Extra help if you’re buying a home: Shared ownership & other options
While you’re following our tips to help you save up for a mortgage deposit, why not take a look at what other options are available to you. Whether you’re struggling to scrape together a deposit, or finding it difficult to meet affordability criteria, there are a range of government schemes and other alternatives for homebuyers. While many of these are specifically aimed at first-time buyers, some are also open to people who are moving home.
How it works
As the name suggests, with shared ownership you buy a ‘share’ in a property rather than purchasing the whole property outright. Generally, these shares are between 25% and 75% of the property, with the option to buy more shares later.
Shared ownership properties are provided by housing associations, and you pay rent to them on the remaining share of your home.
Who is it for?
Shared ownership schemes are aimed at people who wouldn’t be able to afford to buy a property normally as they don’t earn enough. In England you need to have a combined household income of less than £80,000 (unless you live in London, where the threshold is £90,000).
As you’re only purchasing a share of a property, rather than the whole property, this also means that the amount of deposit you need will be lower. To give an example if you were buying a property for £200,000 a 5% deposit would amount to £10,000. However, if you bought a 25% share in a property of the same value, you would only need to find a deposit of £2,500.
In addition to the income criterion outlined above, at least one of the following criteria should apply.
- You’re a first-time buyer
- You have owned a home in the past, but can’t afford to buy one now i.e. you don’t currently own a property (excluding shared ownership properties)
- You already own a shared ownership
Pros & cons of a shared ownership mortgage
Buying a share in a property can be a great way for first-time buyers to get onto the property ladder.
As you can buy more shares in the property as and when you can afford to, you can eventually own the entire property; without overstretching yourself in the future.
In addition, in the Budget 2018 it was announced that the existing Stamp Duty exemption for first-time buyers would be extended to shared ownership buyers (they had previously been excluded). This means that zero stamp duty is paid on the first £300,000 of any property that costs up to £500,000
You should also be aware of some potential disadvantages of the shared ownership scheme.
Firstly, not all lenders are willing to provide mortgages to buyers who are purchasing shared ownership properties. For this reason, it is important to speak to a specialist mortgage broker, such as the ones at Simply Lending Solutions who will be able to help you find the most appropriate mortgage for your circumstances.
Secondly, in addition to rent on the remaining share of the property, you will be required to pay maintenance charges. You may also find it difficult, if not impossible to let the property. This could be an issue if your circumstances change, for example you have to temporarily work away and so want to keep your property.
You should also remember that if you want to buy additional shares in the property, it will be your responsibility to pay the additional costs involved such as legal expenses and arranging a new valuation.
If you want to move, the chances are that your housing association will have first refusal on the property. This can slow down the sales process.
Right to Buy
Who is it for?
The Right to Buy scheme is a government programme designed to help secure tenants of Right to Buy landlords in England buy the home they live in.
Right to Buy landlords are in the main local councils and housing associations. However, there are a number of other bodies that are covered by the scheme including the London Fire and Civil Defence Authority. The government have produced a booklet that lists all the current Right to Buy landlords, or you can contact your landlord to see if your property is eligible.
How it works
The Right to Buy scheme gives eligible tenants the right to buy their home at a discount. The amount of discount available depends on a number of factors such as
- The type of property – is it a flat or a house
- The length of time you have lived there
- Where you live – the maximum discount available is higher for properties in London
If you’re interested in the scheme the first step is to complete an RTB1 form and send it to your landlord. Your landlord will let you know the value of the property, what your discount is and an estimate of any service charges. They’ll also let you know whether there are any problems with the property such as subsidence.
You then have 12 weeks to decide whether or not you want to go ahead with buying the property. During this time, you can also ask for an independent valuation.
If you do make the decision to buy your Right to Buy property, you will then have to arrange a mortgage as normal.
As well as being a secure tenant of a Right to Buy landlord there are some other criteria you should meet
- You should have been a tenant for at least 3 years
- The property should be your only or principal home, and should be self-contained
- You can’t buy your property if a court has issued a possession order against you i.e. your landlord is seeking to evict you
- You can’t buy your property if you are an undischarged bankrupt, are subject to pending bankruptcy proceedings or have a current IVA
You may also be able to buy your property through Right to Buy with other members of your family if they have lived with you for at least 12 months.
The rules around Right to Buy are quite detailed and there are some further exemptions, for example you can’t exercise your Right to Buy if you live in a property that is particularly suitable for elderly people, it’s therefore advisable to approach your landlord who will be able to give more detail regarding your eligibility.
Pros and cons of Right to Buy
The big advantage of Right to Buy is the discount that you receive on your property. This allows people to get onto the property ladder who wouldn’t otherwise afford to.
Many people also feel that owning rather than renting their home gives them more security as their home is now also a financial asset.
However social housing tenants may have lower earnings than the average and so could find the cost of a mortgage unmanageable. If you fall behind with mortgage payments your home will be at risk, and there may not be the same support available as if you were renting from a council or housing association. For this reason, it is important to speak to a mortgage broker, such as those at Simply Lending Solutions, to ensure that the mortgage product you use is affordable.
Help to Buy – Equity Loan
Who is it for?
The Help to Buy – Equity Loan scheme runs in England and Wales and is aimed at people with 5% deposits who are seeking to buy a new-build property worth £600,000 or less (£300,000 in Wales).
How does it work?
With a Help to Buy Equity Loan you are lent 20% of the value of the property you want to buy. You’ll then need a 5% deposit and a mortgage for the remaining 75% of the property value
The loan is interest-free for the first 5 years following the purchase of your home
In London you can borrow up to 40% of the property’s value.
If you are interested in the Help to Buy Equity Loan scheme you will need to find a participating registered builder and complete a Property Information Form and Reservation Form.
You can find a participating builder via your local Help to Buy agent.
Until April 2021, when the current scheme ends, Help to Buy loans are available to both first-time buyers and home movers. However, after this date only first-time buyers will be eligible.
Applicants must be age 75 or under.
Pros and cons of Help to Buy – Equity Loan
As you have taken out a government loan for 20% of the value of the property you are buying and have at least a 5% deposit, you will only need a mortgage for at most 75% of the full price. This should allow you to access cheaper mortgage products.
The loan from the government is interest-free for five years, and even after this time you will only pay interest on the original value of the loan.
You must pay the loan back when you either sell your home or at the end of your mortgage term, but you can also pay some or all of the loan back earlier. However, if you want to pay back only some of the loan you will need to repay at least 10% of the property’s value
If you sell your home, assuming you haven’t repaid the equity loan, the government will receive 20% of the sale price. For example, if you bought a property for £200,000 and the government lent you £40,000 but you sell the property for £210,000 the government will receive £42,000.
Not all lenders provide Help to Buy mortgages, but a whole of market broker like Simply Lending Solutions will be able to compare deals from those that do in order to find you a competitive product.
High loan-to-value mortgages
If you are not eligible for the schemes mentioned so far, or you are unable to raise the deposit needed, there may still be options available. There are lenders who can provide mortgages to borrowers with very small, or even no, deposit, without the restrictions of the alternatives that we’ve explored here.
Take a look at our overview of high loan-to-value mortgages. Then contact us to find out how we can help you.