First time lucky for buyers who will share ownership

By Nick Elgey, of Cumberland Estate Agents

Last updated at 21:05, Saturday, 13 September 2008

Although house prices have been falling, the tightened lending conditions arising from the credit crunch are preventing many first-time buyers from acquiring a home as they cannot raise deposit funds and can be off put by high product rates and substantial mortgage arrangement fees.

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Made it! First-time buyers who can’t raise a deposit for a mortgage may benefit from a shared ownership scheme

So what are the options for those who still can’t afford to get on the property ladder and don’t want to pay rent to private landlords?

Registering with a local authority or housing association is one route, but a more preferable choice for many is shared ownership.

This is run in conjunction with housing associations to try to increase the supply of affordable housing in the UK and it is one of the few active areas of the property market at the moment.

When you buy a shared ownership property you only buy a percentage stake in the property, typically from a housing association or from the Government’s HomeBuy scheme if you are a key worker.

Buyers pay the shared ownership mortgage for the percentage of the property they own and the rent payable to the housing association for the lease on the remainder.

In some arrangements sellers can increase the proportion they are buying at any time by adding to their mortgage or by paying cash sums, a payment plan known as ‘stair casing’.

The benefit of shared ownership is that buyers normally don’t require a large mortgage as they are purchasing a percentage share in the property.

The Open Market Homebuy shared equity initiative allows a qualifying buyer to choose any property on the open market within their price range.

The scheme is available to key public sector workers, social tenants, or those on council waiting lists and other priority first-time buyers with a household income of £60,000 or less per year.

With shared equity, unlike with shared ownership, a buyer doesn’t own the property in conjunction with any other party – they are the only person on the deeds.

They take out a mortgage and an equity loan which, when the property is sold, must be repaid in addition to a proportion of any increase in equity of the property to the party providing the equity loan.

Equity loan schemes allow applicants to apply for a mortgage and schemes can provide them with 40 per cent to 50 per cent of the value of the property as an equity loan.

The remainder can be funded through a conventional mortgage. Applicants pay a low rate of around 1.75 per cent per annum on the equity loan funded by one of eight housing associations, which are acting as equity loan providers.

When the property is sold, the equity loan provider is entitled to a share of any increase in the value of the property. Buyers can use their equity loan scheme for any house on the market as they aren’t tied to housing associations’ stock.

The changing property market has caused an increased supply of properties available for sale and the falling prices have off put many buy-to-let investors who, in recent years, competed with first-time buyers to purchase the lower priced properties.

First-time buyers are now in a very strong position if they are able to secure a mortgage.

However, in conventional purchases they are usually joint buyers to achieve the mortgage eligibility and many have benefited from some parental assistance with the financial arrangements.