Many people my age – anyone between 20 and 35 – are finding it more and more difficult to get on the housing ladder these days.
Between deposits, stamp duty, solicitor’s fees, and eventually furnishings, just beginning the search can seem daunting.
Unfortunately, I’m not in a position where my parents are able to offer me a big chunk of a deposit so I decided to look into other options. The idea of shared ownership has always been something that has been in the back of my mind, but not ever something I’d fully explored.
So, I decided to speak to Kevin Kalyana, an expert in the field of Shared Ownership, to see if he could shed some light on this area for me. Give me some pros and cons and perhaps dispel some of the myths surrounding this scheme. Kevin has been an interim in the Housing industry since 2003, and has been a specialist in Leasehold, Shared,j and Home Ownership for the past 12 years.
Shared Ownership. Enlighten Us:
Since the financial crash of the late 2000s it has become increasingly difficult for first-time buyers to get their foot on the property ladder. House prices have still steadily increased, yet lenders have had to tighten their criteria for lending, and income multiples are such that it is impossible for many people to afford a mortgage to purchase their first home.
A fantastic opportunity now available for first-time buyers, or those that don’t currently own a home is Shared Ownership.
Shared Ownership enables purchasers to buy a share of a property, commonly 25% to 75%. As a result, a much lower deposit is required than if buying a property outright. A mortgage is taken out on that share, making it easier to obtain a mortgage on the reduced figure. They then pay rent to a housing association, usually below the market value, on the other amount.
If someone can’t afford to buy a property at full market value, Shared Ownership allows them to get on the property ladder. The scheme removes the fear of those on lower incomes of over-committing themselves and helps them meet the requirements of lenders. Monthly payments are generally lower than traditional mortgage payments and the overall monthly payment is often lower than private rent.
Deposits are generally lower than when buying a house outright. Purchasers also have greater security with the knowledge that they can stay in the property for as long as they wish (provided they meet the mortgage and rent repayments) as they have ‘security of tenure’,
In the majority of cases, buyers can increase their share of the property by utilising a method known as ‘staircasing’ where they can purchase additional percentages, all the way up to 100% if they wish. They can also decrease the percentage owned by selling their share at any time. As the property price improves and their equity increases, and the mortgage owing decreases, this allows money to be made on sale.
There are some downsides of Shared Ownership. Although shared ownership purchases do not always incur stamp duty payments, when the owned share of the property equals or exceeds 80%, stamp duty is due on the entire value of the property. Properties involved in Shared Ownership schemes are leasehold properties. Sometimes the freehold can be negotiated but usually only after staircasing to 100%.
No matter what share of the property you own, there will be a requirement to pay all service charges or ground rent applicable to the property and any structural changes to the property will need to be agreed upon by the housing provider.
Additionally, there is not a huge choice of mortgage products available, although many more lenders are getting involved, not all of them offer mortgages for Shared Ownership.
With these factors in mind, Kevin’s general view is that, in spite of some of the cons, it is nearly impossible for many to buy their first home, so shared ownership offers the hope of ownership, where people can get their foot on the property ladder and keep stepping higher with increased equity.
Personally, I find the idea exciting and terrifying in equal measure! It is definitely something I am going to explore further and who knows, you might see me get at least one toe on the ladder in 2020 after all!