We know it’s important for you to help your customers make the right choice. This could mean talking to them about Shared Ownership, so it’s important to have a good understanding of the scheme.
Not only have we been in the Shared Ownership market for over 30 years, but we’ve continued our commitment to the scheme even throughout the pandemic.
To help you and your customers explore Shared Ownership, we’ve put together the key information you need to know. We’ll be adding to this page over the next few weeks to give you more details on the scheme and its customers – so bookmark this page and keep checking back for more information.
1. The Scheme
- What is Shared Ownership?
- Scheme eligibility
- What options are there for mortgage finance?
- How does a customer access the scheme?
- What are the key stages that are different to a normal purchasing process?
- What is Homes England?
- What does a lender require?
- The model lease – an overview
2. The Customers
- Is there a typical Shared Ownership customer?
- So, what has changed?
- Where are customers most likely to live?
- What are some of the options that a customer has for their Shared Ownership property?
3. Key things to know about Shared Ownership
1. The Scheme
Shared Ownership is a key part of the Government’s affordable housing strategy. It’s a scheme that offers people the ability to purchase a share in a property whilst paying rent to the organisation who owns the remaining share (typically a Housing Association).
The scheme was launched in the 1970s and there are currently over 200,000 in the scheme. New properties are continually being developed.
Those households have been attracted by the scheme's key benefits:
- Lower deposit requirements (as deposit is only required based on the share the customer is purchasing).
- Ability to purchase more of the property when they are able to afford it (in a process called ‘Staircasing’).
- Potential to limit stamp duty payments.
- Ability to take the scheme on new build properties.
It should be noted that whilst the customer only owns a percentage of the property, they are responsible for all of the property’s upkeep in terms of property maintenance (cleaning, repairs, etc.).
In order to be eligible for the scheme, the customer must:
- Typically be a first time buyer unable to afford a home suitable for their needs on the open market, or a previous home owner who can no longer afford one.
- Have a household income less than £80,000 (£90,000 in London).
- Be 18 or over.
- Purchase between 25% and 75% of the property initially.
Most properties that are purchased under Shared Ownership are new build (61.5% in 2016/17), but there is still a significant market for existing Shared Ownership properties being re-sold – particularly in areas such as London and the South East2 where Shared Ownership has traditionally been sold in higher volumes.
 MHCLG CORE Data – CORE website
There are many choices for customers seeking a mortgage to purchase their Shared Ownership home, from smaller regional building societies to national high street banks. Customers using a mortgage to purchase their property will typically require a deposit, starting at just 5% (a key reason for the appeal of the scheme).
The journey to purchasing a Shared Ownership property will typically begin with a Housing Association. These organisations are likely to be the first point of contact for a customer purchasing a Shared Ownership property, they will talk the aspiring property purchaser through the details of the scheme – but they cannot give advice as to where to access the mortgage they will require to purchase a property; as a result, they will advise the customer to obtain independent financial advice e.g. a mortgage broker.
This advice benefits the customer as seeing deals from a wider choice of lenders best increases the opportunity for the customer to find a product that meets their individual circumstances.
The first step for the customer is likely to be through a Housing Association, however that doesn’t mean finding a property has to be any more difficult than finding a standard residential property. In fact, it could be as simple as visiting a new development – Shared Ownership is a popular method of affordable housing that many local authorities insist housing developers build as part of new projects. Then there are traditional websites such as Rightmove and Zoopla where customers can search for properties and bespoke websites such as Sharetobuy.com that advertise Shared Ownership properties exclusively.
When a customer has found a property they are interested in the process for purchasing shares is similar to the standard house buying process, with only limited differences (changed parts of the process are in italics below).
Step 1: View the property
Step 2: Approval/financial assessment (using Homes England calculator) by a Homes England approved Independent Financial Advisor
Step 3: Customer given guidance as to the share they are able to purchase, and offer to purchase property made
Step 4: Customer finds mortgage
Step 5: Customer finds solicitor to handle conveyancing process
Step 6: Exchange of contracts and completion
The financial assessment of the customer is a key element of a Shared Ownership purchase. This process will see the appropriate Help to Buy agent inputting the customer’s financial details into a calculator maintained by Homes England. The calculator will, taking all factors into account, give an indication of the size of the share the customer will be expected to buy (for which a mortgage will be required) and the size of the remaining unowned share (upon which the customer will pay rent, which is typically set at a starting rent of 2.75% e.g. unowned share of £100k resulting in annual rent of £2,750, or £229/month).
Homes England is a Government body sponsored by the Ministry of Housing, Communities, and Local Government. Homes England was established in 2018 as the new trading name for the Homes and Communities Agency (HCA).
As the HCA was established via legislation, it still technically exists but the roles that it used to carry out (primarily delivery of housing and regulation of social housing) are split out into two sections: Homes England (responsible for housing delivery) and the Regulator of Social Housing (responsible for regulation including maintaining the list of registered providers - those providers of social housing who are subject to regulation).
The memorandum of sale that the customer receives from the housing provider is used by the solicitors as confirmation of the different shares, and is often required by the mortgage lender as proof that the mortgage they are being asked to provide is appropriate to the share being purchased (and also to confirm their rental payments).
Lenders in the Shared Ownership market typically expect the landlord to be regulated. The list of current providers confirms there are, at time of writing (07/01/20), 1,627 registered providers, although there are some lenders that do not have this requirement (it is not known how many non-registered providers are currently operating). The non-registered provider sector is, however, believed to be growing driven by changes in the Government’s delivery approach – with the Shared Ownership and Affordable Housing Programme 2016-2021 opening up funding for private providers for the first time.
In addition to the registered provider requirement, lenders expect the lease (as all Shared Ownership properties are sold on a leasehold basis) to be of a good quality, and to assist with this Homes England and UK Finance developed and released a ‘model lease’ which Housing Associations are encouraged, although not obliged, to use.
The model lease contains protections and clauses that help facilitate Shared Ownership agreements that have appropriate protections/arrangements for customers, landlords, and lenders.
It sets out rules, that are considered fundamental, relating to:
- Alienation – ensuring the customer has the property for the purposes of residential accommodation rather than for letting out to others.
- Mortgagee Protection – ensuring that the lender has the ability to reclaim losses up to the full value of the property (rather than just the share lent against) in the event of arrears/possession.
- Rent Review – giving the customer certainty of what their likely rent increases will be (typically RPI + 0.5%).
- Staircasing – giving the customer the ability to purchase further shares in their property, potentially giving the opportunity to fully own the property.
From a wider lending criteria perspective, the key differentiator is likely to be loan to value (LTV). Each lender has their own view as to what is required, however it is possible to find loans with a low percentage deposit requirement. It’s important to remember that deposits are based on the share being purchased, not the overall property value e.g. a £200k property, with a 50% share purchased, would have a deposit based on £100k.
Whilst not every lender will accept Shared Ownership applications, there are a wide range of national lenders and a number of smaller building societies who are able to lend. The exact providers and their criteria can change, so it’s best to refer to sourcing systems/lender’s websites in order to understand what is available.