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What is a shared ownership resale scheme? Everything you need to know about buying a home with government help

What is a shared ownership resale scheme? Everything you need to know about buying a home with government help

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Shared Ownership is an assistance programme designed for people who would like to buy a house but are not able to provide a large enough deposit. It is a very interesting proposition, but there are a number of conditions that need to be met in order to receive support. One of them is choosing the right property on the secondary or primary market, and this is what we will address in today’s article.

Which properties are eligible for the shared ownership scheme?

At the outset, we must point out that only a proportion of houses and flats are eligible for the Shared Ownership scheme. We can divide them into 3 categories:

  • Newly constructed properties purchased from the developer;
  • Already existing properties offered under a shared ownership resale scheme;
  • Properties that meet your special needs as a result of a long-term disability.
Which properties are eligible for the shared ownership scheme?
Which properties are eligible for the shared ownership scheme?

We would also add that the ownership structure of properties purchased under the shared ownership scheme is leashold. Second-hand homes are by far the most popular choice, so it is these that will receive the most attention.

Buying a second-hand house

The first step to buying your own home is to find a good deal. The best option will be to use the official search engines that are available on the government website. Here you will find properties in London while here, you will find houses in the rest of England. Alternatively, there are also counciles and housing associations – you can find all the information you need on their websites. You can extend your search to portals such as Zoopla and Rightmove, but the number of listings is not very large, so we advise against limiting yourself to these alone.

When looking for a house for yourself, you need to consider not only your budget, but also the amount of equity the existing owner has – you can buy more (partly from the landlord). However, you cannot purchase a smaller share.

Also bear in mind the costs – although the rent you have to pay to the landlord is limited by law (its annual amount cannot exceed 3% of the Landlord’s share of the property), there may be differences in the price of the so-called service charge. The charge you will pay applies because of the need to maintain many of the common parts of the estate, such as pavements, lawns and lighting. The amount of the monthly service charge is usually around £150, however there are times when the charges will be higher. This is a very important detail as it will be a recurring expense that will reduce your creditworthiness.

Buying a house from a developer

For primary market properties, the matter is much simpler. The quickest way to gather a fairly large database of listings is to find developers in your area and then browse through their websites – housing companies very often set themselves up to sell properties just under shared ownership, so the whole process won’t pose too many difficulties

Buying a house from a developer
Buying a house from a developer

Buying shares in a house with Shared Ownership

Increasing the number of shares in a property, known as staircasing, obviously means that your rent will fall.Most of our clients set themselves up for such a transaction from the outset, but it is worth bearing in mind that the rules of redemption may vary depending on the date of the original contract.

The general rule is simple – the older the lease, the more shares you have to buy. For some houses, we’re talking as much as 25% of the value of the property. Thresholds in recent contracts may be as low as 5%, but the general market standard is 10%. The situation becomes slightly more complicated if the property was purchased after 1 April 2021. Then, you are entitled to purchase a maximum of 1% of the shares for the first 15 years, and only after this period has passed will you be able to become a holder of the rest.

If you are buying a 5% or larger portion of shares, you will need a valuation by a valuer registered with the Royal Institution of Chartered Surveyors (RICS). It is on the basis of this feedback that you will know what price you will have to pay. In addition, the landlord may charge an additional administration fee, ranging from £200 to £600.

How worthwhile is it to buy shares in a Shared Ownership property?

It’s worth noting that there are additional costs involved in any addition to your share of the property – typically, you’ll have to pay a few hundred pounds for a valuation of the house and another few hundred pounds in the form of an administration fee. That’s a lot of cash that doesn’t affect either your rent or your loan instalment. On the other hand, the more of the house you own, the lower the rental costs.

How worthwhile is it to buy shares in a Shared Ownership property?
How worthwhile is it to buy shares in a Shared Ownership property?

The situation is simpler if your contract includes limits on the amount, for example in the form of the aforementioned 1% per annum. For most homes, this translates into around £1,800 – £2,500, which may not be too much of a challenge for you. At the same time, if you have a one-off financial surplus, you may want to consider the remortgage alternative. Let’s now calculate what pays off more.

Using a mortgage with a 5% down-payment, Paul and Martha bought a 50% share in a house worth £250,000. The current interest rate on their commitment is 6% per annum, while the landlord charges a rent of 3% of the value of his share, or £312.5 per month. The current mortgage instalment in their case is £765 and the funding lasts 25 years

We calculated the loan instalment using the calculator on the Moneyhelper website.

Assuming that the protagonists in our example received a bonus from their employer of £25,000, the purchase of additional shares would be possible for the vast majority of property leases. A remortgage will also be available, which, with this amount of cash, can already make a noticeable difference to the mortgage instalment. Just what kind of savings will that be?

If Shared Ownership is restructured, the rent would fall by around £60 per month. However, if Paul and Martha chose to remortgage, the instalment would decrease by around £150 per month. This is, of course, due to the difference in interest rates – the interest on the mortgage is a large part of the instalment, as it amounts to 6% per year, while the rent is only 3%.

However, if it were to happen that interest rates were to fall markedly, the situation could be reversed. In that case, it would be a much better idea to buy equity. Remember also that remortgaging is an opportunity to get a lower interest rate on your mortgage, which of course translates into more favourable instalments.

n our view, swapping to a better mortgage is usually more cost-effective than buying additional shares in shared ownership, but this is not a general rule – it may be that your existing mortgage is cheaper than those currently offered by the banks, or you know that you will not get a positive credit decision, for example due to a temporary deterioration in your earnings.

Which house is worth choosing for Shared Ownership?

The decision to buy a house should always be made after comprehensive analysis, but it seems to us that in the case of shared ownership, the strategy for proceeding should be somewhat different than normally.

First and foremost, your mortgage affordability is most likely to be low, which means you want the lowest possible installments. You may also want to spread the repayment period over as many months as possible, and this means that you are tying yourself to your property for years, at least in theory. This makes it worth thinking carefully about your plans for children, work and the many amenities that will only be useful to you in 20-30 years’ time. Maybe it’s better to choose a house in a slightly worse location but with an extra bedroom or one with more rooms on the ground floor? You need to consider this carefully.

Which house is worth choosing for Shared Ownership?
Which house is worth choosing for Shared Ownership?

Also be aware of the condition of the building – the property you are buying will be partly owned by the landlord and this limits your freedom. We would be wary of houses in need of major renovation, in a poor neighbourhood and with neglected surroundings. It will be very difficult for you to influence the housing association, and any savings on the service charge will not cover the decline in the value of the house that may be progressing.

Also bear in mind the costs. Some landlords offer more and others less favourable rents. Although rent is usually cheaper than a mortgage instalment due to its interest rate, we are still talking about thousands of pounds a year. When providing you with finance, the bank will take into account your projected expenses, such as rent, among other things. For obvious reasons, this lowers your mortgage affordability and you may simply not get the money. We invariably encourage you to do at least some simple calculations with which to estimate whether it is more worthwhile to buy a cheaper house with higher fixed costs or a more expensive property that will be easier to maintain in the future.

Finally, don’t forget about the mortgage. As a Polish mortgage broker, we have already helped many people to buy a home under shared ownership and we would be happy to take care of your case too! We promise you’ll be happy working with us – we look for mortgages that are as cheap as possible, while providing guidance on other elements of the buying process. When you choose Ext

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Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services and some forms of Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts
secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services are not regulated by the Financial Conduct Authority.

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