Property Buying Guide

Benefits and pitfalls of shared ownership schemes

Evaluating the advantages and disadvantages of any potential project is essential before deciding whether to proceed. Given that a home is likely to be the most expensive thing you will ever purchase, it's imperative that you carefully weigh up your options before going ahead.

FirstRungNow is an organisation that strives to help you with those tough first-timer decisions. We highly recommend you consider the benefits and potential pitfalls of shared ownership before taking the plunge. You should also seek shared ownership mortgage advice.

Benefits

• It helps you get that all-important first foot on the property ladder.
• It enables you to buy a bigger property than you would otherwise be able to afford.
• If you are on a low income, housing associations will usually give you priority. They will consider what money you have coming in, as well as your housing need – they will look at whether you have children, for example.
• Your combined monthly rent and mortgage repayment may be less than if you had bought the property outright.
• You may need little or no deposit.
• If you are a taxpayer, you may get tax relief on your mortgage (speak to your mortgage advisor).
• You will be exempt from paying stamp duty if the share you are buying is worth less than the lowest stamp duty threshold and may receive tax relief anyway – depending on the development.
• It is an investment, allowing you to receive a share of the increase in the value of the property should you sell.
• You can build up the share of the property you own until you own it outright, thus investing in your own home rather than just paying rent.
• You save money on maintenance and redecorating as the housing association is responsible for the property's structure and the property will usually be a newly built or refurbished one.
• By proving that you can make regular mortgage repayments, you may find it easier to obtain a mortgage in the future.
• It is a useful scheme for people who expect their income to increase in the future.
• You can combine shared ownership with joint ownership.

Potential pitfalls

The problems you experience will largely depend on the terms of the shared ownership scheme you use, which is why FirstRungNow advises that you read terms and conditions thoroughly before going ahead. However, below are some of the more general problems that might occur:

• There may be limited or no properties available for shared ownership in your preferred area.
• You may not qualify to participate in a shared ownership scheme.
• You still have the responsibilities of a homeowner but the home does not belong only to you.
• As you do not fully own the property you may have to ask for permission from the housing association regarding redecoration or home improvement.
• Valuer's fees are payable should you wish to increase your share of the property.
• There may be selling restrictions.
• In rural areas, housing associations may restrict your ability to buy further shares or may retain the right to buy back the property when you sell.
• Even if you own your home outright, you may still have to pay some service costs to the housing association.

If you purchase the housing association share, this could leave you with high repayments at the end of the loan period. You should carefully consider the length of the repayment period for both your first share and then the housing association share of the property. 

A new type of private shared equity scheme puts you, the first time buyer, in touch with an investor. This is quite different from the government schemes or schemes where you part buy, part rent but has the same drawback in that you share the eventual profit with the investor. One such scheme is operated by Let's Move Property Solutions.

First time buyers should seeking independent advice on taking out a shared ownership mortgage.
 
More about shared ownership: 

What is New Build HomeBuy and how does it work?  l Who is eligible and what are the selection criteria? l Special features and how to apply l What is involved with shared ownership and who can apply? l How do I increase my share and how much do properties cost?  l What rights and responsibilities do I have? l Are there restrictions on resale? l Can I buy with someone? And what about finance and legal issues?  l Where do I start and what happens next?  l What questions should I ask? l Will shared ownership really enable more first time buyers to buy a home? l Shared Ownership Mortgage basics l Shared ownership schemes run by house-builders l The First Time Buyers Initiative/English Partnerships

Useful links

www.communities.gov.uk
www.englishpartnerships.co.uk
www.homesandcommunities.co.uk
www.direct.gov.uk