Is shared ownership a good way to help my daughter buy her first home? David Hollingworth responds
My daughter currently lives in London and is hoping to get on the property ladder somewhere in and around the capital. Upon consideration, shared ownership seems like a possibility.
We live in Scotland and would like help with the deposit but don’t know anything about shared ownership.
We are also not familiar with the English system of purchasing property. Even though we tried to take a look at it online, we were still a little unsure about the logistics of it all and its pros and cons. KB
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David Hollingsworth answers: Shared ownership is a well-established option aimed at buyers looking for an affordable solution to taking what is often the first step on the property ladder.
Your daughter will undoubtedly face higher house prices in London, so she is sensibly considering alternative options to help bring property within reach sooner than would otherwise happen.
It should not be confused with joint stock plans, which work very differently. Common shares were the mechanism behind the now-shuttered Help to Buy scheme in England.
On the other hand, shared ownership is a scheme that does what it says on the tin. It allows the purchase of a proportion of the property from the housing association, which will retain ownership of the remainder of the property.
This initial share can be up to 10 percent in some cases, although there will be an evaluation on how large a portion can be purchased initially.
This will be funded by any deposit the buyer can put down and the remainder through the mortgage. Rent will then be paid to the housing association on the remaining share and will be charged at a lower rate than the open market rent.
Obviously this can help a struggling first-time buyer to at least get a foothold on the property ladder and will allow for more equity to be purchased as their situation changes. This can eventually lead to up to 100 percent ownership, which is known as a “staircase.”
Shared ownership has a number of benefits for buyers in giving them some exposure to property prices.
Shared ownership can help a struggling first-time buyer at least get a foothold on the property ladder, says David Hollingsworth.
First-time buyers will feel like prices often evade them, making saving for a deposit more difficult when prices rise faster than they can save.
Prices may have fallen a little at the moment due to the market slowdown but they remain out of reach for many and if prices start to rise again, your daughter will have some market share.
Another big benefit is the security that shared ownership can provide. Rent can be expensive, but tenants may have to move if the landlord raises the rent or decides to sell.
Shared ownership offers greater security of tenure than renting, which will no doubt be attractive if your daughter can find the right property.
There are eligibility requirements for shared ownership and the ability to purchase will need to meet these requirements as well as the availability of a suitable property.
The general requirement will be that income is less than £90,000 in London (£80,000 elsewhere) and that there is no ability to buy on the open market.
Advice, advice, advice
The property may be a new build or a resale of a previously owned home on a shared ownership basis.
If your daughter sees some properties she might be interested in, it makes sense to contact the housing association who will be able to talk you through the process.
The main differences between purchasing in England compared to Scotland will be the legal procedures as the purchase becomes binding at the point of exchange of contracts in England.
This will take longer than in Scotland, where the sale will be binding once correspondence has been completed.
Your daughter will need a solicitor or conveyancing agent, who will be able to talk you through the process and the timings that need to be met to tie everything together.
Eligibility requirements: The general requirement is that income is less than £90,000 in London (£80,000 elsewhere) and that there is no ability to buy on the open market
As well as speaking to the housing association to meet its requirements, your daughter will also need advice about a mortgage.
Although some lenders will not offer loans on a shared ownership basis, there are a large number of lenders who will, from high street lenders to smaller building societies.
Most will require a deposit to be placed on the share being purchased, although it is possible to secure up to 95 per cent or even 100 per cent of the purchase share.
These will be starting points but getting advice with your daughter from housing associations, a solicitor and in relation to the mortgage will help you understand more.
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