Shared ownership homeowners will be able to buy their home 1% at a time from April


First-time buyers struggling to keep up with rising house prices may have been thrown a lifeline following an overhaul of the government’s shared ownership scheme.

Under shared ownership, buyers can purchase a small stake in their home and pay a subsidised rent to their housing association on the remaining portion.

It’s then possible to ‘staircase’ up the amount you own by gradually buying extra portions of the property. Rents consequently go down.

Currently a buyer would need to buy a 25 per cent share to be eligible for the scheme.

But the Ministry of Housing announced earlier this week that from April, this will drop to 10 per cent. This means that for example on a £150,000 property, a buyer would only need to stump up £15,000 to qualify, rather than £37,500 under the current rules. 

It comes as first-time buyers see their savings’ purchase power eroded by rising house prices and access to finance restricted as lenders pull deals.  

Housing secretary Robert Jenrick revealed a raft of changes to the shared ownership scheme

Homeowners will also be able to buy shares in their home 1 per cent at a time, rather than in increments of 10 per cent as they do under the current system.

Landlords – almost always a housing association – will also have to pay for any repairs and maintenance on the property for the first 10 years under the new rules. 

However, none of this will apply for existing shared ownership users – only new applicants will benefit from the new scheme. 

This means take up of the scheme between now and April will likely be low as buyers wait to feel the full benefit of the new system. 

Will the new system work?

The new rules were first proposed in September and were initially met with some confusion over how the scheme would work in practice.

Under the current system, buyers purchase a small stake and then buy extra shares in the property until they own it outright – at which point they no longer have to pay any rent – in a process known as ‘staircasing’.

Government reveals new affordable housing drive 

The Government also announced that up to 180,000 new homes built over the next five years, around half of which will be affordable homes with the rest available for discounted rent.

The move comes as part of a housing market shakeup which includes the largest proposed overhaul of the planning system in England since the Second World War.

Nearly £7.5billion of funding earmarked for new affordable housing development will be delivered outside of London by Homes England, with the remaining £4billion allocated to the capital. 

While it varies from provider to provider, at present the system generally only allows for homeowners to buy these shares in 10 per cent chunks, which can be as much as £45,000 at a time dependent on a property’s value.

The Government is now proposing to allow shared ownership homeowners to staircase in 1 per cent portions instead – potentially making it easier and more affordable to build a stake. 

If, for example, a family in a £150,000 shared ownership property wanted to staircase at present they would have to pay off £15,000 at a time to increase their stake and decrease their rent – an amount beyond the reach of many.

Under the new scheme, they will only have to pay off 1 per cent at a time, or £1,500.

But it’s not as straightforward as it seems – at present there are several different additional costs that may make staircasing in smaller increments less affordable than it appears. 

A shared ownership loan is an equity loan, meaning that as the value of the home rises, the loan does with it.

This means that a homeowner has to pay a surveyor to produce a valuation report to determine the value of the home every time they staircase. 

On top of this they will also have to pay legal fees. 

Housing associations don’t take any share of the bill for conveyancers when a homeowner is staircasing. 

According to Homeowners Alliance, these extra costs typically add an extra £2,000 on top of the price of the shares themselves when staircasing.

For the example above, this means that every time the family bought an extra 1 per cent share in their house for £1,500 they would have to pay an extra £2,000 in fees.

The Government’s announcement today says these fees will be ‘heavily reduced’ when the new scheme is introduced in April. 

The Ministry of Housing told This is Money: ‘The new gradual staircasing option has been designed to heavily reduce mortgage administration and valuation fees.

‘We have introduced free estimated valuations and prohibited providers from charging admin fees. Buying in 1 per cent instalments will also make it much easier to staircase without additional lending, enabling shared owners to avoid mortgage fees.

‘Those staircasing in larger tranches of 5 per cent or more will still incur mortgage and admin fees. Legal and surveyor fees will not be reduced or subsidised.’

So, under the new rules, those looking to staircase in very small amounts should be able to do so without incurring too many extra costs.  

Angela Kerr, director at Homeowners Alliance, said: ‘Staircasing has been a major source of complaint about the scheme because it is very complicated, time-consuming and costly.

Shared ownership buyers will be able to start with a 10 per cent share in the property

 Shared ownership buyers will be able to start with a 10 per cent share in the property

‘Whether buying shares in your property at 1 per cent at a time makes financial sense for people remains to be seen, but the Government’s efforts to reduce the fees will make a huge difference. We will be looking now to see what this means in practice and how mortgage lenders, surveyors and conveyancers will discount their fees.’  

Potential users of the scheme should also be aware that all shared ownership properties are sold on a leasehold basis. 

Not only does that mean you’ll have to pay an annual ground rent, but could potentially cause complications when it comes time to sell.

You may also have to pay service charges, which aren’t capped and can rise without your consent. 

Homeowners Alliance has a comprehensive guide to the fees and risks associated with shared ownership which you can find here.

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