Buying a home is a dream for many in the North West, but prices and deposits have skyrocketed, and banks are notoriously reluctant to lend to anyone without a sizable salary and savings.
So how do you buy a home of your own when the average house price in England is more than 7.5 times the average salary, and your monthly rent is making it hard to save a deposit?
Two options which are helping buyers onto the housing ladder are Shared Ownership and Help to Buy. What’s the difference between the two and which is right for you? Vincents Solicitors’ Emma Barton talks us through the choices.
Shared Ownership has been around for decades, and is aimed at helping middle to low earners become homeowners… eventually.
Available for anyone with a household income of less than £80,000 a year, who is not yet a homeowner (for example renting or living with parents), Shared Ownership is run in conjunction with housing associations across the North West.
Only certain properties are available on a Shared Ownership basis. These can be brand new new-build homes or re-sales which is when a previous Shared Ownership buyer moves up the housing ladder themselves.
This limits the choice of properties and locations, but opens up the prospect of investing in bricks and mortar, and perhaps eventually buying the property outright. Depending on the deposit you’ve saved and your monthly income, you can purchase anything from 25 per cent to 75 per cent of the property. You’ll need a deposit of at least 10 per cent of your share, and a mortgage for the rest. You will then pay a monthly rent on the share you don’t own, and possibly a service charge. Buyers can then purchase more of the share over time, but there can be restrictions. This is worth checking at the outset with the help of a solicitor familiar with this format of sale.
Help to Buy
This scheme was launched to get the housing market moving and is only available for new build properties valued under £600,000. Providing a loan of up to 20 per cent of the property’s value, Help to Buy is not limited to first time buyers and there is no restriction on income.
The buyer must be able to put down a deposit of at least 5 per cent of the purchase price, and secure at least a 75 per cent mortgage. The balance, of up to 20 per cent of the purchase price, will be made up by a loan which is interest free for the first five years, and is to be repaid within 25 years.
Many house builders in the region have signed up to the scheme, so there are properties available right across the North West, and the application process is relatively straightforward. It’s worth working out the monthly interest payments which kick in after five years, in your affordability calculations, and noting that the loan gets paid back when you sell, when your mortgage ends or after 25 years, whichever comes soonest.
Legally speaking, is one better than the other?
The contract for Shared Ownership is somewhat more complex than a standard sale, as it’s actually part sale / part lease. There are obligations on the buyer that need may need spelling out from the start, to ensure they are fully aware of what they are agreeing to, and many disputes have arisen over things like maintenance responsibilities and costs. It's important to appoint a solicitor who knows the scheme and will be able to explain everything to you.
However, there’s very little difference in legal terms, as both schemes put restrictions onto the buyer in one way or another.
With Shared Ownership you will have to get permission to sell, and approval from the owner of the other share (the housing association) of your buyer. This buyer of your share will also need to be eligible for Shared Ownership. You would also need approval for works such as an extension, conservatory or new kitchen for example.
A homeowner who used Help to Buy would also need permission for a similar large investment. On the plus side, they won’t get involved with the details of who you’re selling to, and the home can be sold on the open market.
When moving on, both schemes require you to go through a valuation process before you’ll know how much you have to spend on your new pad, which you’ll have to fund.
With Shared Ownership, you’ll receive the percentage value of your share at the time of sale, which could be more or less than the original purchase depending on whether you’ve used the ‘staircasing’ option to increase your share.
With Help to Buy, you’ll have to pay back the percentage value of your loan, not the cash value of the loan. So if you took the full 20% loan on a £180,000 house, which would have been £36,000, you’ll pay back £44,000 if you sell it for £220,000. If you’ve paid back some of the loan in the meantime, that will be reflected at the time of sale.
Which is best?
That depends entirely on your circumstances, your savings, monthly income, and the area you want to live. It is likely to come down to maths, and working out which is the most financially feasible. Which is most cost effective for you? Paying rent every month, or payments on a 75 per cent mortgage (plus interest repayments after five years) with Help to Buy, or the costs of a smaller mortgage, plus rent and a service charge with Shared Ownership.
Whichever scheme you choose it's important to remember to also choose a solicitor who is familiar with the scheme so they can advise you in the best way possible.
For more information visit our website www.vincentssolicitors.co.uk