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Shared ownership mortgages
Rising property prices have put outright ownership of a property beyond the means of a large portion of the population. In many areas of the country it is virtually impossible to buy a property unless you earn well above the average salary.
However, even in the most expensive areas, home ownership can still be a reality, thanks to the shared ownership schemes that provide something of a halfway house between renting and owning a property.
What is shared ownership?
Essentially, you buy a share in a home, with the remainder being owned by a Registered Social Landlord (RSL), to whom you pay rent on the proportion they own. Registered Social Landlords include housing associations, trusts, co-operatives and companies that are run as a business but not for profit.
Under conventional shared ownership schemes, the property in question is usually part of a stock of properties built or purchased by RSLs, possibly with shared ownership in mind.
Do-It-Yourself-Shared-Ownership (DIYSO) is offered by a limited number of local authorities but allows a purchaser to select a property on the open market and then buy it on shared ownership terms, paying rent to an RSL on the share they do not own.
Who is shared ownership for?
Shared ownership is not just for people on low incomes - generally there is no minimum or maximum salary requirement. However, you do need to be employed, able to take out a mortgage, yet unable to afford to buy a suitable property on the open market.
The criteria for acceptance vary from place to place. In areas where there are housing shortages, priority is usually given to council or housing association tenants, those on the waiting lists and also to key workers in the public sector.
As long as you have a reasonable credit history, you should have no problem in finding a lender that is willing to give you a mortgage for this type of scheme. If your credit history is not so good, you may have to hunt around a bit more, but you should still be able to find one, though the rate you get might not be so competitive.
What percentage can I buy?
It is normally possible to buy anything from 25% to 75% of the property under a shared ownership scheme, though they are normally offered on a 50 percent share, split between yourself and the Registered Social Landlord. As mentioned earlier, you will have to pay rent on the portion that you don't own, but the rent is normally kept artificially low - around 4 percent of the value of the property, rising each year in line with inflation. The rent is kept so low that it is almost certain to be lower than the equivalent mortgage repayment.
When deciding what stake to take up, you should take into account what your mortgage repayments will be (don't forget to make an allowance for potential rises in interest rates) and work out what the rent will be on the stake owned by the RSL. Also remember that you will be taking on full responsibility for repairs and maintenance, service charges for cleaning and upkeep of communal areas, lighting, gardening and so on, all of which need to be factored into your expenditure.
Can I increase my share later on?
After a period of time, usually a year, you may well be able to increase equity stake through a process known as staircasing. This allows you to take ownership of the rest of the property, often in 25 percent chunks. This can only be done once you have had the property re-valued by an independent valuer through the housing association, as the price you pay will take into account any increases in the value of the property. This valuation can cost a couple of hundred pounds and your mortgage lender may also want to re-value the property.
What happens when I decide to sell?
When you sell the property, the proceeds of the sale are split according to the proportional ownership at the time of sale. If you started out with 50% and then bought a further 25% later on, you would get 75% of the sale proceeds, the RSL will get the other 25%.
The Homebuy Scheme
The Homebuy scheme enables tenants of Registered Social Landlords (RSLs) and local authorities, as well as others in priority need on local authority waiting lists, to purchase a home on the open market with the help of an interest free equity loan from the RSLs equal to 25% of the purchase price, subject to certain limits. The applicant funds the remaining 75 through a conventional mortgage and savings.
The loan to cover 25% of the purchase price of a home does not involve the purchaser in making monthly payments. It is normally paid back when the property is sold instead and the amount to be repaid will equal 25% of the value of the property at the time it is sold. However, you can choose to pay back all or part of the Homebuy loan at any point, with a revaluation of the property deciding how much you currently owe. There are several things to note about the Homebuy scheme:
For further information about Shared Ownership Schemes and Homebuy please contact the Housing Corporation - http://www.housingcorp.gov.uk
How can I get a free mortgage quote?
To get your free mortgage quotes, you just need to enter some basic information into one of our simple online quote forms and your dedicated adviser will search the entire marketplace to find you the best mortgage deals available.
Or, if you prefer, you can call a fully trained adviser on 0800 169 4984. It will only take a few minutes of your time today but could save you thousands of pounds in interest payments, and will eliminate any worries you may have about getting the best deal possible.
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