above has both the positives and negatives to it. On the bright side – since you are buying a share, the amount of deposit you need is significantly reduced. This can make getting on the property ladder significantly cheaper and more achievable for many people.
The negative with the above however is the fact that you would still be paying rent to someone else and hence not fully benefit from building your own equity within the property.
There are further aspects of shared ownership that you should keep in mind before buying. Some potential limitations as to what improvements you can make to the property. There are also more rules around the property having to be valued at your expense before staircasing or selling the property.
For those new to the shared ownership – staircasing is the process of you increasing your share within the property you own. Let’s say you buy 40% of the property to start with. You can then later decide to staircase and buy further 10% of the property.
This way you will increase your equity in your home as well as reduce the rent that you have to pay for the outstanding share of the property. The staircased share can be paid for through your savings or by taking up on more mortgage with your lender.
what has recently changed with the shared ownership
There has been a list of changes recently and many of these in my view are for the better of the person buying. As mentioned above – these changes won’t make the scheme perfect for all. The changes will however give those buying a home more benefits and options.
The first biggest change introduced – buying into shared ownership has become even more affordable. Previously, the minimum share one could buy was 25%. This has now been reduced down to only 10%.
This is definitely a positive move and will make more people able to get on the property ladder. While this is definitely a positive – the flip side to it is the fact that rents for these properties will go up. As the rented part of the property will now increase from 75% to 90% so will increase the rents you will be expected to pay.
On top of that – for the first 15 years of the shared ownership you will be able to buy an additional 1% of the property per year. This will allow people to staircase at more reduced cost and build up their equity a lot easier. My only advice on this would be to check for any hidden fees or costs linked to this.
One further positive – you can now staircase share in the property starting at 5% rather than the 10% you were required previously. This makes the dream of fully owning the property a lot more achievable for many. The watch out here once again – make sure the fees you will need to pay are reasonable.
There is also an added warranty and less complex process when it comes to sell the property. This should be clarified with your specific housing association before buying.
what negatives you should consider before buying
The issues however mainly remain the same as these were before. The biggest one in my personal view is the fact that the rent you have to pay in no way helps you build up your own equity. This is simply the money that is being lost for you.
Further to this you are limited to what improvements you can do in the property. A lot has to be agreed with the housing association before you can actually start the work. This also comes with admin fees that you will be expected to cover.
On top of this – when it comes to you selling the property, the housing association has the initial right to sell this. Only after a while you are able to start selling it on your own. This however has to be done at a price agreed during property valuation.
As you might have guessed – the valuation is also paid by you and has a fairly short life cycle. After a several months you will have to pay for yet another valuation.
One further negative to be aware off – the service charge and the ground rent. While you only own a part of the property and pay rent for the rest you will be expected to cover both of the charges in full.
This in my view is really an unfair point. If you think of it, the housing association fully benefits from the property prices going up… at least for their share. They however are not responsible for paying any of the charges linked to this.
summary
I will stand by my previous point of view that shared ownership is a great option for anyone to consider if they are on the budget however would like to take the first step onto the property ladder.
The scheme is by no means perfect however gives people plenty of reasons and options. Buying into a shared ownership can help someone with their dream of becoming a home owner one day. This way you also start building equity in a property you own.
You need to however do your research and get a full understanding of all the potential issues this scheme comes with. You need to be prepared to put some of these to a side and instead focus on the positives.
Starting your property search is fairly easy. Mainstream property listing websites give you options to find these properties. You can also start your search on the shared ownership portal.