Shared Property Ownership - Pros and Cons
Do Homebuy Schemes Offer Lower Mortgage Payments & Home Equity?
Feb 12, 2009
Those that can't afford to buy a house outright may wish to consider shared property ownership or a homebuy scheme. People seeking to build capital growth and develop home equity seek to own either 25%, 50% and 75% of a house through shared property ownership.
Advantages of Shared Property Ownership
- Property ladder. Shared property ownership allows someone to get a foot on the property ladder.
- The property share can be increased. Whilst most people participating in a homebuy scheme tend to buy a 50% share, it is normally possible to increase this share when affordability permits.
- Affordability. Whilst shared property ownership has only a minimal effect on rental and mortgage payments, it helps greatly in terms of getting a mortgage. Normal income multiples would mean that getting a mortgage isn't possible for many people seeking to buy a house.
- Home improvements. It is possible to perform home improvements to the entire property under a homebuy scheme.
- Maintenance costs. The cost of property repair are divided on a pro rata basis under a homebuy scheme, depending upon the percentage of the property owned. The breakdown of repair costs will be stated in the lease. Properties are also normally new and don't usually have high repair costs.
- Selling. A person can sell their share of the property at any time under a homebuy scheme.
Disadvantages of Shared Property Ownership
- Don't have outright ownership. Any home equity has to be shared on a pro rata basis with the Housing Association under a homebuy scheme.
- Local authority waiting lists. Preference to those seeking shared property ownership is normally given to those on local authority or Housing Association waiting lists.
- Realistic valuations. There may be comparable properties in the local area that are available up to 20% cheaper than under a shared property ownership or homebuy scheme.
- Falling house prices. It can be very difficult to get a remortgage in a falling property market due to the absence of sufficient house equity.
- Less competitive mortgages. Fewer lenders currently deal with shared property ownership and homebuy schemes, especially if a borrower has bad credit. This can result in higher mortgage payments so it can be a good idea to utilise the services of a mortgage broker.
- Debt consolidation. It can be more difficult to perform debt consolidation due to the absence of sufficient home equity during the first few years.
- Property availability. There isn't always shared property ownership or homebuy scheme properties available in the area that someone wishes to live.
Shared property ownership or homebuy schemes provide someone on a lower income with a chance to buy a house. Many schemes are run by Housing Associations so those that can afford to buy a house outright due to a well-paid job may not be eligible.
Those that found this article useful may also wish to read about Fixed Rate Mortgages - Pros and Cons and Standard Variable Rate Mortgages - Pros and Cons. Individuals considering shared property ownership should also consider utilising the services of a mortgage broker to help reduce mortgage repayments.
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