Guide To Shared Ownership Schemes

Shared ownership is a method by which those unable to afford to buy a home in the usual way can still become property owners. The purchaser becomes the owner of part of the property and pays mortgage payments on that part alongside rent payments to a housing association.

Shared ownership involves part of the home being owned by the people living in it, and the remainder being owned by another party. It is used to help people get on the property ladder when they cannot afford the full value of a home. Many schemes are specifically for newly-built properties, for first time buyers, for council or housing association tenants or for workers in key occupations.

Mortgage repayments are made for the proportion owned by the purchaser, while rent payments are also made to the owner of the remainder of the property, usually a housing association.

The best known system of shared ownership is provided via the United Kingdom government initiative HomeBuy, also known as First Steps in London. Households with earnings of less than GBP 60,000 per annum are eligible to be considered. Purchases must be made via designated HomeBuy agents.

HomeBuy’s shared ownership scheme is for newly-built homes only, and involves the purchaser buying between 25% and 75% of the home.

Social HomeBuy allows council and housing association tenants to buy their rental property under a shared ownership scheme.

Shared ownership schemes are sometimes known as joint venture schemes in Scotland and as co-ownership schemes in Northern Ireland. In Northern Ireland at least 50% of the property must be bought by the purchaser.

The purchaser may gradually increase their stake as their financial circumstances improve, known as staircasing.

Shared equity

Shared equity is similar in some ways to shared ownership. Here the purchaser is the legal owner of the entire property, however the amount of their mortgage and deposit combined will be less than the value of the home. The deficit is made up via a separate loan from another party, which takes an equity stake in the property and is entitled to a percentage of the proceeds when the home is sold.

Shared equity has its own version of the staircasing principle, which involves the purchaser paying off the additional loan over time and thus increasing their equity stake.

Most shared equity schemes involve the purchaser receiving assistance from the government.

There are two different systems of shared equity available via HomeBuy:

FirstBuy – first-time buyers purchasing newbuild properties provide a deposit of 5% of the property value, and are granted a 75% mortgage. The Homes and Communities Agency (HCA) and the builder provide a loan and take a stake of 10% each in the property. Priority will be given to council and housing association tenants and to members of the Armed Forces. FirstBuy was introduced in 2011 and will be available until March 31 2013.

HomeBuy Direct – the purchaser, who must be a first-time buyer or a council or housing association tenant, takes a mortgage for 70% of the property value, while the government and developer provide a loan for the remainder. As with FirstBuy, the loans are interest free for the first five years.

The Low Cost Initiative For First Time Buyers (LIFT) is a shared equity scheme operating in Scotland under which the purchaser, normally a first-time buyer, takes an equity stake, usually between 60% and 80%. The remaining equity is purchased by a Registered Social Landlord using a grant from the Scottish Government.

HomeBuy Ownership and New Build Ownership are shared equity schemes in Wales. The first involves a council or housing association tenant taking a 70% mortgage, and the second involves a first-time buyer taking a mortgage for between 50% and 70% of the property value.

FirstBuy NI operates in Northern Ireland under similar terms to FirstBuy.

Shared equity schemes without government assistance are also available. In one respect these are similar to FirstBuy, involving a 75% mortgage and a 5% deposit. However, here the difference is funded by one or more investors, and after a fixed term of five to ten years, the purchaser is required to purchase the remaining stake from the investors at market value.

Pamela Chimbonda, who writes for the money blog Fiscal Muses, produced this content on behalf of first time buyer mortgage providers Ulster Bank.