Back in September 2020, Housing Secretary Robert Jenrick unveiled early plans for a new Shared Ownership scheme, in line with the government’s proposal to “End generation rent” and make it easier for buyers to get onto the ladder.
The government also recognised the need for change in the way that Shared Ownership tenants could purchase more shares.
Many potential first-time buyers have felt unsure about the ease of the staircasing process which under the current scheme, can be arguably expensive depending on the associated fees and choice of remortgage lender.
But could that be about to change?
The Shared Ownership changes you need to know about:
The minimum share required to buy into a Shared Ownership property will be decreased from 25% to 10%.
Shared owners can increase the shares in their home by 1% as opposed to 5%
New shared owners will have a 10-year period where their repairs would be covered by their landlord.
Why is the old scheme changing?
The current part-buy part-rent scheme allows buyers to purchase a share of a property – usually between 25% and 75%. The buyer pays their mortgage for the share they own and pays rent on the remainder.
Most Shared Ownership schemes also charge a service charge too, though this can be lower on houses in comparison to flats which can demand higher service charges due to the increased maintenance of shared areas such as lifts or corridors.
The old scheme has been successful in helping some first-time buyers purchase a home but data from reallymoving shows that out of 98,000 users who got conveyancing quotes in the UK in 2019, 55% were first-time buyers.
Of those, 43% used the Help to Buy Equity Loan whereas only 10% used a Shared Ownership Scheme.
How does the new Help to Buy Shared Ownership scheme differ from the old one?
A new model for Shared Ownership was announced in line with the Affordable Homes Programme last year.
In September 2020, Housing Secretary Robert Jenrick announced a £12 billion boost to the housing sector and up to 180,000 new homes across the country, including a large proportion specifically offered under Shared Ownership.
Owners still have to pay rent, along with service charges, ground rent and other bills on top of their mortgage but the ease of getting onto the ladder will improve as will the costs that tenants can face through maintenance and repairs.
Buyers will only need to purchase 10% of the property
The new Shared Ownership scheme will allow buyers to purchase a minimum share of 10% compared to the previous 25%.
This reduces the amount of mortgage needed and therefore a smaller deposit is required, making the process of getting onto the property ladder perhaps more approachable for many on lower incomes, for those still on furlough or for those with credit issues.
For example, under the old scheme, a 25% share of a £200,000 house would require £50,000 which would likely come from a 5% deposit of £2,500 and a mortgage of £47,500.
Under the new scheme, a 10% share of £200,000 would require £20,000 which could come from a 5% deposit of £1,000 and a mortgage of £19,000.
Ask a broker to work out how much deposit you’ll need to buy a 10% share in a property through the new Shared Ownership scheme. They can check your eligibility and recommend developers in your area that are part of the scheme.
Buyers can purchase the property gradually
Similarly to the old Shared Ownership scheme, the new scheme will also permit staircasing – which will allow buyers to increase the share they own in instalments of 1%, rather than the 5% or 10% currently offered by most developers.
This significant change affects the way that first-time buyers can increase their equity and ownership of the property, making the process arguably more financially manageable.
The gradual staircasing offer must be available for a minimum of 15 years
Shared owners will not be able to roll over or accumulate the gradual staircasing offer to purchase in future years – it is limited to a max of 1% each year
Can I buy more than a 1% share each year with the new Shared Ownership?
If you’re wondering if the new scheme allows tenants to buy larger shares, you’ll be pleased to know it does.
Shared owners will still be able to do that through the existing staircasing process using a RICS valuation.
The government plans to lower the minimum additional share from 10% to 5%, again making it easier for tenants to buy smaller, affordable chunks of the properties’ equity as they can.
The fees for staircasing have been reduced
Under the current model, shared owners often need additional lending via a remortgage to staircase and this can result in them incurring costly fees.
The new Shared Ownership model is designed for cash purchases and the mortgagee’s charge shall be secured over the additional 1% purchased. The buyer will also be required to notify the mortgagee in the event of completion of gradual staircasing.
The price of each 1% share will be based on an estimated valuation linked to the original purchase price, adjusted each year upwards or downwards in line with local House Price Inflation.
This will mean that shared owners will no longer have to get a RICS surveyor to carry out a new valuation each time they want to buy a 1% share.
Landlords will be prohibited from charging administration fees on shares bought as part of this gradual staircasing model which will save Shared Ownership buyers money too.
The new process will make it much easier to staircase without having to remortgage, enabling shared owners to avoid mortgage fees.
Shared Ownership landlords will cover the costs of repairs
Tenants that live in homes bought under the old Shared Ownership scheme are currently responsible for costs associated with the maintenance of their property, even if they own a smaller share.
Unexpected issues with the property can be really expensive and often unmanageable for many tenants who are on lower incomes.
The new repairs model plans to better bridge the gap between renting and homeownership and has been designed to better support tenants who can instead put money aside towards buying a bigger share in their home.
A new 10-year period will be introduced for maintenance and repairs, whereby the landlord or housing association will be required to cover costs rather than homeowners.
Shared owners will also be able to claim up to a maximum of £500 in repair costs per year
Another huge change that could sway many first-time buyers who were previously put off by the prospect of facing costly repair fees while juggling both a mortgage and rent, is that Shared Ownership tenants will be able to claim up to £500 a year for repair costs.
More details about the updates to repairs and maintenance are below:
Shared owners will remain responsible for repairs inside of the home but will be eligible to reclaim costs from the landlord for the essential repair or replacement of (if faulty and not covered by warranty):
installations in the flat or house for the supply of water, gas and electricity and for sanitation (including basins, sinks, baths and sanitary conveniences, but not other fixtures, fittings and appliances for making use of the supply of water, gas or electricity), pipes and drainage
Installations in the flat or house for space heating and heating water
Shared owners will be able to claim up to a maximum of £500 in repair costs per year. Repair and maintenance costs in excess of this will be the responsibility of the shared owner. The UK government has included a cap to prevent misuse of the scheme and to limit the landlord’s exposure.
Shared owners will have the flexibility to roll over a maximum of 1 years’ worth of unused repairs expenditure into the following year (i.e. maximum rollover amount will be £500). This will help to protect shared owners in circumstances where annual repair costs exceed £500 and they had claimed less than £500 in the previous year.
Shared owners will not be able to reclaim costs for a repair or replacement of any of the above due to improper use.
Shared Ownership landlords will be responsible for ensuring works carried out are essential and genuine.
You aren’t limited to buying 10% in a Shared Ownership property
The amount you can borrow with a Shared Ownership mortgage lender will be dependent on a variety of factors including your age, credit history, the size of your deposit and your annual income.
For example, buying a 10% share of a home worth £400,000 would require a contribution of £40,000. If you had a 5% deposit of £2,000, you’d need a mortgage to cover the remaining £38,000.
Subject to eligibility and affordability checks, most lenders will be prepared to loan 4.5 x an annual salary. Although getting a mortgage for 10% of a property can make homeownership more attainable, it certainly doesn’t mean that you have to start off with a smaller share.
It may be possible for you to purchase a larger proportion of the property upfront and this is something that a mortgage broker can help you calculate.
When does the new Shared Ownership scheme start?
More information about the new Shared Ownership scheme is due to be announced this year, with details about when the expected potential changes will commence.
It’s thought by those within the property market that pivotal changes including buyers being able to buy a smaller share of just 10% are expected to occur in 2021.
Right to Shared Ownership has changed too
Additional details about Right to Shared Ownership are set to be announced too. This scheme will apply to all new rented homes funded through the Affordable Homes Programme 2021 to 2026, with limited exemptions.
This change will give many social tenants the opportunity to purchase a percentage of their home using the new model for Shared Ownership.
Get advice before the new Shared Ownership scheme starts
The introduction of the new Shared Ownership scheme which is rumoured to begin after April this year is likely to create a surge of demand for affordable housing.
First-time buyers can prepare themselves for the application process by seeking advice now and getting their foot in the door early with developers in their area.
Our Shared Ownership experts can advise you on how much you can borrow, which lenders can offer you the best rates and how you can prepare any documentation and paperwork needed for a successful Shared Ownership mortgage application.
Call 023 8098 0304 or send your details safely via The Mortgage Hut enquiry form to request a call back from an advisor.