Decisions, decisions...
You've probably heard of shared ownership schemes and wonder if something like that would be right for you. First of all, you need to know what the different schemes can offer. This is where homefocus can help. It might seem like there are hundreds of low cost home ownership products to choose from, but essentially there are just two main 'models' - shared ownership schemes and equity loan schemes. On top of this, if you're not ready to step on the ladder just yet, there are schemes that will help you save for that all-important deposit.
Shared ownership schemes - Also known as part-rent, part-buy. This is where you purchase a percentage of a property with a mortgage and savings, and pay rent on the remaining share you don't own. New Build HomeBuy, Social HomeBuy and shared ownership resales all come under this heading.
Equity loan schemes - Also known as shared equity. This is where you purchase 100% of your property, but only pay for a percentage with a mortgage and savings. The remaining percentage is covered by an equity loan - kind of like a second mortgage - which is arranged via your housing provider. The scheme you choose will dictate what percentage your equity loan will cover, whether you need to pay any interest on it, and how long it is for. HomeBuy Direct, the First Time Buyers' Initiative and almost all of the private developers' schemes are equity loan schemes.
Sounds good? Want to know more about the schemes? Then read on. It could be the best home-buying decision you'll ever make...
Shared ownership schemes
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Equity loan schemes
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Other schemes
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Shared ownership schemes
New Build HomeBuy
These are almost exclusively homes on new developments - either a few homes dotted around a larger development, or properties built exclusively for shared ownership. Through New Build HomeBuy you purchase a percentage of your home - anything from 25% to 75% initially. You pay a subsidised rent on the remainder, which is owned by your housing provider. You can buy further shares, called 'staircasing' until normally you own 100% of your home, although you are under no obligation to do so.
Read more about New Build HomeBuy
Shared ownership resales
Shared ownership resales are homes that were previously bought through shared ownership where the owner is now selling their share. Under NBHB you buy a share of your home, normally between 25% and 75%, and pay a subsidised, lower than market rent on the part you don't own, which is owned by the housing provider. You can buy further shares in your home until you own it outright. This is called 'staircasing'.
Read more about shared ownership resales
Social HomeBuy
This helps existing housing association and council tenants buy a share of the home they already live in. Although many people will be eligible to buy their homes through the Right to Buy or Right to Acquire schemes, if you're not, or you can only afford to buy a share of your home, then Social HomeBuy is another option. It works in a similar way to New Build HomeBuy, except that it includes a discount, currently set by the government at between £9,000 and £16,000 - the amount varies depending on the type of property and where you live. You only get the discount on the percentage of the property you buy, so if buy 50% and the discount in your area is £12,000, you get a discount of £6,000. If you decide to 'staircase' up and buy more of your property at a later date, you get further discounts on each new share. It's worth bearing in mind that not all housing providers currently offer Social HomeBuy as an option for anyone looking to buy one of their shared ownership homes, but if you think this is for you it's worth asking.
Read more about Social HomeBuy
Equity loan schemes
HomeBuy Direct
This is an equity loan scheme for specially selected new build homes, and it's offered by private property developers rather than housing associations. You must be able to afford a minimum of 70% of the purchase price, typically through a combination of mortgage and savings, and the remaining 30% will be jointly funded by the government and the property developer. This is an equity loan secured on your property - kind of like a second mortgage. There's no charge on this for the first five years. After that there's a small interest charge on the equity loan which increases slightly each year, but it's much less than a mortgage would be. You can 'staircase' up until you've paid off the equity loan. When you come to sell your home, you simply divide up the proceeds between you and the equity loan provider, so if your equity loan is for 30%, you keep 70% of the proceeds.
Read more about HomeBuy Direct
First Time Buyers' Initiative
This product is available on speically selected new homes, partly funded by the government through the Homes and Communities Agency. You must buy at least 50% of your new home, normally with a combination of mortgage and savings, and you'll be provided with an equity laon for the remainder, allowing you to own 100%. There's no interest to pay on the equity loan for the first three years. After this, there's a small charge, which increases gradually over the next few years. The FTBI is being phased out and replaced by HomeBuy Direct, but there are still some properties available through the scheme.
Read more about the First Time Buyers' Initiative
Independent schemes
These are almost exclusively equity loan schemes. As an example, your private developer might offer a 70% scheme, where you fund that portion of your new home with a combination of mortgage and savings, and they would supply an equity loan for the remaining 30%. Typically, there is no payment for the loan, but you would be expected to purchase the remaining 30% of the equity within ten years. This is ideal if you are confident in your ability to repay the equity in the timescale. There are also schemes for older people, where you can purchase a percentage of your home in a retirement estate and there's no cost for the remainder, but you're not able to staircase up. In these cases, if you sell your home it has to be to someone suitable for the retirement accommodation.
Other schemes
Rent to HomeBuy
This is a new 'try before you buy' initiative being offered on selected shared ownership homes. Rent to HomeBuy gives you the opportunity to rent a home through the housing association, at a subsidised rent of no more than 80% of the current market rent, for up to five years on the understanding that you will buy the property, or a share of the property, within that time. This gives you the chance to save for a deposit because your rent is lower than on the open market. Some housing associations also offer further incentives to help you buy your home, such as help with deposits, some of your rent back as a downpayment on your home, or discounts on the value of your home which rise each year. If you can't buy your home within the specified time, your landlord will review your position, but there's no guarantee that your tenancy will be renewed.
Read more about Rent to HomeBuy
Intermediate Rent
Intermediate rent offers you the opportunity to rent a property at no more than 80% of the market rate. It's not the same as social rent, because it is just an assured shorthold tenancy, renewed every six months. It allows you to rent a property at a reduced rate and if you're planning to buy a home, this gives you a chance to save the difference towards your deposit. Once you have enough, you can apply to purchase a share of a home, but there's no guarantee that you'd be able to buy the home you already live in.