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26, 02, 2016

  

A shake-up in the shared-ownership rules aimed at helping young Londoners on to the property ladder begins in April, when 175,000 more will become eligible to take this route to home ownership. 

Local councils currently dictate who should take priority for shared ownership based on a wide range of factors — from salary to occupation and location. But no longer will public sector “key workers” such as firefighters and police officers have official priority.

Under the new rules:

  • Existing property owners, including divorcees and couples upsizing to a family house, will be able to apply and will be given equal status.
  • There will be no limit on the number of bedrooms in a home that is bought.
  • As long as you do not earn more than £90,000 — previously £71,000 — you will qualify, in recognition of the capital’s high property values.

Shared-ownership: how it works

The shake-up aims to reverse the decline in home ownership at a time when Londoners’ property options are shrinking. Public housing is scarce, private renting is becoming more expensive, while the big deposits demanded by mortgage lenders are locking out first-time buyers.

Shared ownership allows people to part-own and part-rent their homes. The scheme operates through housing associations. People can buy from 25 to 75 per cent of a property, using a comparatively small deposit and mortgage, and rent the remaining “un-owned” share.

Normally, total monthly outgoings are less than when buying the same property outright because the rent is subsidised.

Owners can gradually buy more of their home as and when they can afford it, a process known as staircasing. There are stamp duty savings, too.

Is shared-ownership set to soar?

While there are some potentially negative factors to consider — see our “downside” panel, below — the changes could propel shared-ownership into the housing mainstream, and have been seized upon by the main candidates for this May’s London mayoral election, who have declared housing the most important issue.

Labour’s Sadiq Khan wants to boost shared ownership and says he will give priority to people who have been renting privately for more than five years.

Conservative candidate Zac Goldsmith has pledged to build 50,000 homes a year by releasing more public land for affordable housing, including shared ownership. A register of public land recently listed 40,000 sites in London with development potential to deliver 130,000 homes.

How to buy with a deposit of less than £5,000

Shared ownership is one of several government initiatives and arguably is the most compelling for buyers who do not have a large deposit. They need only put down five per cent of the share being purchased.

In many cases, this amounts to a deposit of less than £10,000, and sometimes less than £5,000 — as at Spectrum, for example, a scheme close to Lee train station in south-east London, where a deposit of £4,525 is required when you buy a 25 per cent share of a home for £90,500. 

Shared-ownership: the downsides

  • As well as monthly mortgage and rent there’s a service charge, which can be high in a block with amenities such as a pool or a gym. 
  • Sub-letting, even informally renting out a spare room, is usually forbidden under the lease. 
  • Buyers must do their own due diligence in terms of location, price and what the neighbours are like. 
  • You can sell your share at anytime, though it is not always as easy as a normal open-market sale. Often housing associations have right of first refusal, typically eight weeks to find a buyer, and will get a surveyor’s valuation. 
  • Once sold, you pay a minimum 1.25 per cent of full market value, similar to an estate agent’s fee. With high demand, it is easier to sell on than it used to be.

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