Much publicity has surrounded Help to Buy, the government equity loan scheme aimed at helping first time buyers to get on the property ladder. Help to Buy offers homebuyers a five-year interest-free loan of up to 20% of the purchase price of a new-build property, with home owners contributing a deposit of 5% of the property’s value. After five years owners must either pay back the loan or start paying interest. Since its introduction in 2013 over 210,000 new properties have been sold, although critics have claimed that the scheme has inflated the cost of new homes. The current scheme is due to be withdrawn in March, 2023.
Help to Buy is not the only scheme designed to give prospective owners a foothold on the housing ladder. Also available are shared ownership schemes, which differ from Help to Buy and other shared equity schemes in that a housing association or similar body will buy a share of the property and then offer this share to owners at a reduced rent. Shared equity schemes like Help to Buy simply offer a low-interest loan on the part of the home you cannot initially afford to buy.
Shared ownership offers people flexible part-buy, part-rent options. Mortgages are usually more widely available, and are offered to lower income families and first time buyers for only the percentage of the property they want to buy. Home buyers will take out a mortgage for the share they want to own (usually between 25% and 75%), and then pay rent on the rest.
To qualify for a shared ownership scheme the household income must be less than £80,000, and the purchaser must be a first time buyer or a previous homeowner who can no longer afford to buy a property. Those renting from a council or housing association, or anyone with a long-term disability also qualify. People must prove they are not in rent or mortgage arrears, have a good credit history, and can fund the cost of the shared ownership property.
Within the shared ownership agreement over time it is possible to buy larger and larger shares of the property from your housing association (known as staircasing), until such time as you own it all. Once you have bought 100% of the property, you are able to sell it yourself subject to the housing association having first refusal for a period of 21 years. If you do not own 100% of the property, the housing association can opt to find their own buyer.
However, there may be problems should you want to sell quickly since there may be restrictions on who can buy the property from you. And if you do not own 100% of the property it is likely you will have to seek permission from your housing association to make any improvements or additions. Certain restrictions may also apply under shared ownership, so that pets may not be permitted, or letting to a tenant outlawed. Owners of flats should also expect service charges linked to their property, which cover maintenance of communal areas of the building.
One obvious advantage that a shared ownership purchase has over Help to Buy is that a prospective owner does not need to contribute 5% of the full property value as a deposit. On a property valued at £250,000 this would mean finding £12,500 for your deposit. Under shared ownership the purchaser only needs to put down a deposit on the share they are buying – so for a 25% share of this property a 5% deposit would become £3,125.
Any decision on whether to go down the Help to Buy route, or take advantage of a shared ownership scheme must be looked at according to the individual’s circumstances. There are pros and cons to both arrangements, and prospective purchasers must look carefully at what is best for them in both the short and long term. Both schemes provide a clear path to get on to the housing ladder and continue to be of great benefit to first-time buyers.
Bretherton Law have been serving the people of Hertfordshire for over 50 years. Our team of experienced Property Lawyers will ensure that whether you are buying or selling, the conveyancing process will run smoothly and professionally. We offer a same day response promise as well as fixed fee quotes. Bretherton Law are accredited under the Lexcel legal practice and the Law Society’s Conveyancing Quality Schemes. Contact Lucy Madley on 01727 869293 or visit our website https://brethertonlaw.co.uk/
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