Taking that first step on the property ladder can seem daunting especially in today’s climate with house prices at record high levels.
For those who are not able to buy a property on the open market, it is worth considering going down the shared ownership route, which makes buying a property more affordable for many first-time buyers.
Trish Coutts, who is a conveyancer working in the Residential Property Team at Phillips specialises in working with first-time buyers and dealing with shared ownership transactions. She said: “In essence shared ownership is a tried and tested way of buying a percentage of a property and involves paying rent on the remaining share that you do not own. It enables first-time buyers to get onto the property ladder as they are able to purchase as little as a 10% share in a property.”
The Shared Ownership Scheme started in 2013 and has proved to be very successful, but this year the Government has implemented a number of changes to the model shared ownership lease which should make the scheme accessible to more people.
Those who are purchasing under the new Shared Ownership Affordable Homes Programme 2021-2026 are now able to buy a smaller share in the property to begin with.
“Until April this year, the minimum you could buy into a shared ownership property was 25%,” said Trish.
“This has now been changed to just 10% with first-time owners paying rent on the remaining 90%. This is especially good for people who would have had difficulties in putting together a larger deposit.”
Properties on existing developments will still be limited to a first-time purchase of a minimum of 25%.
One of the benefits of the Shared Ownership Scheme is that when you are able to afford it, you can increase the share you hold in the property. Trish said: “This is known as staircasing and enables a purchaser to buy a larger percentage of the property.”
However, Trish points out that you will need to pay for legal and mortgage fees each time you increase your share by staircasing. “It may make better sense to save up for a bigger share and staircase in one go rather than do this several times over a certain period,” suggests Trish.
Help to Buy: Equity Loan
In addition to the changes made to the Shared Ownership Scheme, the Government has introduced its new Help to Buy: Equity Loan to help first-time buyers purchase a newly built property. This scheme will run until 2023 and is open to any first-time buyer over the age of 18.
Eligible purchasers will be able to apply to borrow up to a maximum of 20% of the full purchase price outside of London and up to 40% of the full purchase price in London. You must buy your home from a homebuilder registered for the Help to Buy: Equity Loan scheme.
In addition, regional price caps have been introduced giving a maximum property value.
Trish said: “Here in the South-East, the full property value price limit is £437,000, while in London it is £600,000. With the equity loan you do not pay any interest for the first five years. The Equity loan will be secured against the property by way of a second charge.”
Summing up, Trish said: “The cost of buying your newly built home is covered by the equity loan, the deposit you have saved and your mortgage.”
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This article is current at the date of publication set out above and is for reference purposes only. It does not constitute legal advice and should not be relied on as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.