Many people struggling to make the first rung of the property ladder are now thinking outside of the box in order to turn their home-owning dreams into reality. Many are resigned to renting or even living at home with their parents for the foreseeable future while saving up for a deposit, while others are considering home share.
Shared ownership is where the buyer can arrange a mortgage to buy a share of the property (from 25% to 75%) and pay rent on the remaining share which is 'owned' by the housing association or the private developer who is the landlord.
Under the scheme, property owners can buy more shares at any time until they own the property outright - known as 'staircasing' although most housing associations insist on written notice and minimum staircasing increments of 10%.
Shared ownership was originally considered a last-ditch option for low and middle-income families wanting to get on the housing ladder. In these straitened times, however, many more people are considering such schemes as a way of entering the property market. However, shared ownership is not an option that should be entered into without doing some extensive research into its various pros and cons.
Such schemes still require a deposit, and raising the necessary cash can prove too steep a hurdle to jump for many, particularly as these types of mortgages tend also to be offered at a high loan-to-value. Following the crash in the housing market, many banks are erring on the side of caution when deciding whether to offer mortgage finance, even on shared ownership schemes.
People in our region who find themselves in this trap can now take advantage of analternative productwhich doesn't require a large deposit or a formal mortgage. Innovative schemes such as theGenie home purchase plan, which received authorisation from the Financial Services Authority (FSA) in 2011, have now been opened up to first-time buyers for the first time.
Anyone with a shared ownership home can sell their property at any time but they must tell the housing association that theyre intending to do so in writing. If they own anything less than a 100% share of the property, the housing association has the right to find a buyer like any other owner-occupier. However, the housing association also has the right of 'first refusal' to buy the property back and keeps that right for 21 years after they fully own the property. This can be a barrier for anyone who would like, at some point, to move up the property ladder, and this should be taken into account before entering into any shared ownership scheme.
Shared ownership is not for everyone, but like other schemes aimed at getting more people on the property ladder, it is certainly worth considering, particularly by those who have exhausted all other options.
Please note: This article is intended as guidance only and does not constitute advice, financial or otherwise. No responsibility for loss occasioned/costs arising as a result of any act/failure to act on the basis of this article can be accepted by Latimer Hinks. In addition, no responsibility for loss occasioned/costs arising as a result of any act/failure to act on the basis of this article can be accepted by the firm.
Martin Williamson is Head of Residential Property at Latimer Hinks Solicitors in Darlington. Latimer Hinks has a team of around 40 people serving private and corporate clients. For further information: www.latimerhinks.co.ukor call 01325 341500.