A buyer's guide - home ownership schemes
As the leading independent agent in Scotland of new build and re-sale homes, Rettie & Co have access to all of the best deals available to make home ownership more accessible. Register with us now to be kept up to date with the latest home ownership schemes and incentives, including fantastic discounts on many new build developments.
The four principal home ownership schemes available in Scotland are explained in detail here. For further information on these schemes, or for independent financial advice, please contact the Rettie & Co. New Homes sales team on 0131 220 4160 or email buyingadvice@rettie.co.uk for further information and we will find the properties most suitable for you.
Shared equity
Shared equity schemes allow the purchase of a home in partnership with either a registered developer or a housing association. An owner normally pays between 51% and 80% of the purchase price of the property, with the remainder held by the developer or housing association. Shared equity is perfect for buyers who are expecting their income to rise in the near future.
Shared equity schemes offered by developers aim to help anyone who wishes to purchase a new home, but who does not wish to pay the full percentage of purchase price at the time of completion. It then allows the purchaser to buy out the developer's share at a later date, or to ‘staircase’ to full ownership by making several smaller payments.
When you buy a property through a shared equity scheme you own the property outright - you will have full title to the property and you will not pay any form of rent to the developer or housing association. You will pay for your share of the purchase price in the usual way, along with legal costs, survey fees and any other costs associated with the purchase including (if applicable) stamp duty.
Like other home owners you will be responsible for all maintenance, insurance and repair costs, as well as making your mortgage repayments and paying your council tax. If the property has common and shared areas (flats, for example) you will be responsible for paying any common maintenance or factoring charges.
Who is shared equity for?
Shared equity schemes offered by developers have previously only been aimed at first-time buyers, however these scheme are not generally means tested and are therefore available to the wider market.
Schemes operated by housing associations are aimed at helping those on low incomes and / or with particular needs and usually require certain criteria to be met in order to apply. These may include the following:
- First time buyer
- Existing tenant of any local authority or housing association
- Disabled homeowner whose current home is no longer suitable for their needs
- Existing or previous homeowner unable to sustain, or move back into home ownership due to significant changes in their household circumstances (such as divorce, separation or the death of a spouse)
There is also financial assistance available from the Scottish Government via the Open Market Shared Equity Pilot scheme, LIFT. This is operated by a selection of Housing Associations across Scotland including Link Homes and is intended to assist those on low incomes and first time buyers to purchase the majority share in a property on the open market, usually between 60 and 80 percent. A form of 'means testing' is carried out by the Housing Association to ensure eligibility and the stake that you hold is determined by the maximum mortgage you can raise, plus any personal contribution you can make towards the mortgage. After two years there is the option for the homeowner to increase their stake to 100 percent.
What happens when I want to sell my property?
If an 80% stake is taken in the property when you wish to sell, then you will receive 80% of the selling price when it is sold. The developer or housing association would receive the remaining 20%. The percentage return is not affected by changes in the value of your property over time. Similarly, if your property loses value, you will meet 80% of the loss, and the developer or housing association will meet the other 20%.
Shared ownership
Shared ownership is a scheme by which you can buy a share of the ownership of a property (normally 25%, 50% or 75%) and then pay a reduced rent on the remainder, often known as an occupancy charge. The percentage ownership is known as a tranche. You own a tranche and the developer or housing association owns the remainder.
The scheme is designed for people who cannot afford to buy a property on the open market and is an ideal option for first time buyers.
Priority groups
There tend to be priority groups for the scheme and where decisions need to be made between applicants, the ones with the highest priority will be offered first option. Where there are applicants with equal priority, then the developer or housing association would decide by drawing lots to decide who is offered the properties first.
The priority groups can include the following:
- Council and housing association tenants
- First time buyers
- Other housing needs
Within these groups, applicants with special housing needs will have priority for these properties.
Assessment
The developer or housing association has to be sure that you can afford to buy the share and also has to prove that you could not afford to buy a flat outright on the open market. They will need evidence of your income and confirmation that you can obtain a mortgage (if applicable).
Responsibilities
You are responsible for:
- Paying an occupancy charge to the developer or housing association
- All maintenance and repair costs
- Paying for services provided, such as stair cleaning, grounds maintenance and buildings insurance
- Management / factoring charges
Occupancy charges
These depend on the proportion of the flat you own. For example, for a 25% tranche, the occupancy charges could range from £156.56 per month to £195.06 per month depending on the size and type of flat. These charges would be reviewed annually. At any review, you can refer the proposed charges to an independent valuer and the cost of this is split between you and the developer or housing association.
Mortgages
Most lenders are happy to consider lending for shared ownership. You may not be granted a mortgage for the full amount of the valuation of the tranche you wish to purchase, so you must be prepared to meet some of the cost yourself. You must also make it clear when requesting a loan that it is for shared ownership and advise the lender of the occupancy charges so that they can take these into account when assessing your mortgage.
Legal advice
You will need a solicitor in order to purchase your tranche. You will be responsible for meeting all your legal costs relevant to this purchase and you will have to pay for your lender's valuation survey.
Other costs
There are other related costs that need considered when purchasing a property including:
- Council tax
- Contents insurance
- Removal costs
- Stamp duty
Buying further tranches
You can purchase at least another 25% tranche after one year. You can also buy out the developer or housing association's share at any time, thus obtaining full ownership.
Selling
Please note that the developer or housing association often retains the right to buy back your share if you chose to sell, but many explicitly state that it is not their policy not to enforce this. If you own a share of the flat and wish to sell, we advise you to contact Rettie & Co to either try to sell directly to another buyer, or sell the flat on the open market. The proceeds would be split with the developer or housing association according to the tranche levels owned.
Part Exchange
Many of the developers that Rettie & Co. work alongside are currently offering fantastic ranges of incentives, one of which is part exchange. Part exchange is a simple concept that alleviates the pressure from a property chain.
How does it work?
Part exchange allows a quick sale of your property, and avoids any breaks in the property chain. When applying for part exchange you will be offered between about 80 per cent of the market value of your current home. In order to eligible you must be a homeowner who is looking to move up the housing ladder.
When you have found the property you want to buy, two independent surveyors will be appointed to carry out a valuation. Based on their estimate of the sale potential of your property and local market conditions you will receive the valuation of your home.
Once you agree the offer, and subject to satisfactory surveys, the development company becomes your buyer, freeing you up to put in a confirmed offer on your new home.
The terms and conditions of part exchange will vary between developers so please contact the Rettie & Co. New Homes sales team for further information 0131 220 4160 or email buyingadvice@rettie.co.uk
