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For some people, Government promoted shared ownership and shared equity schemes could be a route into homeownership. Would a HomeBuy scheme be affordable for you? Find out how these schemes work, who they are for, and consider your long-term options.   

HomeBuy

HomeBuy is the name given to a range of Government-backed schemes promoting home ownership for social housing tenants and first time buyers (people who have previously owned a home may also qualify). The schemes are available only to people whose household income is £60,000 a year or less.

There are two main types of scheme:

• shared ownership (part-rent, part-buy)
• shared equity (part-mortgage, part-equity loan).

With shared ownership schemes, you part buy a property – with a share of at least 25 per cent of the property value – and pay rent on the remaining share, typically to a housing association.

With shared equity schemes, the properties on offer are usually new-build flats built by private property developers. You buy 100 per cent of the property, but a substantial part of your deposit is made up of an equity loan from a national house builder, amounting to 20 or 30 per cent of the property value.

HomeBuy schemes prioritise council and housing association tenants and people serving in the armed forces, and some schemes are aimed at disabled people and people aged over 55.

Shared ownership schemes

HomeBuy shared ownership allows you to buy part of a property, sharing ownership with a HomeBuy agent, typically a housing association. You pay rent on the housing association’s share of the property, and fund the purchase of your share using a combination of savings and a mortgage.

The schemes include:

• HomeBuy shared ownership – for newly built properties
• Social HomeBuy – for council/housing association tenants buying a share of their home
• HOLD – shared ownership for people with a long-term disability
• Shared ownership for the elderly - for people aged 55 and over.

With shared ownership schemes, you and the housing association share any rise or fall in the value of the property. When you sell, you will each get your share of the proceeds of sale in proportion to what you own. So, if you own 70 per cent and the housing association 30 per cent, the money raised will be split 70:30.

As you are paying rent, you can be evicted if you have rent arrears. If this happens, you may end up losing out on any increases in the value of the property and you may also end up losing any deposit you paid for the property.

Shared equity schemes

Equity loans are only available for newly built properties on specific housing developments in England. With shared equity schemes, you buy and own the whole of the property. The purchase is funded in part by you, through a combination of mortgage and savings, and in part by an equity loan. Depending on the scheme, the equity loan can fund up to 30 per cent of the property value, and is provided jointly by the Government and the house builder.

HomeBuy equity loan schemes include:

• HomeBuy Direct
• FirstBuy (from summer 2011)

When you sell the property, you repay the equity loan as well as the remaining mortgage. The amount repaid will vary according to the value of your home. If the loan was for 30 per cent of the purchase price of the property, you will repay 30 per cent of the price when you sell.

There are no charges for the equity loan for the first five years, but after this you will be charged a fee each month. The fees do not reduce the amount of the loan.

You can repay the equity loan in stages – and increase your share of the equity in the property. The property will have to be valued each time you do this. The amount you pay off will be converted to a percentage of the property value, and your share in the property will increase by this percentage.

How affordable is it?

For all schemes you will need enough money to pay for all the costs involved in buying a property.

You will need work out the total amount you would pay for the rent or equity loan on top of the  mortgage and other charges or fees. Will you be able to afford the combined costs of a mortgage and rent/equity loan? How does the total charge compare with what you are paying now?

Charges and fees for some schemes increase over the years – make sure you budget for this. 

If your circumstances change, how will you pay the mortgage, equity loan or rent? There may be help available through Support for Mortgage Interest and housing benefit – check if you might qualify. Think about how you would fund any shortfalls or periods when help might not be available.

As a home-owner you will be responsible for the cost of repairs and will probably have to pay service charges if your home is leasehold. 

You should also look to the future. These schemes may help get you started with home-ownership, but you still need to be realistic about what you can afford over time. What will the long term benefits be for you? Think about how long you would want to stay – will it be a long-term home or a ‘stepping-stone’ to another place?

In time, will you be able to afford to increase your share of the property, or own it outright? If not, you may find that your options for moving later are limited. If you own a part share of a property in an expensive area, you may not be able to afford to trade up to full ownership of a home on the open market in that area later – and if prices rise, these become even more out of reach.

Is it risky?

There is always a risk with home-ownership. Property prices can go up or down. If they go up, you may gain value in your property, but you may also have to pay an increased price on the next place you buy. If they go down, you may find you owe more on your mortgage than your place is worth – this is negative equity – and it could affect your ability to sell.

If you own a part share in a property, and its value goes up, when you want to increase your share, the price will also go up. Similarly, if the value goes down, the price of an increased share will be cheaper. You’ll need to keep an eye on your property’s value when deciding on when or if to increase your share. It will be important to get independent financial advice.

Be careful about the type of property you take on – some flats can be difficult to resell. Location can make a difference too. Make sure you research property prices carefully in the areas you are considering – you can use property websites to find out how much properties sold for.

Arguably, the biggest risk with home ownership is your ability to pay the mortgage and other loans secured on the home. Default on these, and you may face repossession. 

Increasing or decreasing your share – ‘staircasing’

All HomeBuy shared ownership schemes allow you to increase your share in the property. This is called 'staircasing'. You may need to wait for 12 months after your initial purchase before you can buy a bigger share.

In exceptional cases (for example, if you are at risk of repossession) you might be able to sell part of your share back to your housing association or local council if you can no longer afford the mortgage on the share that you own. This option is not guaranteed – it is at the discretion of your lender and your housing association or local council.

It’s important to consider how part-ownership will affect your housing choices in the long-term. If you are unable to increase your share of the property over time, will you be able to sell up and buy another place if you need to?

If property prices in your area fall, might that be a good time to increase your share in your property? Make sure you get independent financial advice before making any decisions.

Moving on

It is possible to sell a home bought through one of these schemes – the HomeBuy agent/housing association that sold them often has the choice to buy them back, or they can be sold on the open market. There may be limited opportunities to sell and buy another of this type of home, but this difficult to achieve. About half of people moving from this type of accommodation move on to full home-ownership, but for many this is simply not an affordable option.

If you think you may need to move to a larger or more expensive place in the future, for example, if you plan to have children, you should look carefully at what your options are likely to be – particularly if you are considering giving up a council or housing association tenancy.

Alternative options

There are other schemes you could consider. If you are a council tenant, you may have the right to buy your home. You may have a similar right, known as the right to acquire, if you are a housing association tenant. People in the armed forces may be able to get help through the Armed Forces Home Ownership Scheme.

HomeBuy Agents

A HomeBuy agent is a housing association authorised by the Government to run housing schemes for first time buyers and social housing tenants. They look at applications and assess if you are eligible for a HomeBuy scheme.

HomeBuy agents work with the housing department in your local council and other local social landlords to develop new homes. They will also be able to give you details of the different schemes you can apply to. Find a list of local HomeBuy agents on the Directgov website.

Getting advice

It is important to get independent financial advice before you decide to go ahead with any property purchase. An independent financial adviser will be able to help you choose the best scheme for you and work out what you can realistically afford. Independent financial advisers should be registered with the  Financial Services Authority and usually charge for their services. 

A local advice centre may be able to help you if you are having problems with a scheme. Use our directory to find agencies in your local area that can help you.

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