Shared Ownership Mortgage Scotland

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Shared Ownership Mortgage Scotland (Part 1)

Carolyn explains the shared ownership scheme in Scotland and how it could help people onto the property ladder. Part one of two episodes.

What is shared ownership and how does the scheme work in Scotland?

Shared ownership is a housing scheme designed to help individuals who want to buy a home but, for whatever reason, are struggling to afford the cost.

It’s particularly popular in areas where house prices are very high, such as in city centres. The concept is that you purchase a share of the property, making it more affordable, and the remaining portion is typically owned by a housing association.

What is the difference between shared ownership and shared equity?

They do sound very similar, and there’s a real nuance as to how they work. It’s important to understand the difference if you’re considering using these schemes.

With shared ownership, the purchaser will own a percentage of the property – typically between 25% and 75%. The remaining share is always owned by a housing association or another party.

Often they charge you an occupancy charge, where effectively you’re renting part of the property. Those schemes are very specific to the housing association or the provider you’re applying to. They may allow you to gradually increase your ownership over time, from 25%, to 50%, 75% and sometimes to own the whole property – but not every scheme allows that.

Typically, these schemes are aimed at First Time Buyers. They help people get onto the property ladder.

Shared equity is quite different. Usually the buyer will own the whole property, but the third party – the housing association or the government, or even a house builder – will have a percentage share in the property. You don’t pay anything for their share, and there’s no rent or occupancy charge.

The third party keeps that equity share for the whole time you own the property. When you come to sell, they receive that percentage of the sale price. So if they have a 25% equity share, when you sell they will get 25% of the proceeds.

If you own the property for 10 years, you might reasonably expect that the 25% share will be worth more than when you bought it. So if you like, they’re investing in the property with you.

Who is eligible for shared ownership in Scotland?

It very much depends on the specific scheme or the development you’re looking to buy in. The main purpose is for First Time Buyers, in which case it might be a requirement that you haven’t owned a home before.

But sometimes there are schemes for other priority groups. We’ve seen offers for people leaving the armed forces who’ve moved around a lot and not had the ability to buy a home.

Also, there may be schemes for people with disabilities or who need a specific type of property. Those groups might be given priority. You should always look at the terms and conditions of the particular one that you’re looking at.

What should I do before applying for shared ownership? What are the requirements?

It’s much the same as for any house purchase. Start by making sure you understand your affordability by speaking to somebody like me. We could work out exactly what a bank might lend to you.

We’ll have a look at your budget to see what you’re comfortable to pay on a monthly basis, and understand all the charges involved in owning a property.
One thing that will be slightly different with shared ownership is that you need to make sure you’re eligible for the scheme. Shared ownership may, for example, have a minimum or or a maximum income. If you earn over a certain amount, they wouldn’t accept your application.

Research the properties that are available. It’s not always easy to find available shared ownership schemes, so that’s an important task. Normally you would also want to appoint a solicitor to give you legal advice around those little nuances on ownership, equity, charges and things you’re obliged to pay to the housing association.

A solicitor will give you clear guidance on that, as there is a bit more involved than with a straightforward purchase.

How much deposit do I need for a shared ownership mortgage?

It depends on the scheme, but typically, you will need a deposit based on the initial share you’re buying. You might buy between 25% and 75%, and you will typically need a 5% or 10% deposit based on that share, depending on your situation.

We might find somebody could afford a 75% share but they don’t have the deposit funds for that size of share. So they might opt to take 25%. Again, somebody like myself could help you work out exactly what you could afford and what the deposit requirement is.

Which lenders offer shared ownership mortgages in Scotland?

There are a few, and they do change their criteria and how they assess these applications. We’ve probably got about a handful currently.

It’s so important to have somebody like me helping you to navigate that, to try and find the lender whose criteria and assessment is suitable to you, to give you the right outcome, and at the right interest rates. But yes, there’s certainly availability.

Which properties are available for shared ownership?

With shared ownership in general, the property will have to be deemed suitable for shared ownership or shared equity. You can’t just find the property and then apply a scheme to it.

Builders very often offer it on a percentage of their development. You ccould get shared ownership schemes on both houses and flats. It really just depends on the area, your housing association and the local council. So it’s important to get a feel for what’s available.

You could look directly with housing associations and councils. If you’re searching online for properties in a specific area, the right plan is to set your maximum purchase price really low.

Quite often 25% shares are advertised very low compared to the rest of the properties in the area. That could help you find shared ownership properties quickly. The internet search engines are your friend with this.

Will my shared ownership property be freehold or leasehold?

The concept of freehold and leasehold is not really the same in Scotland. If you’re buying in England, leasehold refers to whether there’s a rental or ground rent on the land that the property sits on.

In Scotland, we have ‘absolute ownership’, so that doesn’t apply. It’s not anything you need to consider. If you are in England, however, typically shared ownership property is leasehold.

Can I buy a bigger share of my home at a later date?

Generally, yes. That is often allowed. Again, check the terms and conditions of the particular scheme that you’re applying to. Some schemes will prevent you from ever owning the property 100%, although you will be able to buy additional shares. Others might allow you to ultimately own the property outright.

The way you could increase your share is called staircasing. You might start with a 25% share, and work towards getting to a 50% share, for example.

Can I ever fully own a shared ownership home?

It depends on the scheme – but there are certainly schemes where it is intended that you could ultimately own the property outright. When you do your initial research it’s useful to know the terms and conditions.

Some schemes will restrict when you could buy the share – they might say you must live in the property for three years first. Often they’ll state that you must buy a particular percentage – such as 25% increments. You can’t buy 2% at a time. There will be a clear process of how you go about doing that.

There will be some form of valuation process. If you bought a 25% share today and you wanted to buy a 25% share in five years’ time, the cost of that new 25% share will be based on the value of the property at the time.

It’s important to understand that process because some housing associations will insist on conducting the evaluation themselves. Others might be happy with the lender’s valuation or even your own. But before you incur any cost, understand the requirement.

Also, speak to your mortgage advisor to understand what the lender will accept in that scenario.

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Shared Ownership Mortgage Scotland (Part 2)

Continuing the conversation on shared ownership with Carolyn. Episode two of two.

What happens if the value of my house changes?

It’s much the same with shared ownership as it is with any property. If you are just living in the property and the value changes, it doesn’t really make much difference – as long as you could afford your mortgage and your costs.

Where it becomes important is if you’re planning to sell, or buy more shares in the property. At the point of doing either of those things, the property would be valued. Obviously, if it’s gone down in value, which we all hope that won’t be the case, your share is worth less. But it would also mean that the cost of buying additional shares would be less.

If it’s risen in value, which is more typical, then your share will be worth more. So if you’re selling, you will make more money. If you’re trying to buy an additional part of the property, though, the cost is likely to be higher.

What if I have bad credit? Can I still get shared ownership?

Potentially yes. Bad credit doesn’t necessarily mean you can’t get a mortgage or participate in shared ownership. As with all mortgage scenarios with bad credit, it depends on the issue, how severe it is and how recent it is.

For any mortgage, lenders want to know if you are creditworthy. Will you pay the mortgage on time? So they look at your track record of payments. If you’re in your 30s and you missed a couple of mobile phone bills when you were a student, they’ll probably forgive you. If you’ve just declared yourself bankrupt, they’ll likely say no.

If you’re concerned at all about bad credit, it’s always worth speaking to an advisor. We understand how lenders will view you. Quite often, it’s not as bad as you think. Tell us absolutely everything, and then we see if there’s a route to help you, there and then.

We do have specialist lenders who will consider quite severe adverse credit. If it’s something we can’t help with, we could give you some coaching on how to become creditworthy. There are a lot of rumours and speculation around how to improve your credit score – so just have that conversation and get the facts.

How do I sell my shared ownership home in Scotland?

You will be given the terms and conditions of your particular scheme when you originally buy the property, but when you decide to sell, your first job is to notify the housing association or the third party on the scheme.

Sometimes they insist on first refusal for your share. They might want to buy it back themselves, or they might have a waiting list of people looking for a property.

Or, you might be able to put it on the open market as you would with any other home. Either way, you need to work in partnership with the housing association.

Can I make improvements to my shared ownership home?

Again, check with your specific scheme. Generally speaking, they’re quite happy with you making cosmetic changes, such as painting and decorating, changing fixtures or getting a new kitchen.

If you’re doing any kind of structural change, you would need permission from the housing association or developer. You’re probably going to need planning permission from the council as well.

Make sure you understand how far you could go without needing to seek permission. If you’re investing and spending money on a property, be aware that while it could improve the value of the property, you’re also increasing the value of the housing association’s share. You need to be comfortable that the investment is worthwhile for you.

How does the remortgaging process work with shared ownership in Scotland?

You certainly could remortgage, but again, it’s important to speak to a mortgage advisor to understand exactly what you could do within the legal structure. On a standard remortgage, when there’s no shared ownership involved, we would always look to see what your existing lender could offer for you and compare that with the rest of the market.

With shared ownership, we need to compare products that will accept that shared ownership scenario. So there’s a smaller pool of lenders, and depending on the legal setup, it might be more expensive or more onerous to move to another lender.

We also need to make sure you’re not incurring additional costs or hassle that you’re not aware of. We factor that in to make sure that a remortgage is actually advantageous. But you could always look for a better deal or a new product – you shouldn’t have to sit on a variable rate once your initial product has ended.

Do I need to pay stamp duty on a shared ownership property?

The short answer is yes. We now refer to stamp duty as Land and Buildings Transaction Tax, and it will apply. There are various different ways to approach it. For example, you could choose to make a one-off payment based on the total market value. That way, if you want to buy additional shares in the future, you won’t have to pay again.

If you don’t pay in full at the time, when you buy the additional share, it could be worth more – which could mean more tax. So theoretically, you’re saving yourself some tax by paying upfront.

Or, you could opt to pay in stages. It’s probably a good idea to take legal advice. Your solicitor will administer any stamp duty that’s applicable. It might be that you’re buying under the threshold, in which case it won’t apply. But if there are options to pay up front or in stages, take legal advice at the time to make sure you’re making an informed decision about what’s right for you.

Are there any other fees that I need to know about when it comes to shared ownership?

It does depend on the scheme you’re in. It is typical to be asked to pay a reservation cost. You might pay that to the housing association to secure the property while you apply for a mortgage and do the legal conveyancing work.

Usually that will be taken as part of your deposit on the day of transaction, but you’ll need to pay it upfront initially.

You also need to have your deposit funds. There will be solicitors costs and, depending on the scheme, sometimes those costs are higher. There’s basically an additional party in the transaction, so if you’re getting a quote from a solicitor, make them aware that you’re considering shared ownership – they could let you know if that’s a factor.

You’ll obviously have your monthly mortgage repayments and you’ll need to find out if you are required to pay rent or an ongoing occupancy charge. You will also have stamp duty, if that applies.

On an ongoing basis, there could be a monthly charge to cover things like communal repairs, or cleaning and building maintenance. It’s important to find out exactly what you’re required to pay before you sign on the dotted line.

You’ll still need insurance, as you would expect. Often you’ll find that there’s a communal buildings policy that you’re required to pay into, so check if that’s the case. But for life insurance, income protection and things like that, speak to your mortgage advisor as we could help you look at those as well.

What are the alternatives to a shared ownership property?

At the moment in June 2024, the schemes available are few and far between. We tend to find that they’ll burst onto the market, be there for a while, and then either be oversubscribed, go out of fashion, or the funding will be pulled.

So it’s a very dynamic environment. We’re just about to go to a general election next month, and that could change everything quite dramatically.

It’s quite common for governments to put schemes in place to stimulate the property market. We have seen the government provide an equity loan to help First Time Buyers boost their deposit. Again, there’s a whole raft of terms and conditions for that, and it’s not available right now.

But you also get various other schemes. The LIFT scheme has been available in Scotland for a while, which is a form of shared ownership and shared equity. For help with this, speak to your mortgage advisor first, as they will know what’s available in your area at that point in time.

How do I apply for a shared ownership scheme in Scotland?

Ideally, you want to find the scheme and the property first, but that could be quite tricky. You might want to start with a mortgage advisor – and often people feel they’ve got no chance of owning a property without shared ownership. But actually, when they talk to us, they could..

It’s definitely worth doing that to get an idea of your affordability. Then, it’s about researching and finding these schemes, which isn’t always easy. You need to be quite diligent and it could help to be open-minded about the location you’re prepared to live in. That will certainly give you a greater chance of success.

The shared ownership schemes I’ve been involved in as an advisor, sometimes take quite a long time, because finding a suitable property isn’t always easy. We like to work as a well-informed friend through the process.

If people hear snippets or read something on the internet and they’re not sure if it’s true or if it applies to them, we could be a sounding board. Come and ask us what something means. Find out if you need to be worrying about it. We build that relationship and try to be as approachable as possible. We’ll shine a light on the process as you go through it.