Homeownership schemes such as shared ownership, mortgage guarantee and shared equity schemes are promoted as a low-cost way to buy a home.
Government schemes to help homeowners
The government provides a range of schemes to provide a route on to the property ladder for people who can't afford the full costs of buying a home.
Many schemes are mainly aimed at first-time buyers, but some also cover people who have previously owned a home. There are also schemes only for older or disabled people.
Some homeownership schemes are only available to people with household incomes of up to £60,000 a year or £80,000 in London.
Homeownership schemes fall into two main categories:
- part-rent, part-buy schemes for shared ownership
- help to buy 100% of a home using an equity loan or mortgage guarantee scheme
Features of the schemes vary and different schemes exist in different parts of the country. Each scheme has its own detailed rules for income and eligibility.
Find out more from Gov.uk about government schemes for homeowners.
Find out more from the Money Advice Service about home-ownership schemes.
These are part-rent, part-buy schemes. They are often provided by housing associations.
You buy a share of your home (at least 25% of the property value), usually using a combination of savings and a mortgage. You can increase your share of the property by buying more of it over time.
The housing association owns the remaining share. You pay rent on the housing association's share.
Most shared-ownership flats and houses are leasehold.
Find out more about shared-ownership schemes.
Equity loan schemes
Private home-building companies typically run these schemes.
Equity loans are only available for newly built properties on specific housing developments.
You own the whole of a property that you buy through a shared-equity scheme.
Some of your deposit is paid for using an equity loan from the government and a national house-builder. You pay for the remaining purchase costs using savings or a mortgage.
Find out more about shared-equity schemes.
Mortgage guarantee schemes
Mortgage guarantee schemes are available for buying either an existing or a new-build home in the UK. They may help you to get a mortgage to buy a home.
Lenders may be prepared to offer you a mortgage because a government guarantee covers some of your mortgage. If you default on the mortgage, a government guarantee covers some of the lender's loss.
Find out more about mortgage guarantee schemes.
What you have to pay
All homeownership schemes require you to pay a deposit, typically a minimum of 5% of the purchase price of a home.
The costs involved in buying a home include solicitors costs, legal fees and taxes such as stamp duty.
Ongoing costs depend on the type of scheme and may include:
- monthly mortgage payments
- monthly rent payments
- equity loan fees and charges
- annual service charges and ground rent
You also have to pay the costs of running a home such as council tax and energy costs.
Use Shelter's budget calculator to help you work out the costs involved.
Find out more from the Money Advice Service about the costs of buying a home.
Repairs costs and service charges
As a home-owner, you are responsible for 100% of the cost of repairs in your home. Homeownership scheme providers don't help you with any of these costs.
Most homes provided using shared homeownership schemes are leasehold. This means you usually have to pay for repair costs and management costs through service charges.
You are also expected to pay the full costs of any home improvements you make.
Selling up and moving on
It's important to look carefully at any restrictions imposed by homeownership schemes. Some schemes don't allow you to sell your home without the permission of the scheme and have rules that restrict who you can sell to. Selling is usually more straightforward when you own 100% of the value of your home.
You have to repay any money owed to the scheme when you sell. With shared equity schemes, the amount you repay is calculated as a percentage of the price your buyer pays. You have to repay any mortgage owed to your lender.
Your home may gain value if house prices rise. If you own a shared ownership property, the housing association also benefits from this. If you have a shared equity home, the scheme provider benefits from the price rise too.
If house prices go down, you may end up owing more on your mortgage than your place is worth. This is called negative equity and could affect your ability to sell.
Find out more from the Money Advice Service about negative equity.
Eviction and repossession
Your home can be repossessed if you don't pay the mortgage and any secured loans.
If you have a shared-ownership home, you can be evicted by the housing association if you get into rent arrears. If this happens, you risk losing some or all of the money you put into the home.
Find out more about ways to avoid repossession.
Last updated 14 Jan 2016 | © Shelter
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