Buying a new house can be a pretty hefty investment, especially with the average price of property reaching sky-high prices in the UK. From January 2021 to January 2022, the average price of property in the UK has risen by a whopping 10 per cent, and experts predict that the prices might rise by 3 to 5 per cent until the end of 2022. With the UK housing market reaching an all-time high, buying a new house will require a huge investment. However, the UK government has come up with a shared ownership scheme which makes homeownership more affordable for first-time buyers and low-income buyers. If you have been looking for a house buying guide to understand the shared ownership scheme, here is everything that you need to know about buying a house through the shared ownership scheme.
What is the shared ownership scheme?
The shared ownership scheme is a housing scheme that has been introduced by the UK government to make the purchase of property more affordable for first-time buyers. Under the shared ownership scheme, first-time buyers, as well as individuals who currently do not have a house in their name, can purchase a share in a property. Usually, when a buyer purchases a property, he or she has to buy the full property and make mortgage payments for the full property. Under the shared ownership scheme, the buyer only has to pay a mortgage on their share of the property. Usually, a buyer can purchase 25 per cent to 75 per cent of the property and the mortgage payments have to be made only on that percentage of the share. As for the remaining share, the buyer only has to pay rent to the housing association.
Under the shared ownership scheme, the buyer only has to pay 5 per cent or 10 per cent of the total value of their share as the deposit. Usually, a buyer has to put down at least 20 per cent as a deposit or a down payment. By reducing the deposit percentage, paying the down payment becomes much more affordable. In simple words, a first-time buyer can purchase a certain share or a certain percentage of a property while paying rent on the remaining share or percentage of that property.
What types of homes can you buy through shared ownership?
A first-time buyer can buy a new build home or apartment under the shared ownership scheme. An existing house or apartment can also be bought through the shared ownership scheme. Keep in mind that houses and apartments that come under the shared ownership scheme are offered by housing associations or local councils. So, the rent that has to be paid on the remaining share of the property needs to be paid to the housing association or local council from whom the buyer has purchased his or her share of the property. Also, it is important to note that all houses and apartments that come under the shared ownership scheme are leasehold properties.
Am I eligible for the shared ownership scheme?
In order to buy a house through the shared ownership scheme, your household income has to be less than £80,000 a year. For potential buyers who are looking to purchase a property in London, the household income must be less than £90,000 a year. A first-time buyer can only make use of the shared ownership scheme if he or she cannot afford to pay the deposit as well as the mortgage payments. Also, the shared ownership scheme is only applicable to first-time buyers or individuals who did own a home in the past but cannot afford to buy a new home now. Also, if you are an existing shared owner but you want to move houses, then you are eligible to apply for the shared ownership scheme. And finally, you can use the shared ownership scheme if you own a home but want to move to a different home that meets your needs, but cannot afford to do so. For instance, an individual who is in a wheelchair can be eligible for the shared ownership scheme if he or she cannot afford to buy a house on the ground floor.
How much rent do I have to pay?
When you buy a share in a new-build property under the shared ownership scheme, the rent that has to be paid on the remaining shares is limited to 3 per cent of the total value of the property. Usually, most landlords in the UK only charge 2.75 per cent of the total value of the property as rent. Keep in mind, that when you purchase a resale home under the shared ownership scheme, the rent is usually the same as what the previous shared owner was paying. The landlord or the housing association will review the rent every year to decide if your rent has to go up. As per the government rule, the rent for a shared ownership property can only increase by the percentage increase in RPI ie Retail Price Index in the last 12 months, plus 0.5 per cent.
Is it okay to buy a house through shared ownership?
If you are a first-time buyer who is looking to climb onto the property ladder but cannot afford to buy your own home, then it is a good idea to buy a house through shared ownership. Also, as time goes by, you can start buying more shares in the property using a concept called staircasing. Basically, as you get more money, you can start buying additional shares in the property. That way, you will pay a higher mortgage as the purchased property percentage has gone up while your rent will reduce since you only have to pay rent on the remaining part of the property. Using the process of staircasing, the maximum share that you can own is 100 per cent, which means that you eventually become the sole owner of the property. Thus, shared ownership is a great way for new buyers and low-income buyers to invest in the housing market and get one step closer to owning a home.
