It’s no secret that mounting pressures on potential homebuyers are making the first step onto the property ladder harder to achieve than ever before. With interest rates reaching record highs in 2022 and the spiralling cost of living, many are fearful that homeownership may no longer be on the cards. Enter Shared Ownership: the lesser-known alternative to homebuying that’s giving rent and high mortgage rates a run for their money.
But what exactly is Shared Ownership? Despite it being a way to help many onto the path to owning their own home, Shared Ownership is still widely misunderstood by potential buyers. There are many misconceptions about what the process actually entails, with some believing that it is simply a different kind of renting opportunity and others assuming that it means that residents physically share their property with others.
In reality, Shared Ownership is an option that allows buyers to purchase a percentage of the property from the housing developer, often between 25% and 75% of the market value, and make monthly rental payments on the remaining unpaid shares, typically set at 2.0% to 2.75%, in addition to any mortgage costs. The cost of the property is determined through thorough checks and surveys carried out by the Royal Institute of Chartered Surveyors (RICS), in which the values of surrounding new builds are evaluated and benchmarked – providing confidence to buyers in that they are purchasing at the fairest price possible and allowing them to achieve a competitive mortgage rate.
Once established as owners of a Shared Ownership property, residents then have the option to purchase incremental amounts of the property over time, known as “staircasing”. This happens when a resident has built up enough of a deposit to purchase the next percentage portion of the property.
Whilst staircasing can seem like an expensive undertaking, as owners will have to do this whilst maintaining mortgage payments, as well as rental payments to the housing developer, it is important to remember that these costs will be significantly reduced in comparison to purchasing a home at full market value. With a smaller initial deposit required to secure a Shared Ownership property, mortgage rates will be lower, and as the ‘rent’ due to the developer stands at an average of 2.75% of the unpaid shares, these costs are not as daunting as they may first appear.
The purpose of Shared Ownership is to provide buyers and owners the ability to purchase homes in a way that is compatible with their financial situation. While some residents may decide not to increase the percentage of property that they own, for those who do, there are significant benefits. By purchasing shares through staircasing, the monthly rental amount paid to the housing developer decreases, further lowering the financial burden on residents.
Signal Park, a Guinness Homes Shared Ownership development
In some instances, buyers are able to purchase a 10% share and increase their share in 1% increments, opposed to the average 10%. However, when looking to increase shares in a property, it is important to remember that the share cost is dependent on the value of the property at that time. For this to be established, a valuation must be undertaken by a RICS-registered surveyor. Share purchases must then be made within three months of the valuation.
So, who is eligible for a Shared Ownership home, and how do they go about buying one? Like all traditional house purchases, a mortgage or savings is required for the deposit, which typically sits between 5% and 10% of the overall property value. In comparison to when Shared Ownership first entered the property market in the 1980s, more and more mortgage providers will lend for Shared Ownership mortgages, dependent on meeting standard credit affordability criteria.
However, eligibility for Shared Ownership is dependent on a number of variables. Shared Ownership is designed to be fair and provide accessible housing for all. To guarantee that this remains the case, the buyer’s annual household income must not exceed £80,000, or £90,000 in London, and prospective owners must be unable to afford all of the costs associated with traditional home ownership, including deposits and mortgage payments.
Unlike other government-backed housing schemes, Shared Ownership homes aren’t just for first-time buyers. Whilst this demographic does cover the majority of Shared Ownership purchasers, the scheme is also popular with people in a range of different circumstances – one being those who are leaving marital homes after relationship breakdowns, or ‘right-sizers’. In such circumstances, the need for both physical and financial freedom can be found using this modern method of homeownership.
Despite their popularity with people from all ages and backgrounds, Shared Ownership homes are predominantly snapped up by first-time buyers due to the smaller deposit requirements. But this isn’t the only benefit to purchasing a Shared Ownership home – in addition to meeting sustainability guidelines and energy efficiency criteria, many Shared Ownership homes are situated in apartment blocks, giving residents the opportunity to engage as much as they wish in the communities around them. Communal areas, such as gyms and coffee shops, provide the perfect place for young people looking to expand their network, as well as right-sizers who are looking to kick start the next chapter of their lives.
Whether you are a first-time buyer seeking to get on the property ladder or simply after something a bit different, Shared Ownership offers something for everyone. With more cities outside of London delving into the world of Shared Ownership than ever before, your next home could be closer than you think.
Find out more at www.guinnesshomes.co.uk.