Shared ownership – top ten myths
You never actually own the property. You’ll never get a mortgage. You can’t sell a shared ownership property…
There’s still plenty of confusion and misinformation surrounding shared ownership despite its increasing popularity among buyers.
We’ve drawn up a guide to shared ownership and Help to Buy to tackle common queries and misconceptions.
This covers everything from the difference between shared ownership and Help to Buy schemes, how to gain 100 per cent of the equity of a property and how to move up the property ladder.
Myth 1: It’s all too confusing with Help to Buy and shared ownership schemes
Reality: Help to Buy and shared ownership are both Government initiatives to help more people afford to buy a home of their own but are quite different in some ways.
The Help to Buy equity loans works in this way. The buyer puts down an initial five per cent of the property price as a deposit. The Government then provides a 20 per cent equity loan.
With this sum in place – representing 25 per cent of the total cost of the property – the buyer can then apply to get a 75 per cent mortgage from a commercial lender. The property must be a new-build property.
The government equity loan is interest free for five years before you begin to pay interest upon it at 1.75 per cent, rising every year by the retail price index (RPI) of inflation plus one per cent.
You will own the entire property. However, the loan must be repaid within 25 years or when the house is sold.
Shared Ownership is a part-buy, part-rent scheme. It allows you to buy a percentage of a property, pay below market value rent on the remainder and then buy the remaining share of the property if you wish to over the following years.
Help to Buy is usually provided by housebuilders and shared ownership by housing associations although there are exceptions.
Myth 2: I’ll have to physically share my house with someone else
Reality: There are plenty of myths about this, but it is not the case. Shared ownership allows you to buy a share in a property not ‘go halves’ or ‘club together’ with a friend or someone else to buy it!
With a shared ownership property, you buy a portion of the property based on how much you can afford, whether it is 25 per cent, 35 per cent 50 per cent or even 75 per cent of the full value of the property.
You pay a mortgage on the share of the property you own.
The share that remains is owned by the housing association. You then pay rent on this part of the house.
You can increase your share of the property until you own 100 per cent and become the sole owner. Typically, this must be completed in three instalments, so you may need to save enough money and plan ahead.
Myth 3: It’s all flats, there are no houses or family homes
Reality: Some shared ownership properties are flats as the scheme is ideal for first time buyers but there are houses available too.
Myth 4: Shared ownership is only for first time buyers
Reality: No, it is open to anyone aged over 18 who does not own another home or is in the process of selling their current property.
Myth 5: I won’t own the property; it won’t really be mine. It will just be like renting.
Reality: It is your own home and you can live in it as you choose.
There may certain structural things to discuss with your housing association before you go ahead with improvements – such as building an extension – but to all intents and purposes it is yours.
In any case, you can build up your shareholding by purchasing more shares in a process known as staircasing.
This will increase your equity and decrease the rent you pay until you gain 100 per cent ownership of the property.
You’ll become the outright owner. Of course, this is not compulsory and you don’t have to do this!
Myth 6: It will actually work out more expensive than renting or buying on the open market because of the rent and mortgage costs.
Reality: In many areas, the cost of renting in the private rented sector is above what the typical monthly mortgage repayment would be for the same property.
Although shared ownership does include some element of rent, it will be set lower than the market value. And the more share of your home you own, the less rent you will pay. There may be a service or management charge in some cases.
Myth 7: Even if I wanted to, I couldn’t afford the deposit anyway.
Reality: With shared ownership, in most cases you only need a five per cent deposit whereas some mortgage lenders will ask for a 20 per cent mortgage for a property bought on the open market.
It can make buying a new home much more affordable as you may only require a 5% deposit for the share you buy.
For example, if you bought a 35% share of a property valued at £87,500, a 5% deposit would be just £4,375.
Myth 8: Even if I could get the deposit together, I’d never get a mortgage on my wages.
Reality: While not all mortgage lenders will offer loans for shared ownership, the majority will. It is one of the major myths that they will not.
As with a purchase on the open market, your income, outgoings and size of deposit will be taken into account.
But remember you will be applying for a mortgage on a smaller amount than you would on the open market, making it much more affordable and likely that you will be approved for a mortgage.
Myth 9: I’ll never be able to sell it and even if I do, I won’t get its true value
Reality: Some buyers simply wish to stay in their house and pay rent on the share that they do not own. Others may wish to increase their holding up to 100 per cent of the property and stay or move on.
If you have a 100 per cent shareholding you are free to sell as you please, usually through an estate agent of your choice.
If you still are still paying rent, the property is offered to others looking for a shared ownership property through your housing association.
After a set period of time, if there are no buyers, you can market the property yourself through an estate agent of your choice. This one of the big myths surrounding shared ownership.
Myth 10: There are no properties available in my area
Reality: There is a selection of Help to Buy and shared ownership properties available in north, south and west Dorset through a variety of developers, housebuilders and housing associations. You can find some on the Opening Doors website here.