London Home Show Countdown: Clarion Housing Group

Are you financially prepared to buy with Shared Ownership?

Jennine Kirkwood, Rent to HomeBuy Manager at Clarion Housing Group

With the average price of a property in London a dizzying £466,824, buying your own home may once have seemed impossible for a generation of Londoners dubbed ‘generation rent’. Even for those able to afford the deposit, mortgage repayments may still place home ownership out of reach for many households on an average income.

Thankfully there is a more affordable way to join the property ladder with the Government-backed Shared Ownership scheme. Sometimes known as part-buy, part-rent, Shared Ownership enables you to buy a share of your home and pay subsidised rent on the remaining share. You can even buy more shares of your home when you are ready, all the way up to outright ownership.

If you are considering Shared Ownership you may be wondering if you are financially prepared, so we have answered some of our first time buyers’ most common questions.

Do I qualify for Shared Ownership?

Shared ownership is a Government subsidised scheme which has been designed to help those who can’t afford to buy on the open market. There are some restrictions in place to ensure the scheme benefits those who need it most;

• You cannot own a home in the UK or abroad at the time of completion.
• If you have enough savings to purchase a home outright in the area you want to live in, you will not qualify for Shared Ownership.
• You should have a regular income to cover your mortgage and rent. Your household cannot be higher than £90,000 (£80,000 outside of London).
• Some local authorities may have additional eligibility to ensure that the scheme benefits local people, such as you must live or work in the area you want to buy in.

How much should I have in savings to buy through Shared Ownership?

You need to have sufficient savings to cover the deposit, mortgage broker and legal fees.

The good news is deposits for Shared Ownership properties are based on the percentage that you want to buy rather than the full market value. Some lenders accept just 5% of the share value, but the more you can put down, the less you need to borrow and the lower your mortgage repayments will be. For example;

If you were to buy a home with a full market value of £466,824, a 5% deposit will set you back £23,341. However if you buy a 25% share of the same property at £116,706, the 5% minimum deposit is just £5,835.

When you find your perfect home, the housing provider will refer you to an Independent Mortgage Adviser (IMA) who will carry out a free financial assessment to ensure that you can afford it. Once you are approved, you pay a reservation fee in the region of £500 which is deductible from the final balance.

The next step is to arrange your mortgage. If you work with a broker you may also be required to pay a fee for their service. The fee can vary from a fixed amount to a percentage of the purchase price. You will also need to appoint a solicitor who will usually charge you a fixed fee, and will be able to discuss options for paying Stamp Duty. Paul Krause of mortgage broker Metro Finance advises: “There are solicitors that will work for a fixed fee, but the Stamp Duty will depend on the purchase price. It’s also worth factoring in the cost of a removal firm and set aside a budget to splash out on some essential furniture to help you make yourself at home from day one.”

As of October 2018, first time buyers under Shared Ownership schemes can claim First-Time Buyers Stamp Duty relief on homes worth up to £500,000.

What is meant by ‘affordability’?

As well as having savings, buyers need enough to cover their outgoings. “To work this out,” Paul says, “we look at your total household income minus mortgage and rentals costs and things like council tax, energy bills, insurances and existing credit commitments. If you’re buying an apartment there will also normally be a service charge to cover maintenance of the building to take into account.”

I have missed a few bill payments in the past, should I be worried about my credit history?

When considering a mortgage, it’s wise to check your own credit score online. If you do find any problems with your credit history, each case will be assessed on its own merits so it is best to raise with the IMA at your initial financial assessment. Certain mortgage lenders may have concerns, but your broker will work hard to find a mortgage right for you.

Can I get a mortgage if I have a loan or credit card to pay off?

Yes – any repayments you are making will be accounted for when your affordability is being assessed.

I have lots of savings; can I buy more than the minimum share?

You can typically buy between 25%-75% share of your home, and are encouraged to buy the maximum share that you can afford. If you can afford more than 75%, you may not be eligible.