Shared ownership in one form or another has been a feature of the real estate market and government housing policy for many years with the underlying principles largely unchanged.
The current scheme is Shared Property Buying Aid, and this gives some homebuyers who buy certain types of properties the opportunity to buy a share of the property and pay the rent for the rest.
In due course, as the buyer’s income improves further, shares in the property can be purchased (via a process called “scales”) up to 100%.
Under the current agreement, buyers can purchase between 25% and 75% of the property with the help of a mortgage from one of the mortgage lenders who support the scheme.
The remaining 75% to 25% will be rented by a housing association at a subsidized rent. In England the applicant’s family income from all sources must be £ 80,000 or less to qualify, except in London where the limit is £ 90,000. Different schemes apply in other UK countries.
Applicants must be first-time buyers, individuals who used to own their property but currently do not, or existing shared property owners who wish to relocate.
Eligible properties must be new construction purchased from a developer (usually a housing association} or an existing resale of a housing association.
Under previous agreements, we had an additional program called Do It Yourself Shared Ownership whereby buyers could find a house or apartment for sale on the open market and then agree with a real estate association to buy it together with them on a shared basis. . However, this is no longer available.
Applicants must deal with a purchasing help agent in the locality and the agent will guide them through the process. Most applicants are first-time buyers, typically young singles or couples with insufficient income to support a conventional purchase and mortgage.
What to pay attention to …
It must be said that shared ownership may not always be the best way for young people to gain a foothold in the real estate market ladder.
If the purchase is a new apartment, the outgoings will include not only the mortgage payments on the purchased share and the increasing rent on the rented share but also the land rent and condominium expenses.
Service costs have a habit of steadily (and sometimes dramatically) increasing in line with rising maintenance costs.
Also, when it comes time to buy extra shares, the purchase price of the shares will reflect the market values at that time, so if real estate prices have risen, the cost of the shares will also rise.
Many young buyers typically find their best first purchase to be a small home on a conventional mortgage, especially if they have some DIY skills and the property responds well to modernization.
Therefore, no rent, no land rent, no service charge and the value of the improved property will outstrip the market in general. However, not all young people with busy lives want to own a property and if they need a new apartment in an expensive area, shared ownership may be the only way to make their dream come true.
Mortgage lenders who agree to support shared ownership will need some reassurance about the safety of their loans as these are loans to buyers who, by definition, have low incomes, high percentage (up to 100%) down payments and are financially quite strained.
The mortgage deed should provide that the mortgage lender’s burden on the property takes precedence over that of the Housing Association.
In the event of shared ownership insolvency, mortgage lenders need to know that their loans are easily recoverable as the resale and marketing of these properties in the used market will typically be in the hands of housing associations who will offer them to applicants on their lists. while some co-ownership properties arrive on the market through a conventional real estate agency.
Peter Glover is a surveyor and author of “Building Surveys” and “Buying a House or Flat”