In 2018, the average UK tenant spent 52% of their disposable income on rent and with rental payments so high it makes saving for a deposit to purchase a flat or home very difficult.
There is however a scheme that provides an option for those who wish to own a property but do not have a large disposable income or savings. The Shared Ownership scheme allows applicants who are not able to currently afford to buy a property with the option to 'purchase' a share of a property whilst paying rent on the remainder. To be eligible for this scheme your household income must be £60,000 or less (£90,000 or less in London). Also, you need to be approved by the Housing Association and often you can only buy in the borough that you currently live in.
You buy a 25% share in a £500,000 property for £125,000. Your deposit is linked to the value of your share of the property and would normally be 5%, so £6,250 in this example. You will then pay a mortgage on the amount of the property you own yourself along with rent on the remaining share, allowing you to build up some equity as the mortgage decreases and value (hopefully) increases. You also have the option to staircase and purchase a greater share of the property overtime, allowing you to make larger contributions towards the mortgage as opposed to the rent and to own more of the property. The rental and mortgage payments combined will generally be less than what you would pay for the full rent on the open market, and you will also have access to the equity that you have built up when you come to sell or remortgage.
The disadvantages of using this scheme is that you will generally be paying a maintenance or service charge on the full 100% of the property as opposed to just the share you own and these costs can be quite high. Also, since you are a tenant in law, you could lose the property if you are unable to keep up with rental payments. Not all lenders offer shared ownership mortgages, so it is a restricted market but you have to factor in the service charge and rent into your affordability – so if you have debt or childcare costs you might struggle to find a mortgage.
The Shared Ownership scheme is a great way for many to get onto the property ladder while becoming part owner of a more expensive property than you would otherwise be able to afford without this scheme.
If you are considering Shared Ownership or would like some advice on your options for a mortgage, please get in touch in touch with Alistair.