If like many Londoners, you are desperate to have a place to call your own but are not in a position to buy your own house in London yet, you are not alone. The current generation of first time buyers in London are either writing off home ownership as a possibility or forced to seek financial help. In fact, in 2017 nearly two thirds (62%) of all homeowners under 35 received financial help from family or friends. More than £6.5 billion was lent by the Bank of Mum and Dad! And it is not surprising given that in the past twenty years the average house price in London has risen by 370%.
Luckily, several schemes have been created to help first-time buyers to get a foot on the property ladder, with one created specifically for London buyers. Unsurprising because the asking price for a London home can be more than twice the national average. Shared ownership is a scheme aimed at helping first time buyers onto the property ladder in London. It is also referred to as ‘part buy, part rent’. This week is Shared Ownership Week so we are raising awareness and promoting Shared Ownership across London. In this post we explain how the scheme works and who it is for.
How shared ownership works
If you cannot afford the mortgage on 100% of a home just yet but you have a healthy sum of savings that you would like to invest in property, shared ownership is a good option for you. To start with, you can buy anywhere between 25 and 75% of the property and pay a subsidised rent on the part you do not own. The scheme provides flexibility because you can then buy more shares as and when you can afford them. If you buy all the shares, you own the whole property outright. For example if property prices go up, and you are in a position to, it would be recommended to remortgage and increase your stake in the property. This procedure is known as staircasing. Eventually you can buy out the housing association altogether. Or, if you want to move on, you can sell your share at the market value.
Entry cost: To join the scheme you pay 10% of the share of the property you buy. If you bought 25% of a £600,000 property, the deposit would be £15,000 (10% of £150,000).
Mortgage: You pay for the proportion of the property you buy, which is usually 25%. For a £600,000 property this would mean raising £150,000 minus your 10% deposit. Shared ownership is comfortably affordable for someone with an income of £38,500. You are only buying a proportion of a property, therefore you are likely to fall below the £300,000 stamp duty exemption level meaning you will pay no tax.
Running costs: You pay off your mortgage, and then rent to the housing association for the proportion of the home you do not own. You will also pay a service charge, as you own a share of the property. Of course, there’s also council tax. Be sure to factor all of these costs into your calculations and budgeting.
In order to be eligible to apply, you must be a first-time buyer in London with an income of less than £90,000. Most schemes give priority to people already living and working in the area. There are various lenders offering mortgages on shared ownership homes and there are online resources to help you choose between them.
Can I leave Shared Ownership?
If your circumstances change and you want to sell your share in the property, this will be independently valued against the rest of the property. Once valued, the property will be marketed at this price to people registered with the housing association. If it does not sell, you can then sell it on the open market using an estate agent. When it sells, you get your proportion of any profits plus your original deposit back. You can stay in the scheme for as long as you like but your rent will increase annually.
The shared ownership scheme is cheaper to get into and provides more long-term security than the Help to Buy scheme. Therefore, it is a low risk option that is ideal for low to medium earners. Help to Buy offers more choice in terms of where and what you can buy, and can be cheaper month to month. However you need a bigger mortgage and therefore a bigger income to join. The shared ownership scheme is well established and widely successful. The scheme has been running for over five years now and has so far doled out more than £1 billion in equity loans to London homebuyers and a high percentage of people go on to own their property outright.
Buying your first property can be a daunting prospect but our friendly team provide honest and reliable advice and will be on hand every step of the way. Find your ideal property in South West London with the longest established independent estate agents of this area.