Could shared ownership help you buy a home? We look at the pros and cons, and whether it’s a good option for those who missed out on Help to Buy

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  • Home prices may fall this year but are still too high for many first-time buyers
  • Shared ownership reduces mortgage and deposit costs because it is partly bought, partly rented.
  • But the maintenance fee may be high and you may not be able to fully repair

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Savers hoping to move up a notch this year may be disappointed by the current state of the housing market.

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Although house prices are projected to fall by 10% this year, this will only eradicate two years of price inflation.

Rapidly rising mortgage rates have made home ownership more expensive for most people who need to borrow to buy, and the government’s flagship program for first-time homebuyers, Assistance to Buy, ended in the fall.

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Uphill struggle: First-time homebuyers face many financial hurdles to climb the housing ladder. For some, co-ownership may be the solution.

But there are more options for those who need help buying their first home. One of these is fractional ownership, which gives buyers the option to own part of the property and pay rent for the rest.

We looked at how this scheme works, its pros and cons, and whether it can replace Help to Buy.

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What is fractional ownership and how does it work?

Fractional ownership is a home ownership option that allows you to buy a percentage of a property if you cannot afford the deposit or mortgage payments on the open market home.

This does not mean, as the name suggests, that you need to share your possessions with other people. Instead, you own part of the house and pay rent for the rest.

Buyers typically buy 25 to 75 percent of a property with a mortgage and then pay the rent for the remainder to the landlord, usually a housing association. In some properties, the purchased share may be 10 percent.

When buying through fractional ownership, you will still have to pay a deposit for the share you own, just like with any other real estate purchase.

The amount required for the deposit will vary from property to property, but a typical fractional ownership deposit is 5 or 10 percent of the share you are buying. This means that the deposit can be much lower than what is needed to buy a home on the open market.

Co-ownership allows you to increase your share of the property with a

Co-ownership allows you to increase your share of the property with a “ladder”.

For example, if you buy a 25% share in a house with a total value of £300,000, your share will be worth £75,000. If a 5% deposit is required, you will need to make a £3,750 deposit. A £15,000 deposit will be required to fully purchase the home.

Once you’ve made your initial payment, you can increase your share over time, typically in increments of 10 percent – this is called a staggered structure. In doing so, you will pay less rent as the remaining percentage decreases.

It is also likely that you will pay land rent and a monthly maintenance fee for the common area, as the property is likely to be commercially owned.

However, stamp duty on moving into a property can generally be deferred until your share reaches 80 percent.

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What kind of house can be bought in fractional ownership?

Fractional Ownership Schemes are available for housing association-owned new builds or for existing homes through Fractional Ownership Resale Schemes.

As a rule, different sizes of houses, apartments and bungalows are offered in one area.

If it is not a new construction, then the house was previously inhabited and owned in fractional ownership, and it is sold under the same system.

You buy the previous owner’s share, either outright or by securing a mortgage, and then pay rent on the part you don’t own.

There are also options to buy a share in a home that suits your specific needs, for example if you have a long-term disability and need a ground floor apartment.

But be aware that different parts of the UK have different cross-ownership rules, so be sure to check the requirements in your area before applying.

Who can use fractional ownership?

The scheme is for buyers who want to climb the real estate ladder but are unable to buy a home with a traditional mortgage.

While first-time buyers are the most obvious beneficiaries, it can also provide an opportunity for separated couples who want to make a one-on-one purchase of a share of their shared home.

With rising costs of living and a mortgage shock to come for those who are turning down a low-rate fixed deal, this could also present an opportunity for those who find they cannot afford to re-mortgage at today’s rates.

However, applicants must have a family income of no more than £80,000 or £90,000 in London. If you buy with someone else, your total income cannot exceed the limit.

Help to Buy: Could co-ownership be a viable alternative to the government's flagship scheme?

Help to Buy: Could co-ownership be a viable alternative to the government’s flagship scheme?

In addition, you must be able to show that you cannot afford the deposit and mortgage payments for a home that meets your needs on the open market.

In practice, this means, says Jon Lord, managing director of Metro Finance and one of the Bureau of Mortgage Advice Fractional Ownership experts, that a potential home purchase would upset the Home England affordability calculator, which runs at 4.5 times the maximum income and 45 percent per person. cent debt-to-income ratio. In short, he says: “If 4.5 x income + deposit = full value of the house” then it is probably a violation of the rules and therefore not available.

You also cannot own other real estate when you buy under this scheme, and as with any real estate purchase, mortgage lenders will check your credit score.

And, of course, you must be able to make a deposit of at least 5 percent of the share of the purchased property.

What are the benefits of joint ownership?

The main attraction of co-ownership is that it offers a path to…

Credit: www.thisismoney.co.uk /

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