Ask Emilia

Emilia is the Sales Director at Metro Finance, the largest shared ownership , the largest shared ownership mortgage provider. Metro Finance helps around 2,4 00 shared ownership mortgage provider. Metro Finance helps around 2,4 00 shared ownership buyers each month, working with more than 90 housing associations to make the process for the buyer as simple as possible, and helping to innovate the shared ownership product. Emilia has worked with Metro Finance for over 10 years, specialising in shared ownership

Q: SHARED OWNERSHIP… WHY IS IT SO IMPORTANT AND BENEFICIAL TO MAXIMISE THE SHARE YOU BUY?

When buying a shared ownership property, you’ll go through an affordability assessment to determine what the highest share is you can buy. If you’re wondering why you can’t just buy the advertised share, or a share that you choose – then read on.

Shared ownership is very much geared to the individual person and their circumstances, here’s why:

HOW DOES THE AFFORDABILITY WORK?

Before I go into the benefits of maximising the share, a bit of background into how the affordability works. The adviser will look at all your income, determine what can be used and consider any credit commitments you have such as loans or credit cards.

Shared ownership rules state no more than 45% of your take-home pay should be used towards your mortgage, rent, service charge and any credit commitments. This is the adviser’s first anchor point when assessing the affordability.

The adviser will then cross-reference this with a lender affordability check and complete a budget planner with you to include all your outgoings.

These three points will determine the most suitable share that’s available for you. And the most suitable is usually going to be the maximum, that’s the expectation of shared ownership rules.

BENEFITS OF BUYING A BIGGER SHARE – LESS RENT!

This is the biggest factor. You’re buying your first home, you want to get away from the aspect of paying rent, you want security and to build up your own equity. The monthly mortgage payment you make will be reducing the mortgage balance each month, therefore building up a higher amount of equity for when you sell the property on. Based on an approximate average property price of £250,000: • 40% share – total monthly costs approximately £760, of which £344 would be rent • 60% share – total monthly costs approximately. £870, of which £229 would be rent That’s £110 more in overall costs – but £115 less in rent. So that extra money is going straight into your property, and your equity in the property (minus lender interest of course – incidentally why it’s so important to find the best deal!).

IT COULD BE CHEAPER TO BUY NOW!

Over the next five years, sources have stated that house prices are expected to grow by 21.7%. The average house price at the moment is approximately £268,000. This means in five years’ time the same property could cost £326,156. When you staircase, the price of the extra shares is based on the property value at the time. So, if your property has gone up in value, it means the cost of buying more shares could be higher. It makes sense to buy the extra shares at the lowest price possible.

So, if you bought a 60% share at the average house price, it would cost £160,800. If you brought a 40% share now, and a further 20% in five years’ time it could cost in total £172,400 – that’s an additional £11,600 you will have to pay.

If you can afford to do it earlier, then why not? It may cost you a little more each month, but in the long run you could be saving money.

EASIER TO STAIRCASE TO 100%!

For many people buying shared ownership, the ultimate goal is to own 100% once circumstances allow.

If you buy a higher share to begin with, it becomes easier to buy that final tranche. Each time you staircase you have additional solicitor’s costs and possible fees. So, the fewer times you staircase, the more you will save on fees.

MORE PROFIT WHEN YOU SELL!

When you sell the property, if you have bought a bigger share at the outset, you get a bigger proportion of the profits if house prices rise.

THE HOUSING ASSOCIATIONS’ RULES STATE THAT SHARES MUST BE MAXIMISED

Just like mortgage advisers and lenders have the FCA, or television/radio has Ofcom, the housing associations are regulated by Homes England, a Government agency. They have to follow the Capital Funding Guide, which effectively holds the rules of shared ownership. One of these is that the housing association must be encouraging buyers to purchase the maximum share available to them.

But that’s just a rule… In the majority of purchases, it simply makes sense to buy the largest share affordable – it’s less rent to pay – it could create more equity – it could be easier to staircase – and it could create more profit.

And I only state “could” in the above, because most are linked to house price increases – which are almost certain, or you probably wouldn’t be reading this...

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