Buying A Shared Ownership Property Without A Mortgage

Are you considering buying a shared ownership property without a mortgage? Shared ownership is a government-backed scheme that allows first-time buyers to purchase a portion of a property and rent the remaining share.

This method can be a more affordable way to get on the property ladder, especially for those who do not have the means to secure a traditional mortgage. Buying a shared ownership property without a mortgage could be beneficial as it means lower overall repayments.

In this insight, we will discuss the benefits and considerations of buying a shared ownership property without a mortgage and provide helpful tips for navigating the process.

Key Takeaways

• Buying a shared ownership property without a mortgage is possible if you have the cash available to purchase your share of the property outright. You will then only have rental payments on the remaining share.
• Shared ownership helps first-time buyers afford a home by purchasing a portion of the property and renting the rest from a housing association or local authority.
• The benefits of buying a shared ownership property without a mortgage include lower deposit requirements and more affordable monthly payments compared to buying a property outright or securing a traditional mortgage. It also provides flexibility through the option to increase your share over time.
• Considerations when opting for shared ownership without a mortgage include having enough cash for the deposit and associated fees, proving affordability of the monthly rent, and being aware of the limited property options and leasehold ownership implications.

Can You Buy a Shared Ownership Property Without a Mortgage?

Yes, buying a shared ownership property without a mortgage is possible. If you have the cash available, you can use it to purchase your share of the property without taking a mortgage, leaving you only with rental payments on the remaining share.

However, there are a few things to consider when opting for this route:

• You must have enough cash to cover the deposit and any fees associated with the purchase
• You need to have your finances in order to prove to the housing association or local authority that you can afford the monthly rent on the portion you do not own

How Does It Work?

Shared ownership is a housing scheme designed to help first-time buyers get on the property ladder more quickly. It allows you to purchase a portion of a property while renting the remaining share from a housing association or local authority.

This hybrid model of homeownership can be an excellent stepping-stone for those who cannot afford to buy a property outright. As the minimum possible share to buy is normally 25%, if you have cash available, it would be more attainable to buy a share of a shared-ownership property, than one outright. This provides home ownership, somewhere to live, and possibly a bigger house than what could normally be afforded with traditional purchases.

Upon completion, rather than raising your payment via mortgage funds, you make full payment of your share value to your solicitor. Your solicitor then settles the outstanding payment with the homeowner. 

Eligibility Criteria

To be eligible for shared ownership, you must meet the following criteria:

• Have an annual maximum household income of £80,000 outside London
• Have an annual income of £90,000 in London
• Have a monthly income that is at least 65% more than the monthly cost of the shared ownership property you intend to purchase

Why Buy a Shared Ownership Property Without a Mortgage

There are several advantages to buying a shared ownership property without a mortgage. These include:

Lower deposit requirements

Your deposit is calculated based on the portion you are buying, not the total value of the property. This means you will need a smaller deposit compared to buying a property outright.

More affordable monthly payments

Since you will not have a mortgage, your monthly payments will typically be lower than if you were to buy the property outright or secure a traditional mortgage.

Flexibility

You can choose to increase your share of the property through a process called "staircasing," which allows you to gradually buy more shares until you own 100% of the property.

Despite the advantages, there are some drawbacks to buying a shared ownership property without a mortgage:

Limited property options

Shared ownership properties are usually new-build homes or homes owned by housing associations or local authorities. This means you may have fewer options to choose from compared to the open market.

Leasehold ownership

Shared ownership properties are typically leasehold, meaning you will need to pay ground rent and service charges. Additionally, you may face restrictions on making major changes to the property without permission from the landlord.

Costs Of Buying a Shared Ownership Property Without a Mortgage

When buying a shared ownership property without a mortgage, there are several costs to consider. While the absence of mortgage-related expenses may seem appealing, it's important to understand the other costs involved:

Purchase Price

You'll need to pay for your share of the property's market value upfront. The exact amount will depend on the percentage of the property you are buying. The minimum share is 25%, if you purchase a property of £300,000, you would need to pay £75,000 to own your share outright.

Deposit/Reservation

Some shared ownership schemes may require a deposit or a reservation fee, typically a percentage of the purchase price, to secure your share of the property. This amount is usually non-refundable. This fee is later removed from your overall purchase price, on average, expect to pay £1k.

Legal Fees

Engaging a solicitor or conveyancer to handle the legal aspects of the purchase, including property searches, documentation, and contracts, will involve professional fees. Expect to pay £1200 including disbursement fees.

Valuation and Survey Costs

You might choose to conduct a survey to assess the property's condition. You will not need a valuation for mortgage purposes and you could choose to skip this step at your own risk, although this is not advisable.

For example, if you conduct a structural survey, you may find property issues that could cost later on. Don't forget, new homes are covered by the NHBC for 10 years for any defects. The structural survey could cost £1k.

Stamp Duty

Depending on the purchase price and prevailing government regulations, you may be liable to pay Stamp Duty Land Tax (SDLT) on your share of the property. The amount will vary based on the purchase price. However, this shared ownership stamp duty can be spread amongst your staircasing, reducing your upfront initial costs.

Service Charges and Ground Rent

As a shared ownership property owner, you will be responsible for paying service charges and ground rent. These charges contribute to the maintenance and upkeep of the building or development. Depending on the facilities available you can expect to pay anywhere from £1 per annum, to £5k+. A ground rent of £1, is known as a peppercorn ground rent.

Insurance

It is essential to have appropriate buildings and contents insurance to protect your share of the property and possessions. The cost of insurance will depend on various factors, such as the property's location, size, and the level of coverage required. Expect to pay £350 annually for a house.

The specific costs vary depending on your circumstances. Consult with your agent to find out the exact expected cost of the purchase.

How to Buy a Shared Ownership Property Without a Mortgage

If you decide to buy a shared ownership property without a mortgage, follow these steps to ensure a smooth process:

• Research shared ownership properties in your desired area
• Check your eligibility for the shared ownership scheme
• Speak with a Mortgage Adviser to determine if this option is right for you
• Contact the housing association or local authority managing the property to express your interest
• Arrange a viewing of the property
• Make an offer on the share you wish to purchase
• Pay the required deposit and any associated fees
• Sign the shared ownership agreement and lease
• Move into your new home

Tips for Buying a Shared Ownership Property Without a Mortgage

Here are some helpful tips to ensure a successful shared ownership purchase without a mortgage:

Seek professional advice

Consult with a mortgage adviser to help you determine if buying a shared ownership property without a mortgage is the right decision for you.

Budget for additional costs

Be prepared to cover ground rent, service charges, and other expenses associated with leasehold properties.

Understand your rights and responsibilities

Familiarise yourself with the terms of your shared ownership agreement and lease to avoid any misunderstandings or disputes with the landlord. For example, if you are looking to release equity later on.

Mortgage Brokers and Mortgage in Principle

Although you do not need a mortgage to buy a shared ownership property, it may still be helpful to consult with a mortgage adviser. They can access a wide range of mortgage products and provide recommendations based on your financial circumstances and mortgage affordability. Moreover, they can help you secure a mortgage in principle, which can give you confidence in your home-buying journey and make estate agents and sellers take you more seriously.

Conveyancing Process

When buying a shared ownership property without a mortgage, you will still need to go through the conveyancing process. A conveyancer will manage the legal aspects of the property purchase, such as:

• Conducting legal searches to ensure there are no issues with the property
• Overseeing the sales agreement to protect your interests
• Managing the transfer of funds and exchange of contracts
• Setting a completion date with the seller or their conveyancer

Financial Advice and Support

If you need financial advice when buying a shared ownership property without a mortgage, consider contacting the Sunny Fact Find. The answers you provide help us to find the best-suited adviser for your needs. Your adviser contacts you to discuss how they can help. You decide how to proceed.

Buying a shared ownership property without a mortgage can be a good choice for first-time buyers who can't afford a traditional mortgage or prefer to buy a portion of the property upfront. Do your research, consult with the professionals and you will be well on your way to owning your share of a shared-ownership property.