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My daughter currently lives in London and is hoping to secure real estate somewhere in and around the capital. When she looks at it, shared ownership seems like a possibility.
We live in Scotland and would like to help with the deposit but don’t know anything about shared ownership.
We also don’t know the English property purchasing system. Although we’ve tried watching it online, we’re still a little unsure about the logistics and pros and cons. K.B.
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Mortgage help: In our weekly column Navigate the Mortgage Maze, broker David Hollingworth answers your questions
David Hollingworth replies: Shared ownership is a well-established option aimed at buyers looking for a more affordable solution to take what will often be the first step on the property ladder.
Your daughter will no doubt be faced with high house prices in London and is therefore considering alternative options to help put property within her reach sooner than it would otherwise be.
It should not be confused with shared equity schemes which work very differently. Social capital was notably the mechanism behind the Help to Buy scheme which has now been closed in England.
Shared ownership, on the other hand, is a scheme that does what it says. It allows a proportion of a property to be purchased from a housing association, which will retain ownership of the remainder of the property.
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Growing participation
That initial stake could be as little as 10 percent in some cases, although there will be an evaluation of how much of it could be purchased at the beginning.
That will be funded by any deposit the buyer can make and the remainder by a mortgage. Rent is then paid to the housing association on the remaining portion and will be charged at a rate lower than the open market rent.
This can clearly help a struggling first-time buyer to at least get a foothold on the property ladder and will allow for more stock to be purchased as their situation changes. This could ultimately lead to ownership of up to 100 percent and is known as a ladder.
Shared ownership has a number of benefits for the buyer by giving them some exposure to property prices.
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David Hollingworth says shared ownership can help a struggling first-time buyer at least get a foothold on the property ladder.
First-time buyers will have felt that prices have often slipped away from them, making saving for a deposit even more difficult when prices rise faster than they can save.
Prices may have dropped a bit for now due to a slower market, but they are still out of reach for many, and if they start to rise again, your daughter would have some share of the market.
Another great benefit is the security that shared ownership can provide. Renting can be expensive, but tenants may have to move out if the landlord raises the rent or decides to sell.
Shared ownership provides greater security of tenure than renting, which will no doubt be attractive if your daughter can find the right property.
Eligibility Requirements
There are eligibility requirements for shared ownership and the ability to purchase will require those requirements to be met as well as a suitable property being available.
The general requirement will be that income is less than £90,000 in London (£80,000 elsewhere) and that there is no possibility of buying on the open market.
Advice, advice, advice
The property may be a new build or a resale of a previously owned home on a shared ownership basis.
If your daughter has seen any properties that might interest her, it makes sense to contact the housing association who will be able to discuss the process.
The main difference between buying in England and Scotland will be the legal process, as the purchase becomes binding the moment contracts are exchanged in England.
This will take longer than in Scotland, where the sale will be binding once the letters are concluded.
Your daughter will need a lawyer or conveyancer who can explain the process and the deadlines that will need to be met to bring everything together.
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Eligibility requirements: The general requirement will be that income is less than £90,000 in London (£80,000 elsewhere) and that there is no possibility of buying on the open market.
As well as talking to the housing association to meet their requirements, your daughter will also need mortgage advice.
Although some lenders do not provide shared ownership loans, there are a good number of lenders who do, from large lenders to smaller building societies.
Most will require a deposit to be made on the stock being purchased, although it may be possible to secure up to 95 percent or even 100 percent of the purchased stock.
There is much more information about shared ownership online. A basic description is available here. and information more specific to London, including You can find a property search tool here..
These will be starting points, but taking advice from housing associations, your solicitor and about the mortgage with your daughter will help you understand more.
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