Help to Buy - Shard Ownership - pros/cons/rules?

ejb655

Hi
I'm a first time buyer, here's my current position:
Deposit: £15,2250 (£13k cash bank, + 1.25x £1800 from help to buy ISA)
£88,500 Offer in Principle from Barclays


After looking around at apartments I've decided they're not for me, especially since I'd like a garden and better potential for developing it and selling it on later if needs be.


I've seen a new build estate offering 3 bed terraces near me with parking, garden etc, available with the shared ownership scheme. 50% ownership is £89,950.


1. What are the (unbiased) pros and cons of the shared ownership scheme?
2. Is the deposit % fixed (e.g. help-to-buy is fixed at 5%)
3. Are there any restrictions on renting out a room if I wanted to?
4. In the future, assuming I don't have full ownership, are there any restrictions on renting out the whole property?
5. Can the housing association decide to sell their share at any time with no obligation to involve me?
6. Out-buying is done in 5% increments, does this mean that I am able to buy the remaining 50% as a lump sum (e.g. from savings), re-mortgage to get the remaining 50%, or do I have to buy in 5% 'steps' at a time?
7. Is the house re-valued every year to determine rent and price to out-buy it? And whose obligation is it to (a) arrange the valuation, and (b) pay for the valuation?
8. If I decide to sell, what are the terms with the housing association who own the other share of the house? Do they have to pay for (a) the initial value of the house, (b) the new value of the house, or (c) can they negotiate it?
9. What restrictions would be in place surrounding extensions, attic conversions etc due to the (a) shared ownership, and (b) leasehold?
10. The rent rates are lower than market rates, however what are the short and long-term pros and cons to going this route instead of (a) buying an apartment, and (b) buying a smaller/not as nice house outright with a mortgage?
11. Why are properties within this scheme leasehold? When (or if) I reach 100% ownership to I obtain the freehold? What are the pros/cons to having leasehold?


Also opinions I'd really appreciate would be which option is best for me: (1) buy an apartment, (2) go the shared ownership route, or (3) wait for x amount of time so I have a bigger deposit and (hopefully) salary and see which pre-owned places are available which meet my requirements?


Sorry about the huge post and lots of questions, but it's really appreciated


Thank you

amnblog

These are all questions for your Local Help to Buy Agent

https://www.helptobuy.gov.uk/equity-loan/find-helptobuy-agent/

lvm

I can answer some of your questions but my experience is from 12 years ago with my Scottish property and this was shared equity with no rental payments on the other half.

1. Pros - basically owning a full property but only paying for 50% and being able to get on the property ladder. Cons - restricted mortgages available, possible rental payments and undefined increased after a certain time, you are responsible for all repairs/maintenance/factors etc. Basically read the small print!

2. No idea

3. No (just tax issues if you go over annual allowance)

4. Yes. You will need permission from the housing association as well as the lender. You may need to pay just to have them review your application and permission may not be granted. You may have to pay an increased mortgage payment or they may decline and say you have to switch to a buy to let product (with 100% purchase).

5. I'm sure they can sell their interest but nothing would change beyond what is in their terms and conditions. There will be details on when you can purchase remaining shares and at what cost.

6. Likely any % as long as it's a multiple of 5% (so 5/10/15 but not 12/27/49%).

7. No and you'll probably find they may want to arrange it but you'll need to pay for it.

8. Usually you need to give them first choice to buy property back from you and usually at current market value. If they don't want it then they will usually be entitled to whatever % they have in first place.

9. You'd certainly need permission from freeholder.

10. Personal preference. I imagine an apartment will be much cheaper but many will prefer a freehold house if they can get one. We don't do leaseholds north of the border.

11. The developer sees it as a way of making extra cash, either monthly/annually or by selling on to someone who will increase the fees tenfold. Only pro is that someone may take responsibility for arranging external maintenance/building insurance/communal repairs which can be a problem if arranging between owners themselves. You do not own the freehold when you buy 100% of the property.

Only you know what's best to do and most people hate the idea of waiting but the more you can save and the more you can earn will put you in a significantly better position to find somewhere suitable.

whitepatch

lvm wrote: »

I can answer some of your questions but my experience is from 12 years ago with my Scottish property and this was shared equity with no rental payments on the other half.

1. Pros - basically owning a full property but only paying for 50% and being able to get on the property ladder. Cons - restricted mortgages available, possible rental payments and undefined increased after a certain time, you are responsible for all repairs/maintenance/factors etc. Basically read the small print!

2. No idea

3. No (just tax issues if you go over annual allowance)

4. Yes. You will need permission from the housing association as well as the lender. You may need to pay just to have them review your application and permission may not be granted. You may have to pay an increased mortgage payment or they may decline and say you have to switch to a buy to let product (with 100% purchase).

5. I'm sure they can sell their interest but nothing would change beyond what is in their terms and conditions. There will be details on when you can purchase remaining shares and at what cost.

6. Likely any % as long as it's a multiple of 5% (so 5/10/15 but not 12/27/49%).

7. No and you'll probably find they may want to arrange it but you'll need to pay for it.

8. Usually you need to give them first choice to buy property back from you and usually at current market value. If they don't want it then they will usually be entitled to whatever % they have in first place.

9. You'd certainly need permission from freeholder.

10. Personal preference. I imagine an apartment will be much cheaper but many will prefer a freehold house if they can get one. We don't do leaseholds north of the border.

11. The developer sees it as a way of making extra cash, either monthly/annually or by selling on to someone who will increase the fees tenfold. Only pro is that someone may take responsibility for arranging external maintenance/building insurance/communal repairs which can be a problem if arranging between owners themselves. You do not own the freehold when you buy 100% of the property.

Only you know what's best to do and most people hate the idea of waiting but the more you can save and the more you can earn will put you in a significantly better position to find somewhere suitable.

Sorry some of these answers are wrong.
I have a Shared ownership property I am selling now, and I am a mortgage advisor. I shall answer to the best of my knowledge.

But first is this AIP you have your maximum borrowing based on your income? If it is you may want to check that it is affordable with the rent payments on the 50% share the housing association own? Also there will be a service charge.

whitepatch

1. It is a good scheme as you can afford a better property for your circumstances.

2. The deposit isn't fixed, you can put more than a 5% of the share down, this will give you a better interest rate on your share.

3. It will say in your lease that you are not allowed to rent a room out. I am not sure how they would know though.

4. Same as 3, you won't be able to. They would probably know if you weren't on the electoral roll anymore.

5. Potentially, the answer would be in your specific lease.

6. You can staircase as long as it is in multiples of 5. You can staircase as much or as little as you like but each time you staircase you will have to pay for an independent valuation (£250), pay other fees to the housing association. The new share will be based on the new valuation.

7. The rent you pay increased at a set amount each year, normally RPI +0.5%. It is based on the purchase price, or if you have staircased that new purchase price/share you don't own. The only time it would be valued (at your own cost) is if staircasing or selling.

8. To sell the housing association will need to approve your independent valuation report, then they will have first dibs at marketing your property for someone else to purchase in the same way you did. At whatever share you own. If there has been a n increase you will get the equity for your share. So if it has increased in value by £20k and you own 50% you will get £10k more than you would have if it had been valued the same as your purchased. They are bound by the valuation report figure.

9. You wouldn't be able to change the house unless you own 100%. You will also need permission to do other alterations e.g. anything that may devalue the property.

10. Well only you really can decide, it's where you have to live.

11. You need a lease as ownership is split, the lease will determine who is responsible for what so there are no grey areas. Once you staircase to 100% you will own the freehold.

Normally to meet shared ownership criteria, if it is a house they normally like to house a family. So you might want to check if your eligible in the first place?

Hopefully that helps! Personally it has enabled me to live in a house while my monthly payments go towards paying off my mortgage, meanwhile benefiting from the property price increase

mkgirlchick

ejb655 wrote: »

Hi
I'm a first time buyer, here's my current position:
Deposit: £15,2250 (£13k cash bank, + 1.25x £1800 from help to buy ISA)
£88,500 Offer in Principle from Barclays


After looking around at apartments I've decided they're not for me, especially since I'd like a garden and better potential for developing it and selling it on later if needs be.


I've seen a new build estate offering 3 bed terraces near me with parking, garden etc, available with the shared ownership scheme. 50% ownership is £89,950.


1. What are the (unbiased) pros and cons of the shared ownership scheme?

*Pros: IF you can staircase you can eventually own more of the house and end up a 100% owner
Its usually cheaper then private renting

*Cons: Rents rise every year, RPI rate.
Its a Leasehold
Be very careful with your lease!

Overal i would do shared ownership over Private Renting





2. Is the deposit % fixed (e.g. help-to-buy is fixed at 5%)


3. Are there any restrictions on renting out a room if I wanted to?
Be in your Lease.





4. In the future, assuming I don't have full ownership, are there any restrictions on renting out the whole property?
Yes, its not allowed



5. Can the housing association decide to sell their share at any time with no obligation to involve me?


Not heard of this? definately not in their interest to lose the freehold they profit so well off it so?



6. Out-buying is done in 5% increments, does this mean that I am able to buy the remaining 50% as a lump sum (e.g. from savings), re-mortgage to get the remaining 50%, or do I have to buy in 5% 'steps' at a time?


Depends your lease, but you can buy as much as you want in as big of a sum as you like (usually)



7. Is the house re-valued every year to determine rent and price to out-buy it? And whose obligation is it to (a) arrange the valuation, and (b) pay for the valuation?



not sure what you mean? no ours has never been revalued & wont unless we ask for it. Rent rise with RPI, check lease you want one that only allows RPI not RPI + 1/2% thats even more of a con



8. If I decide to sell, what are the terms with the housing association who own the other share of the house? Do they have to pay for (a) the initial value of the house, (b) the new value of the house, or (c) can they negotiate it?


H/A wont pay for anything because they dont have too... you pay for everything and it can be really very unfavourable. for a government scheme its seriously flawed in 2-3 areas



9. What restrictions would be in place surrounding extensions, attic conversions etc due to the (a) shared ownership, and (b) leasehold?


Dont do too much upgrades to the house unless you have bought it at 100% as the H/A sits very pretty when it comes to rising property price with 0 input



10. The rent rates are lower than market rates, however what are the short and long-term pros and cons to going this route instead of (a) buying an apartment, and (b) buying a smaller/not as nice house outright with a mortgage?

If you can buy outright do it!! An apartment on Leasehold will be just as bad (if not worse) then a shared ownership route.. avoid leasehold when it is permanant



11. Why are properties within this scheme leasehold? When (or if) I reach 100% ownership to I obtain the freehold? What are the pros/cons to having leasehold?



With ours, (house) when staircase 100% own freehold, leasehold goes away. Needed to be able to charge you rent. there are a lot of suggested reforms coming in tho.. National Leasehold Campaign are working very hard



Also opinions I'd really appreciate would be which option is best for me: (1) buy an apartment, (2) go the shared ownership route, or (3) wait for x amount of time so I have a bigger deposit and (hopefully) salary and see which pre-owned places are available which meet my requirements?


Very tough.. id say never do an apartment especially not now. Shared Ownership is only flawed because of the fact it is Leasehold with favourable measures to the Freeholder. If you buy an appartment there is never a way out of Leasehold, Please joing National Leasehold Campaign (facebook), there is a lot of reforms coming for Leasehold. I would really avoid buying a flat. To me shared ownership could be wonderful but has flaws i will list now..
1. RPI rent increases.. not a massive issue (ours goes up rpi only, some +1/2% not acceptable!)
2. Lease extensions.. potentially you wil have to pay for a lease extension £10k+ just to preserve your share.. again reforms are hopefully coming i would love for you to join the facebook page, sign the petition, anyone who signs helps us!
3. Maintainance. you are treated as a 100% leaseholder/owner. needed maintainance, boilers/windows are not contributed from from the H/A they really do sit there pretty with rising rents and 0 maintainance and profits from leasehold extensions/staircasing
*however, like i said i would recomend most to do it just as it is lesser of 2 evils, if you can buy outright then why private rent? for us private renting would be £260 more we would not be allowed pets and we would have restrictions on us that just arent justifiable.
If you can buy outright doo!!!! so so soo much better, please avoid a permanant leasehold (when buying a flat for example) please look to join the facebook page, they will be able to help you and are so informative



Sorry about the huge post and lots of questions, but it's really appreciated


Thank you

i have to write this here as it wont let me submit post!!!