First-time buyers struggling to keep up with soaring property prices may have been given a lifeline following a revision of the government's joint ownership system.
Commonly owned buyers can purchase a small portion of their home and pay a subsidized rent to their housing association for the remaining portion.
It is then possible to "increase" the amount you own by gradually buying additional pieces of the property. As a result, rents are falling.
Currently, a buyer would have to purchase a 25 percent stake to be eligible for the program.
However, the Ministry of Housing announced earlier this week that this figure will drop to 10 percent from April. This means that on a property worth £ 150,000, for example, a buyer would only need to pay £ 15,000 to qualify, instead of £ 37,500 under current rules.
First time buyers see that the purchasing power of their savings is hurt by rising house prices and limited access to finance when lenders close deals.
Housing Secretary Robert Jenrick revealed a number of changes to the shared ownership system
Homeowners can also buy 1 percent of the shares in their home at a time, rather than in 10 percent increments as in the current system.
Landlords – almost always a housing association – have to pay for repairs and maintenance of the property in the first 10 years according to the new rules.
However, none of this applies to existing shared users – only new applicants benefit from the new system.
This means that system usage is likely to be low through April as buyers wait to feel the full benefits of the new system.
Does the new system work?
The new rules were first proposed in September and initially encountered some confusion about how the system would work in practice.
Under the current system, buyers buy a small stake and then buy additional stakes in the property until they own it in full – at which point they no longer have to pay rent – in what is known as a "stairwell".
Government unveils new affordable housing
The government also announced this Up to 180,000 new homes were built over the next five years, around half of which will be affordable homes, the rest will be available at discounted rental rates.
The move comes as part of a real estate market reorganization that includes the largest planned overhaul of the planning system in England since World War II.
Nearly £ 7.5 billion in funding earmarked for a new affordable housing development will be provided by Homes England outside London, with the remaining £ 4 billion allocated to the capital.
While it varies from vendor to vendor, the system currently generally only allows homeowners to buy these shares in 10 percent pieces, which can be up to £ 45,000 depending on the value of a property.
The government is now proposing to allow homeowners with common ownership to climb stairs in 1 percent stakes instead – potentially making building up a stake easier and more affordable.
For example, if a family were currently going up a flight of stairs in a £ 150,000 property, they would have to pay down £ 15,000 each to increase their stake and lower their rent – an amount many cannot match.
Under the new system, they only have to pay out 1 percent or £ 1,500 each.
But it's not as easy as it seems – there are currently various additional costs that can make stairs in smaller steps less affordable than it seems.
A shared property loan is an equity loan, which means that as the value of the home increases, the loan comes with it.
This means a homeowner will have to pay a surveyor to produce an appraisal report that can be used to determine the value of the home at every staircase.
In addition, they have to pay legal fees.
Housing associations do not take a share of the bill for sponsors when a homeowner sets stairs.
According to the Homeowners Alliance, these additional costs typically add an additional £ 2,000 to the price of the shares even when climbing stairs.
For the example above, this means that every time the family bought an additional 1 percent of their home for £ 1,500, they would have to pay an additional £ 2,000 in fees.
Today's government announcement says that these fees will be "cut sharply" when the new system launches in April.
The Department of Housing told This is Money, “The new step staircase option is designed to significantly reduce mortgage management and valuation fees.
& # 39; We have introduced free valued reviews and have banned vendors from charging administration fees. Buying in 1 percent installments also makes climbing stairs a lot easier without additional borrowing, so shared owners can avoid mortgage fees.
& # 39; Mortgage and administration fees continue to apply for stairs in larger tranches of 5 percent or more. Legal and expert fees are not reduced or subsidized. "
Under the new rules, those looking for stairs in very small quantities should be able to do so without incurring too much additional expense.
Angela Kerr, Director of the Homeowners Alliance, said, “Stairs are a major source of complaints to the system because it is very complicated, time consuming and costly.
Shared ownership buyers can start with a 10 percent stake in the property
“It remains to be seen whether buying 1 percent of your property makes financial sense for people, but the government's efforts to cut fees will make a world of difference. We will now examine what this means in practice and how mortgage lenders, appraisers and transport companies are reducing their fees. "
Potential users of the system should also be aware that all condominiums are sold on a lease basis.
Not only does this mean you have to pay a basic annual rent, but it can create complications when it comes to selling.
You may also have to pay service fees, which are unlimited and can increase without your consent.
The Homeowners Alliance has a comprehensive guide to the fees and risks associated with shared ownership, which you can find here.
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