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Help to Buy vs Shared Ownership

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Help to Buy vs Shared Ownership

Hi, my name is Dan, I am a CeMAP qualified mortgage & protection adviser. This video is purely for educational purposes only, and should not be seen as advice or a recommendation to act and I must stress your home may be repossessed if you do not keep up with the repayments on the mortgage.

Grab a drink, sit back, and relax. I’m hopefully going to cover the basic points for you. Please ask questions in the comments.

Should I buy through Help to Buy or Shared Ownership?

If you have a smaller deposit than a lender may require, for the value of the property that you are hoping to buy, both Shared Ownership and the Help to Buy can offer great ways onto the property ladder. But there can be confusion over the differences.

So what is the difference between Shared Ownership and Help to Buy?

Shared Ownership also referred to as part buy/part rent, allows you to purchase a share of a home – usually between 25% and 75%. You will then pay a mortgage on the share that you purchase, and rent on the remainder to a housing association.

The Help to Buy scheme is backed by the government and allows you to buy a new-build home with the help of an equity loan, also known as shared equity. The government provides a loan of up to 20% of the home or 40% in Greater London, so you only need to raise a 5% deposit, which means a 75% mortgage or 55% in Greater London.

How do you qualify for Shared Ownership or Help to Buy?

Shared Ownership is available to first time buyers, those who are in the process of selling their property, or have previously owned a home but have since sold. You must be at least 18 years old and unable to buy on the open market. To be eligible for Shared Ownership, your maximum household income must not exceed £80,000 per year or £90,000 a year or more in London.

Like with Shared Ownership, the Help to Buy scheme is available to first time buyers, those who have previously sold a home, or those who will have sold their current property before or at the point of completion on their Help to Buy home. Buyers must be at least 18 years old and unable to buy on the open market, with the only difference being there is no maximum income.

So what properties can you buy through the Shared Ownership and Help to Buy?

Shared Ownership is available on purpose-built homes – these will either be new build or resale properties that are being sold by the current owners on the same scheme, these properties are purchased on a leasehold basis only.

The Help to Buy equity loan is only available on specific new build homes, and you cannot buy a property that is on the market for more than £600,000.

What Deposits do you need for Shared Ownership and Help to Buy?

The deposit for a Shared Ownership home is usually 5-10% of the share that you are buying, not on the full value of the property. So, if a property costs £500,000 and you purchase a 25% share – equating to £125,000 – a 5% deposit on your share would be £6,250.

For a Help to Buy home, the deposit will be at least 5% of the full value of the home – for example, a 5% deposit of a home costing £500,000 would be £25,000. However, as the equity loan counts towards your deposit, you may be able to take out a mortgage where you might otherwise struggle; such as a 95% mortgage.

Repayments on Shared Ownership and Help to Buy homes

A mortgage will be paid on the share you own, with rent to the housing association on the part you do not purchase, along with any service charges and ground rent. If you choose to increase your owned shares also known as ‘staircasing’, your monthly mortgage payments will increase and your rent will decrease, up until the stage where you own 100% of the property. At this time, you will no longer pay any rent, just your mortgage, and any service charges/ground rent where applicable. When staircasing, the cost to purchase additional shares in the property are calculated at the market value at that time, and not the value at the time that you originally purchased so, as house prices rise the cost of additional shares will also rise. One thing to check is that your housing association allows you to staircase to 100%, as some lenders require this.

There is an additional scheme called “Older Persons Shared Ownership” which is available to those over 55 years of age, it works in the same way although you can only staircase up to 75% and once you reach 75% you do not pay any rent on the remaining 25% share owned by the housing association. With Older Persons Shared Ownership, you have the right to remain in the property for as long as you choose and the housing association is entitled to their share on sale of the property, working on the market value at the time of sale.

The Help to Buy equity loan is interest-free for five years – during this time, you only need to pay your mortgage. After the first five years are over, you will pay an annual fee of 1.75% on the amount of the outstanding loan; this fee will increase each year inline with the Retail Price Index. As an example, if you had an equity loan of £100,000 at an interest rate of 1.75%, you would pay interest of £1,750 per year, or approximately £145 per month, in addition to your mortgage payment. As this rate, and in turn the monthly cost, will increase annually, it is important that you budget for this additional cost to ensure the equity loan is affordable after 5 years.

Do you need to pay Stamp Duty on Shared Ownership and Help to Buy homes?

First time buyers in Shared Ownership homes will pay zero Stamp Duty on the first £500,000. Stamp Duty will still apply on homes valued above £500,000.

Most of the time it will not be necessary to pay Stamp Duty when you first purchase using Shared Ownership. You will have the option of paying Stamp Duty on the full value of the property as if you were buying outright or you can choose to only pay Stamp Duty on the share that you are purchasing.

The calculations for Stamp Duty can be complicated, but there are options that your solicitor will be able to provide the necessary help and advice on.

With Help to Buy you may need to pay Stamp Duty Land Tax when you purchase. However, if you’re a first time buyer, you will pay no Stamp Duty on properties worth up to £500,000.

Stamp Duty rates constantly change so make sure you check with a solicitor on the current rates before budgeting for your purchase.

Selling a Shared Ownership or Help to Buy home

With Shared Ownership you can sell the shares you own in your home at any time. Under the terms of your lease, the housing association has first refusal to buy your property from you or find a buyer. If they do not find a buyer, you can then sell your home privately or through an estate agent of your choice.

With Help to Buy you’ll need to pay back the equity loan when you sell your home or at the end of your mortgage period – whichever comes first. If you haven’t repaid the loan by the time you come to sell the property, the government will reclaim its percentage stake in your home at its current value. So, if you buy using the 20% Help to Buy equity loan, you will pay back 20% of the sale price of your home to the government when you sell.

Hopefully, you’re still with me, as that’s a lot of information to take in. I’ll provide some useful links and my contact details in the description. Don’t forget to ask me any questions in the comments below”

If you are looking to obtain a mortgage, it is important to check your credit profile before applying. If you sign up to CheckMyFile using the link in the description you will be able to check your credit score and history on Equifax, Experian, TransUnion, and Crediva all with the 1 login, this is important because not all lenders use the same credit report, so you need to check you can see everything they’ll be able to see before applying, as different lenders, accept different levels of credit scores and credit history.

It is free for 30 days but if you wish to keep viewing your credit report after the 30 days, so you can keep an eye on your credit score and history, there is a monthly subscription cost of £14.99. To avoid this, you could sign up to each of the credit reference agencies separately and utilise their 30 day free trials. If you did continue to use CheckMyFile after 30 days, I receive a £12 referral fee.

Remember your home may be repossessed if you do not keep up with the repayments on your mortgage.

If you want to watch a video on how parents can help you get onto the property ladder, please watch, this video.

If you want to watch a video on how to get approved for a mortgage, please watch this video.

Useful Videos

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