18 May 2007
Learning how to share
Shared ownership is increasingly being seen as an important way for first time buyers to get their feet onto the property ladder.
Shared ownership involves buying a proportion of a property and renting the rest from a landlord, usually housing associations or trusts which have renovated or built the properties.
More shared ownership properties are becoming available, as more local authorities and developers offer schemes. Builders of new estates, for example, must provide a percentage of housing which is 'affordable', usually through shared ownership programmes.
To be eligible for a scheme, buyers must prove their 'housing need'. This may be, for example, if they are a family with young children and are unable to afford to buy a property in any other way, while other programmes are targeted at 'key workers', such as those who work in the NHS or education.
Taking part in a shared ownership scheme involves a mixture of a mortgage and renting. The buyer usually pays for 25 - 75% of the value of the home using a mortgage and pays a subsidised rent on the rest of the value to the housing association, which owns the remaining share.
Shared ownership schemes are particularly attractive to young buyers, as there is the opportunity to increase the share paid for by the mortgage, for example if the buyer finds that their salary goes up or that they have more money coming in. This also means that buyers can capitalise on increases in the housing market.
As with all mortgages, it pays to shop around when looking for a shared ownership deal. Saffron Building Society currently offers three shared ownership mortgages, a tracker product, a fixed-rate product and a discount mortgage. All are available for between 40 - 100% of the property's value and for a maximum value of £250,000.
The fixed rate mortgage offers the security of knowing exactly what your repayments will be until 2010, regardless of any rate movements in that period. It offers a rate of 6.29% until reverting to the Society's standard variable rate (SVR), currently 7.09%. The discount mortgage has a great rate of 5.99%, which is a discount of 1.10% from the SVR for the first three years of the loan. Finally, the Society's shared ownership tracker mortgage offers a current rate of 6.45%, which is the Bank of England's interest base rate plus 0.95% for the life of the loan.
However, it is important to remember when taking out a shared ownership mortgage that you are still making a significant financial investment. You should ensure that you can afford to make the mortgage repayments as well as the rent and it is important to keep in mind when applying that any recent credit difficulties may make it more difficult for you to obtain a mortgage.
Also it is important to bear in mind that improvements to a shared ownership property need to be approved by the housing association - which has the responsibility for ensuring the property is structurally sound, but repairs and decoration are the responsibility of the homeowner.
Once the time comes to move house, you must inform the social landlord or housing association. There may be clauses in the lease, which mean the housing association can nominate potential buyers and restrict the sale price to an independent valuer's valuation - ensuring that the property remains affordable for future buyers. However, if you can afford to, you may be able to buy the remaining share from the housing association and then sell the house outright without restrictions.
As house prices continue to rise and become beyond the reach of many first-time buyers, shared ownership schemes may offer a first step onto the property ladder for many more potential homeowners. Demand for these homes is set to rise over the coming years, as particular emphasis is placed on providing homes for key workers such as teachers, those working in the NHS or for local authorities.
