First-time buyers and those who could no longer afford a 100% purchase might remember that way back in September 2020, Housing Secretary Robert Jenrick announced plans for a new and improved Shared Ownership scheme.
The old scheme, which has now been replaced by Shared Ownership 2021 - 2023, has helped an estimated 157,000 households get onto the property ladder in England alone.
Whilst that’s certainly not to be sniffed at, the old scheme had its flaws.
So what can you expect from the new scheme and how can it help you get into your own home quicker than the route of saving a larger deposit for a 100% purchase?
What is Shared Ownership?
Shared Ownership (also known as ‘part buy, part rent’) enables people to buy a share of a property (previously between 25% and 75% and now under the new rules, between 10 - 75%, depending on the developer).
Tenants pay a subsidised rent on the remaining share they don’t own and have the option to buy more shares in the future.
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.
Why do people get Shared Ownership homes?
According to the House of Commons Library briefing paper, 2020, Shared Ownership England is popular in areas where affordability is stretched, like the south of England and London, where property prices can typically be higher.
The option of being able to purchase just a percentage of a property can help those who can’t afford to get a mortgage for 100% ownership get into their own home.
Getting a mortgage to buy 100% of a home may be difficult for some people due to bad credit, a low or fluctuating income or because their current circumstances don’t allow them to save a hefty deposit.
This route of homeownership could arguably be more attainable as purchasing a share in a property requires a smaller deposit and mortgage.
Why is the old scheme changing?
The old scheme had been successful in helping first-time buyers purchase a home but in comparison with other government schemes like Help to Buy: Equity Loan, Shared Ownership wasn’t anywhere near as popular.
In fact, data from reallymoving shows that out of 98,000 people 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.
The government recognised the need for change with the old scheme and has tweaked Shared Ownership to make it easier for people to gradually purchase more shares, while still paying affordable rent on the rest.
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.
The Shared Ownership changes in a nutshell
The minimum share required to buy into a Shared Ownership property has decreased from 25% to 10%.
Shared owners can increase the shares in their home by as little as 1% at a time as opposed to the previous 10%.
New shared owners have a 10-year period where their repairs and maintenance is covered by their landlord.
Old Shared Ownership vs new Shared Ownership
It can also be helpful to know that tenants are under no obligation to increase their shares and can continue to live in the property they own a share in while paying rent on the proportion the developer owns.
Buying 10% of a Shared Ownership home in 2021
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.
Staircasing with the new Shared Ownership scheme
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 too
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 2021: 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.
How much can Shared Ownership tenants claim in repair costs 2021 - 2023?
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.
Can I buy more than 10% of 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.
How much will my deposit be for a Shared Ownershiphome?
5% deposits are back in 2021 and the availability of products has increased. Lots of new build developers that provide homes under Shared Ownership accept 5% deposits but whether or not you’ll be asked to deposit a higher amount from your chosen lender, is another matter.
Some mortgage lenders ask for higher mortgage deposits, often, though not always, when the applicant has bad credit or a high debt-to-income ratio.
Your affordability for the amount of mortgage you’re applying for can also affect the size of your deposit and it may be the case that a 10 - 15% deposit is required, depending on the circumstances and the lender’s criteria.
Your deposit size will vary depending on lots of different factors so some people prefer to ask a mortgage broker to look at their situation and advise them on their next steps. You may be eligible for a mortgage with a 5% deposit requirement but always check ahead of applying to avoid a credit rejection.
How much would a 5% deposit be for a Shared Ownership house?
The below examples are based on a Shared Ownership property valued at £200,000 and reflect the deposit cost for different share purchases.
Shared Ownership property valued at £200,000
Percentage of the property being purchased through Shared Ownership
How much would a 5% deposit be?
Is Shared Ownership 2021 worth it?
Shared ownership can provide a homeownership opportunity to those who cannot afford the rising property prices which make owning 100% of a property unattainable for many.
Whether or not it’s right for you, really depends on your situation and the circumstances surrounding the property purchase.
Whether you buy a new build Shared Ownership home through a developer or an existing one through a resale programme from a housing association, always take your time and work with professionals you trust.
A property purchase is a big decision and if you’re planning on staircasing to own more shares in the future, it can be a good idea to calculate how much different increments could cost you while also keeping in mind your outgoings, debt and other financial commitments.
Can I sell a Shared Ownership new build home?
Yes although the process of selling a share of a property can differ to that of a home marketed with 100% ownership. If you haven’t staircased to purchase the full shares available in the property, there can be restrictions which affect who you sell your home to.
Shared ownership is part of the affordable homes programme and subsequently, to ensure that properties remain available to people in need of affordable housing, before you sell your property, you will need permission from your housing developer, who may or may not offer to buy your shares as opposed to you selling on the open market.
If you do own 100% of your home, you can sell on the open market, however, keep in mind that if you own a portion, for example, 50%, you must sell the entirety of that portion and not sell, for example, 25% of your share to keep ownership of the rest.
Furthermore, any buyer(s) you find must meet the eligibility requirements for the Shared Ownership scheme, meaning their combined household income can’t be more than £80,000/year or £90,000 in London.
Is a Shared Ownership property sold under a leasehold or freehold agreement?
An issue for many Shared Ownership tenants is that properties are always leasehold, as opposed to freehold agreements which offer more flexibility for buyers.
Under a leasehold agreement, the tenant only owns the share of the property they have purchased and not the land that sits beneath the building itself.
The precise terms and conditions of Shared Ownership schemes can vary by housing provider but most leasehold agreements span for 99 or 125 years.
Right to Shared Ownership has changed 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.
The Right to Shared Ownership will allow eligible tenants who occupy eligible properties to purchase their social or affordable rented home on Shared Ownership terms.
Tenants will be able to buy between 10% and 75% of their home (as per the current Shared Ownership rules) and the price of the share will be based on a percentage of the full market value as determined by a Royal Institution of Chartered Surveyors (RICS) qualified independent valuer.
The scheme does not involve a discount for the tenant and cannot be used in conjunction with other schemes such as right to buy, which does offer a discount to social tenants planning to purchase their council property.
Get advice before applying for Shared Ownership 2021
The introduction of the new Shared Ownership scheme 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.