Introduction
This article is written from a buying a share ownership, unoccupied new build perspective. While the following information will provide you some insight into shared ownership, the process and timeline for purchasing resale properties and unbuilt properties are subject to specific dependencies.
So why buy shared ownership? Are you currently renting and aspiring to own your own property, but are you concerned about the current economic situation, particularly the rising taxes on hard-working individuals? Do your concerns lead you to believe that you will always be renting due to your inability to afford homes?
For some, there exists a solution: shared ownership. Not everyone can afford shared ownership, but those who qualify may benefit.
Shared Ownership Explained
Basically, you share the property’s ownership with the housing association. Typically, you will own between 25% and 100% of the property. In some situations, you can buy as low as 10%, but from my experience, 25% seems to be the lowest you can purchase. You pay the housing association rent, service charges, and insurance for the portion you do not own.
Buying a house outright with a mortgage involves making an offer. Purchasing through shared ownership is competitive and operates on a first-come, first-served basis. The individual who completes their checks first will have the first chance to secure the property. This process takes place regardless of any incentives or premiums offered by other buyers.
Purchasing your share
How do you know how much to buy? Purchasing a shared ownership property is more complex than purchasing a home with a mortgage. It involves a step-by-step process involving a finance company, a housing association, and, in most cases, a mortgage advisor.
1st Step: Initial Qualification
What do you want in a property
Consider what you need from your property. Think about your requirements, like location, number of bedrooms, size of the house or flat, if it has a garden, cost, energy efficiency, and other qualities that are important to you. This is the first question you must ask yourself, and it will shape answers to your other questions, such as is shared ownership right for you, can you afford shared ownership,Â
Finding the property
There are several ways to find your property and to help you determine if shared ownership is right for you. Please note that these tools are not associated in any way with this site. They provide a broad estimate of what you can afford and list properties in your area.
There are three ways to find a property under shared ownership. First, via the government.uk website. This search will identify developers offering shared ownership homes for sale, along with links to their respective websites. Another resource is Share to Buy, which offers listings of shared ownership homes. The final option is to utilise online platforms such as Rightmove and OntheMarket.com, where you can search for shared ownership homes using the site’s provided filters.
Regarding your affordability, several online tools, such as a shared ownership calculator, can estimate your shared ownership based on the information you provide. Others, like the shared ownership affordability calculator, can give you an estimate of what you can afford for your monthly payment.
Making contact and initial screening
Once you find a property you like, you will reach out to the housing association, who will provide you with information about their finance company and contact details. The finance company will do an initial screening to determine if you qualify.
The finance company will notify the housing association and arrange a viewing of the property if you qualify.
What does this mean? It is a hybrid situation, where you will be leased but enjoy the benefits of home ownership. Because shared ownership is a hybrid ownership model, it means that you will pay a mortgage, pay service charges, and pay part of the building insurance.
Step 2: Viewing and further qualification
At this stage, you will have the opportunity to view the property. It is likely that a representative from the housing association will be there. While the representative may not have all the answers, they should be able to address common questions such as tenancy agreements, the extent of improvements permitted by the housing association, the area, and other general inquiries. Once you’ve viewed the property, you should reach out to the finance company, not the housing association, to discuss your decision to proceed.
Should you wish to proceed, further checks are done, like income, debt, or anything adverse on your credit report, and you may be asked to pull your credit file. This stage is to determine if you qualify for a mortgage, to do a 5-year stress test, and to determine if you meet the housing association’s financial requirements. From my experience, housing associations will have a residual income requirement that can range from 0% up to 20%. Residual income is the percentage of income remaining after paying rent, mortgage fees, service charges, insurance, and other expenses.
If you haven’t already, we will now inquire about the source of your deposit and the amount you plan to contribute. Depending on your response, you may need to provide documentation and bank statements.
Once these checks are completed, the finance company will proceed to search for a mortgage. Really, you don’t need the finance company to find a mortgage. You have the option to find your own mortgage broker or arrange a mortgage on your own. However, if you have adverse credit, low income, or plan on using Universal Credit, then consider using a mortgage broker.
Step 3: Reservation Fee
If you are the first to complete their checks, then you will get the opportunity to reserve the property. In order to reserve it, you will need to pay a fee, which will vary depending on the property, location, and housing association, but generally expect the fee to be in the £200–£500 range. It is only once you pay your fee that the property will be removed from the market, and if someone pays the fee before you, then you will lose the property. Therefore, it is imperative that you pay your fee as quickly as possible once you complete your checks. Once you have paid your fees, you will need to contact a solicitor to complete the process.
Timeframe
So, how long does it take from initial contact to paying your reservation fee? A lot depends on how quickly you can provide the information required, the housing association, the finance company, the time of year, and the type of property. The general estimate would be 2–6 weeks to complete the checks and pay the reservation fee. Once you instruct your solicitor, expect 8–12 weeks, on average, before completing. Overall, this means the whole process from beginning to end will be 3–5 months.