Part Rent to No Rent
The ideal scenario is to own your property outright. But if that’s not possible, then you need to seriously consider shared ownership.
I attended the First Time Buyer Home Show at the Business Design Centre in London. It features all the major housing associations and developers showcasing their new build homes, and in visiting each of their stands, I kept on coming across one word: Resales. It piqued my interest and when I got to the fifth stand, I asked one of the presenters why people were selling.
A resale is a second-hand property, i.e., someone who bought a property from a housing association say, two years ago, and is now selling their share, presumably at a higher price than what they paid for it. Savvy buyers were making money from reselling their share and the money they made is sufficient for them to put down a larger deposit on another home they can own outright.
Question: Do you think house prices will continue to increase?
Question: Are you finding it difficult to raise a large size deposit?
If your answer is yes to both these questions, then do not turn your nose up at shared ownership property opportunities. They could be a short-cut route to building up your deposit, to enable you to purchase a second hand home that you own 100%.
What is Shared Ownership?
Shared ownership is a housing scheme to help first time buyers who cannot afford to buy a house outright, by allowing you to buy a share in a new property and pay a subsidized rent to a Housing Association on the remaining share that you do not own.
For example:
A Housing Association (HA) is selling a 2 bed flat for £200,000, on a shared ownership basis.
Mary, 31, decides to purchase 50% (£100,000) of the property and pays rent to the HA on the 50% she does not own.
Mary obtains a 90% mortgage of her share, i.e., £90,000. As such, her deposit is £10,000 (10% of the purchase price).
Mary, obtains a 90% mortgage, a 2 year fixed rate at 3.29%. Term: 30 years. Monthly cost: £394.
Mary pays £230 per month to the housing association on the 50% share owned by the HA.
Total monthly cost:
Mortgage: £394
Rent: £230
Service charge + ground rent: £125 pm
Total: £749
Mary resides in her flat for five years. Property prices for 2 bed flats are now selling for £300,000.
Mary’s share is valued at £150,000, and she decides to sell her share back to the HA for £150,000. HA sell on as a resale (second hand property).
50% of £300,000 = £150,000, less her current mortgage of £90,000 = £60,000.
Mary walks away with £60,000, which she uses as deposit for her next purchase, which is now a 2 bedroom house with a garden that she owns outright. Mary has been able to put down a larger deposit, all because she purchased a shared ownership property in a rising market.
At the show, I came across quite a number of developments in key locations and with good transportation links across the capital of London (Zones 1 and 2) and Home Counties. Some of these units are situated near vital transport links such as Crossrail.
Your first home is never your ideal home. But a shared ownership home could be a stepping stone to getting on the property ladder, and if you happen to buy in the right location, you can potentially sell and buy something at a later date that is closer to your ideal home.
To purchase a shared ownership property, you will need to obtain a mortgage that supports a shared ownership scheme, as a number of lenders do not lend on shared ownership properties.
To find out more about shared ownership properties in London: www.homesmatch.org.uk
They offer a free service for people looking to buy or rent an affordable home in London.
Alternatively, you can source shared ownership properties from the Help to Buy website: www.helptobuy.org.uk/equity-loan/find-helptobuy-agent
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
The Financial Conduct Authority does not regulate most types of buy to let mortgages, bridging loans, development loans and commercial loans.
