Shared Ownership

The dramatic rise in property prices has made it very difficult to enter the property market for the first time. The average house price has outstripped the average salary, meaning even households earning between £20,000 and £30,000 in the South West are struggling to find affordable property.

Shared ownership schemes provide a halfway house between buying and renting and enable first-time buyers to take that all-important step on to the first rung of the housing ladder. The schemes are managed by Registered Social Landlords (RSLs) many of whom will only accept first time buyers, but the rules are not the same across the board.

Most RSLs are housing associations, but there are also trusts, co-operatives and companies. They run as businesses but do not trade for profit. Any money made is ploughed back into the organisation to maintain existing homes and help finance the building of new ones.

How it Works

Most shared-ownership properties are offered on 50% share. So if the property you are interested in was valued at £80,000, you will need to take out a mortgage for £40,000.

The other 50% is owned by the housing association, and you will have to pay rent to them for this. The rent is kept artificially low and usually works out to be around 4% of the value of the property per year. This rent will usually rise each year in line with inflation, but will never be as high as the equivalent mortgage repayment. However, it could become quite high if you stay in the property for many years.

Once you move into the property, you take on full responsibility for any maintenance or repairs that have to be carried out. You may also have to pay a service charge to a management company for the cleaning and maintenance of the communal areas, lighting and gardening.

Once you've been in your home for a specified period of time, you have the option of buying a larger chunk of the property or buying it outright. If you want to sell the property, you usually have to do this through the housing association. Many associations will try to pass the property on to somebody on the waiting list. If it can't find any buyers after a specified period of time, usually two or three months, then you are free to sell it how you wish. If you own the property outright you don't need to go through the housing association and are free to sell on the open market.

Who is Eligible?

Shared ownership is not just for those on very low incomes; there are generally no minimum or maximum salary requirements. However, to qualify you do have to be employed and be able to take out a mortgage, but unable to afford to buy a suitable property on the open market. In fact one of its aims is to provide housing for those whose incomes are too high to qualify for council housing, yet not high enough to buy open market property.

The criteria for acceptance into a scheme does tend to vary so it is probably best to contact your local Housing Association direct.

Getting into Shared Ownership

The first thing you need to do is find a property you want to buy. You can either buy from somebody who already owns a shared ownership property or you can approach your local RSL directly. If you buy privately you will still have to apply to the Housing Association to ensure that you meet their criteria. Bear in mind that many Housing Associations will have a waiting list for properties. If they think you will be suitable for the scheme, they will invite you in for an interview and put you forward when properties become available.

Another option is to contact Housing Mobility and Exchange Service (HOMES). Once you've filled in an application form and HOMES thinks you are suitable for a shared ownership scheme, you pay a fee to join the Shared Ownership HOMES scheme. This will allow you to search available properties either advertised in its Property Bulletin or online. It provides a matching service and advertises details to shared-ownership providers who have properties in the areas you are interested.

For existing shared owners wishing to sell their properties, HOMES will advertise the property and can help to match it with a suitable buyer.

Once you have found a property you'd like to buy you need to start thinking about a mortgage. Not every mortgage lender will lend on shared ownership properties and mortgage rates vary widely.

Shared Ownership Mortgage

After you have purchased a percentage of shared ownership property you will normally have to pay rent on the percentage that the Housing Association owns. There is often a service charge as well that the Housing Association charges you for managing the building. The service charge is generally paid into a 'sinking fund' that is used to cover the maintenance of the building. If the building is in poor condition the service charge may be expensive in order to cover repairs so, like any property you would buy, make sure it has been well kept.

Your housing association should be able to recommend a suitable mortgage lender if you are unsure of which one to choose.