Shared Ownership: Another Alternative
Group mortgages represent the most accessible method for most buyers of sharing the cost of buying a property, but they are not the only choice available.
Another type of scheme that is growing in popularity across the UK and is better suited to some buyers is known as shared ownership, or shared equity.
The value of the shared ownership market grew to £517m between 2001-2005, a 35% increase. At present, this type of scheme is mostly run by local councils and housing associations:
- Buyer buys only a portion of the property
- May pay rent on the remainder
- Remainder of property is held by owner, e.g. housing association
Shared ownership schemes are an excellent alternative for people on a limited income who are unable to secure a large enough mortgage to buy any property in their area. Although they are mostly offered by housing associations and local councils, some building societies and house builders are starting to offer these schemes as well.
How Does Shared Ownership Work?
Typically, a portion between 25% and 75% will be offered for sale to the buyer, who will secure a shared-ownership mortgage on this amount. They may or may not, depending on the scheme, pay an amount of rent on the portion of the property they do not purchase.
The payment of rent is in return for the right to use the portion of the house that has not been purchased. However, rent is not always payable – some alternatives are:
- The vendor has the right to a certain portion of future profits from the sale of the property
- No charge is made for the use of the remainder of this house
Schemes vary widely, and are usually locally-based, but several building societies now offer shared ownership mortgages, so it is worth asking a broker or some high street lenders if you can’t find a suitable scheme in your area.
Shared ownership schemes offer a range of benefits to buyers on restricted incomes:
- Provide a chance to gradually buy a stake in a property
- Often allow buyers to increase their stake over time (known as staircasing)
Schemes like these are playing an important role in making affordable housing available to those on limited incomes, but it should be noted that their availability is fairly limited, and opportunities are usually oversubscribed, so it may take some persistence to buy a property on this basis.