The UK property market has pushed way beyond the limits of many first-time buyers with prices rising faster than average incomes. As a consequence many people are now looking towards shared ownership which effectively means they live in a property but ownership is split between themselves and a housing association, or other third party. This sounds something of a tricky situation but in reality it is fairly straightforward although there are both positive and negative aspects to take into consideration.
Buying a shared property
There are many housing associations and mortgage providers willing to participate in the shared property arena. Indeed the UK government has been pushing shared ownership of properties for some time now and this is something of a developed/developing market. The idea is that those who cannot afford to buy a property out right will be able to take a stake of for example 25% or 50% with the balance held by a housing association.
This is where the figures start to get a little more complicated because the individuals will need to put down a deposit and obtain a mortgage for their share of the property. They will also need to pay a “rent” to the housing association for the percentage of the property they do not own. So, in the early days individuals will be paying part mortgage and part rent.
How do the figures stack up?
There are many elements to take into consideration but at this moment in time, with UK base rates relatively low, it may be possible to take a part share in a property and pay less in mortgage and part rental payments than you would for a full mortgage. The margins are fairly thin and they will obviously depend upon the individuals and the mortgage arrangement they are able to agree – not to mention the rental rates in their area.
The idea is that as individuals increase their own earnings they will then be able to buy further shares in their property. This would obviously result in an increase in their mortgage payments but reduction in their share of rent to the housing association. There is some concern that rental figures in these particular arrangements are often towards the top end of the local rental rates. It is also worth noting that when you buy further shares in your property the property itself will be revalued at the time of the transaction.
Selling a shared property
If you ever needed to sell your share of a shared property the situation is perhaps not as fluid and helpful as it could be. Under the current guidelines you will need to give the housing association eight weeks to market the property after which time you can attempt to sell your own share on the open market. These delays are obviously not helpful especially if you are struggling from a financial point of view and the markets are moving.
Shared property ownership in theory allows those who would otherwise not be able to afford a property to at least climb aboard the ladder. However, market movements, often strict tenancy rules and a need to increase your household income/savings to increase your share of a property can work for or against you. If you’re looking towards shared property you should take professional financial advice on your particular situation.