Is It Time to Share The Burden of Home Ownership

by Mark Johnston

Shared ownership schemes may be a way forward for first time buyers but is it a good way to get on the property ladder?

The government is committed to shared ownership, having announced a programme to deliver 35,000 new low cost shared ownership properties over the next 2 years.

The hones and communities agency has invested approximately £8.4billion in to affordable housing schemes between 2008 and 2011.

Although this might be the case do people really understand what shared equity (ownership) means and do they really believe that owning half or up to three quarters of a home is better than none? recently carried out research that revealed 57% of first time buyers had never heard of these schemes and 47% believed that shared ownership meant part owning property with either a friend or family member.

Even with this lack of awareness amongst first time buyers at least a third surveyed admitted they would be interested in such schemes, with another one in five saying it would be their preferred way of getting on the property ladder.

What is shared ownership?

Quite simply shared equity/ownership schemes can be a government funded scheme (not always the case) that allows buyers to purchase a share in a property and then pay rent on the rest. This is typically split 50-75% ownership to 50-25% rent.

The government has initially teamed up with three lenders Yorkshire building society, Nationwide and Halifax so the buyer takes out a 75% loan then the lender and government each cover 12.5% of the rest.

Properties that are shared ownership are always leasehold, meaning you own them for a fixed period of time, usually 99 years.

Once you have purchased your home through this scheme you can usually buy more shares until you own the whole value of the property. However the cost of the remaining shares does depend on how much the house is worth when you want to buy them.

First time buyers considering any such scheme to get on the property market should fully investigate the potential risks before committing to anything.

Head of business law at the Association of Charter Certified Accountants (ACCA) says that there are of course drawbacks to shared ownership. Part owners do not benefit if house prices rise and as they also have to pay rent as well as a mortgage meaning they can be at double risk of default.

Some research suggests that shared ownership can also create a ‘headache’ for lenders, as risk wary lenders can struggle to price shared ownership mortgages.

However Andrew Heywood, deputy head of policy at the council of mortgage lenders (CML) believes that: ”one of the biggest things that would determine rates would be the credit worthiness of individuals not shared ownership as lenders are more than capable of assessing risk”.

In conclusion shared ownership can help first time buyers get their feet on the property market when they might otherwise be unable to do so. Although these schemes should be researched thoroughly.

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