Being a first-time buyer in the current property and financial market can be daunting, with most people agreeing that getting onto the property ladder is extremely difficult these days. Saving for a hefty deposit isn’t an easy feat at the best of times, especially for those that are using their money to rent. The good news is that there are a range of housing associations and property developers that are working towards creating schemes to change this, one of which is shared ownership.
Shared ownership is a specific scheme put in place to provide first time buyers the opportunity to buy a portion of a home, with the rest being held by the housing association providing the opportunity. It’s designed to be flexible, and the largest implication of the scheme is that the necessary deposit can be a whole load less than that of a traditional mortgage. The minimum shares a buyer can purchase is 25% and the maximum at the point of original purchase is 75%.
In theory, this means that buyers could need as little as a 5% deposit of 25% of the value of the home, reducing the strain of saving for a hefty lump sum. Buyers are then given the opportunity to have a mortgage on the portion owned by themselves and pay rent to the housing association on the rest. Buyers are also given the opportunity to purchase the remaining percentage of their home back, known in the industry as staircasing.
In theory, the greater the share owned by the homeowner, the less rent they will have to pay to the housing association. Eventually, homeowners could build up to 100%, meaning they become the outright owner and will no longer need to pay rent, only the mortgage. This is where the staircasing process comes into play, in which buyers are given the opportunity to purchase further shares in the property at set increments. The way in which the staircasing process works is a simple one, the housing association work out the current value of the home, tally up the costs of how much it would be to buy more shares, before sending over the details to the home owner. The home owner then gets the opportunity to decide how many shares they want to buy and notify the housing association of this. An administration fee and surveyor valuation fee are generally involved within this process.
There are some restrictions put in place for the scheme, with not every buyer being suitable or eligible. In order to be eligible, buyer’s yearly household income must be below that of £80,000 outside of London, or below £90,000 within London itself. There are other restraints too, applicants must be either first time buyers, or a buyer who has previously owned a home but doesn’t currently.
When it comes down to selling the home, there are also actions that need to be considered, with the homeowner required to provide evidence of the EPC and RIC valuations. The housing association must be notified of any intent to move on, and they control the sale, which can take around 8 weeks to finalise. This period is known as a nomination period, in which the housing association takes the time to find a new buyer for the home. There is also a fee associated with selling the home, which is usually around 1.5% excluding VAT of he agreed sale price of the home owners share at the point of sale.
Tying all of the elements of shared ownership together can be a difficult process to navigate through, which is why housing associations pride themselves on being able to guide prospective buyers through the process. By receiving shared ownership advice from Buy an Aster Home, buyers are more likely to feel confident in their understanding of the process, and should be more prepared to make an informed decision on if the scheme is right for them.