From The Times
March 27, 2008 – Lauren Thompson
Key worker housing schemes explained
The initiatives designed to help low earners to take their first step on the property ladder
The Government wants to get more “priority first-time buyers” on to the property ladder through shared equity and shared ownership. In the Budget Alistair Darling announced more generous rules on these schemes, which both offer key public sector workers, social tenants or those on council waiting lists the opportunity to part-buy a home.
The Government says that shared equity and shared ownership have helped 95,000 people on to the property ladder since 1997. But the schemes have attracted criticism for their inflexible rules and complex eligibility criteria. Here Times Money explains how each scheme works.
New Build HomeBuy is the name of the Government’s shared-ownership scheme. Initially, you can buy a minimum of 25 per cent and a maximum of 75 per cent of the property. You raise a mortgage for the share that you want to purchase and pay an “affordable rate” of rent on the share that you do not own.
You can buy further shares in the property when you are able to afford it, until you own it outright. Buyers are restricted to properties sold through housing associations, but this should not put you off. Many are high-quality newly built flats, ideal for first-time buyers. The Government has found sites for 70,000 new homes this year, in addition to the 40,000 under construction.
Although you do not buy the property outright, you have the rights and responsibilities of a homeowner. This includes the costs of purchase – survey, legal fees and stamp duty. However, the Budget made such buyers exempt from stamp duty until they own 80 per cent of a property.
Although the housing association insures the structure of your home, you have to pay for repairs and redecoration, internally and externally. If you do want to improve your home or make structural alterations, you must request the housing association’s written agreement.
Also remember that if you do not own 100 per cent of the property, you will be limited as to whom you can sell the property and for how much. While you will benefit from any equity built up on the share that you own, clauses in the lease may enable the housing association to nominate prospective buyers and to restrict the sale price to an independent valuation. This is because housing associations want the properties to remain available to the people for whom shared ownership is intended.
All key workers, social housing tenants and those in priority housing are eligible for the scheme, although the definition of “key worker” can vary between housing associations.
These schemes, called Open Market HomeBuy, are slightly different from shared ownership because, rather than renting part of your home, you take an “equity loan” on part of the property and a conventional mortgage on the rest. This means that you own 100 per cent of the home, so there is no landlord and you can make alterations to the property. The other advantage is that you can buy any house instead of being restricted to your housing association’s selection.
Two new products within Open Market HomeBuy become available from April 1. “OwnHome” offers the chance to take up to 40 per cent of the value of the property in an equity loan from the property company Places for People. You pay nothing for the first five years, then 1.75 per cent interest a year for the next five years, increasing to 3.75 per cent a year from year 11.
Customers can repay all or part of the loan at any time, but must pay it off in full after 25 years. The amount that you pay is calculated on the value of your home at the time of payment, so the greater the increase in value, the more you repay.
The remainder of the cost of the property is funded through a conventional mortgage with the Co-operative Bank. There are no extra charges on this mortgage and you can choose from a range of deals, including fixed-rate and tracker options. Buyers will not be tied to the Co-operative once the initial mortgage deal finishes.
The other shared-equity scheme is called “MyChoiceHomeBuy”. This provides up to 50 per cent of the value of the property as an equity loan, funded by one of eight housing associations. You pay interest on this loan immediately, at 1.75 per cent. The remainder is funded through a conventional mortgage, which can be with any lender.
After the first year you can buy further shares as you can afford them, but unlike OwnHome, there is no obligation to do this within any set time frame. When the property is sold, the equity loan provider is entitled to a share of any increase in the value of the property. So if you owned 50 per cent, you would split the profits from the sale 50-50 with your loan provider.
As with New Build HomeBuy, key workers, social housing tenants and those in priority housing are eligible, but check with your local HomeBuy agent to find out the eligibility criteria for your area.
To apply or check your eligibility for either scheme, contact your local HomeBuy agent at www.housingcorp.gov.uk, or call 0845 2307000.
CASE STUDY: A proud part-owner
Jamie Wake, a healthcare worker from Reading, was starting to think that his ambition to buy a property by the time he hit 30 would never reach fruition. He had no deposit and house prices were climbing beyond his reach. But then he saw a local newspaper advertisement for a new complex of shared-ownership flats and homes called Kennet Island in southwest Reading.
Mr. Wake part-bought a two-bedroom apartment worth £192,500 from the Thames Valley Housing Association and is delighted with his decision. He bought a 40 per cent share for £77,000, with a three-year fixed-rate mortgage from Leeds Building Society, costing £500 a month. He rents the remaining 60 per cent from the housing association at £300 a month.
He says: “I spend about £800 a month on my mortgage and rent, which is about the same as I would be paying if I was renting.
“My lender has just agreed to me borrowing more to buy up to 60 per cent of the property. Eventually, I would like to own it outright. These apartments are really in demand and many were sold before they were even built.”