Can I still get onto the property ladder without a hefty deposit?
BY READERS DIGEST
16th Jun 2019 Property
Claiming ownership to bricks and mortar is a long-term goal for many, but with high property prices, the demand on young people to pull together a deposit makes taking those all important first steps onto the property ladder extremely difficult. Thanks to a range of government initiatives, and with the support of many house builders and housing associations, more options are becoming readily available. This means that those who can’t afford to buy on the open market have the opportunity to push to completion.
For some prospective homeowners, the idea of a five-figure deposit simply isn’t possible, especially for those on lower incomes or those currently forking out a substantial level of money for rent each month. This is where a government backed initiative known as shared ownership comes into play.
What is shared ownership?
Unlike what the name suggests, shared ownership doesn’t mean sharing your home with others. Shared ownership schemes are offered by a range of housing associations across the country as a means to support those that aren’t able to save the required amounts for a house deposit.
How does it work?
The scheme offers those that can’t afford to buy on the open market, the opportunity to buy a portion of a home, with the rest being owned by the corresponding housing association. It’s designed to be flexible, and one of the biggest benefits of the scheme is that buyers won’t need to secure a huge deposit compared with a traditional mortgage. The minimum shares a buyer can purchase is 25% and the maximum at the point of original purchase is 75%.
In theory, this means that buyers could need as little as a 5% of 25% deposit, reducing the strain of saving for a hefty lump sum. Putting this theory into practise, let’s say you are looking at one of the many shared ownership homes in Surrey for sale, and are considering purchasing. If the original price of the home is £450,000, through a shared ownership scheme you could purchase as little as 25% at £112,500*, requiring a 5% deposit of just £5,625*.
Buyers are then given the opportunity to have a mortgage on the portion owned by themselves and pay rent to the housing association on the rest.
Can you ever own the home outright?
Buyers have the opportunity to purchase more shares in the home as they go, sometimes going on to owning the property outright in the future. This is known in the industry as staircasing.
Are there any restrictions?
In order to be eligible, buyer’s yearly household income must be below that of £80,000 outside of London, or below £90,000 within London. There are other restraints too; applicants must be either first time buyers, or a buyer who has previously owned a home but doesn’t currently. When it comes down to selling the home, there are also actions that need to be considered, with the homeowner required to provide evidence of the EPC (Energy Performance Certificate) and RIC (Regular Income Certificate) valuations. The housing association must be notified of any intent to move on, and they control the sale, which can take around eight weeks to finalise. This period is known as a nomination period, in which the housing association takes the time to find a new buyer for the home. There is also a fee associated with selling the home, which is usually around 1.5% excluding VAT of the agreed sale price of the homeowner’s share at the point of sale.
Whether you’re in a position to save a large deposit or not, it’s worth considering a shared ownership scheme in order to support your buying journey.
*Price advertised based on a 40% share and a 95% LTV mortgage. Shared ownership is a part buy, part rent scheme and homes are initially bought as leasehold. Full terms apply, for more information speak to Aster Group sales team on 01380 735 480.
