New Build Shared Ownership

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New Build Shared Ownership (Part 1)

Matt Coulson talks to us about using shared ownership to buy a new build property. Episode one of two, recorded in October 2024.

What is shared ownership and how does it work?

Before I answer, I just want to say that I think shared ownership is a fantastic scheme. If you’re thinking about shared ownership, you’re already on the right track because it’s such a helpful way to get on the property ladder.

It’s effectively a way of buying a property in stages, by buying a portion at a time, which clearly brings down some of the financial barriers associated with owning a home. With a shared ownership property, you own some of it and pay rent on the rest.

Some people call it a part-rent, part-buy mortgage, which is shared ownership in a nutshell.

Can I buy a new build property with the shared ownership scheme?

Absolutely, yes. It’s a very common method. We have lots of clients using shared ownership to buy new builds. House builders often partner up with shared ownership providers, which might be a housing association or a private entity. Some house builders actually handle shared ownership propositions themselves.

The nice thing about that is you get all of the benefits of a new build property, such as 10-year guarantees and the builder committing to putting things right and making sure you’re happy with the final outcome.

But the financial barriers are smaller than with a traditional new build purchase – so it can give you a win-win situation. You get the opportunity to buy a property with all the new build benefits, with less financial commitment in the first instance.

What are the eligibility criteria for a new build property purchased with the shared ownership scheme?

We’re recording this in October 2024, and at the moment, there are mortgage products with no deposit requirement. That may or may not be the case when you’re listening to this, but some lenders support shared ownership purchases with a 100% mortgage on the share, which is pretty amazing and not necessarily commonplace.

Looking more broadly, to have a wider choice of lenders, you more probably need a 5% deposit. But it’s only 5% of your share – which shows what I mean about bringing down financial barriers.

Let’s say you’re looking at a property with a value of £400,000. If you were buying that with a traditional mortgage and you need a 5% deposit, that’s a big commitment – you need about £20,000.

Whereas on a shared ownership property, you might only be looking at buying 25% of that property in the first instance, so you need 5% of the 25%. In essence, you’re looking at a deposit of £5,000 for that home.

Always talk to an advisor about what products are available at the time you’re considering a shared ownership purchase. But at the moment, there are 100% products, or you might just need a 5% deposit on the share you’re buying.

How much deposit do I need for a shared ownership mortgage on a new build property?

I covered a lot of this in the previous question, but in terms of eligibility, it’s like a normal mortgage. You could be forgiven for thinking it will be overly complex with lots of hoops to jump through.

With shared ownership, once you’ve looked at affordability, as for any mortgage, you might find there are some specific areas to consider. Some local authorities, for example, have restrictions around what you do for a living, whether you grew up in the area or live in the area now.

That’s something that you would find out very early on in your search, though. Beyond this it’s like a normal mortgage. You have your affordability checked, your advisor looks at your income and your expenditure in conjunction with the shared ownership providers. So there are a couple of extra hoops to jump through, but nothing too crazy.

Will my shared ownership new build property be freehold or leasehold?

It depends on the property. People buying shared ownership with a new build are quite commonly looking at an apartment or a flat, which will be leasehold.

Over the last few years there has been a lot of press around leaseholds and management charges. The good news is that from a consumer perspective, there is now a lot more oversight in that area. There are lots of protections there for you as the consumer.

Often that lease will be owned by the housing association, if they are the rental provider which means there is a lot of protection.

Can I buy a bigger share of my new build home at a later date?

Yes, and this allows us to talk about one of the real plus points of shared ownership, which is something called staircasing. It doesn’t mean building an extra storey on your house as you might assume! It actually means gradually increasing your ownership over a period of time.

The property would be yours to the degree of your original share. You might decide that you want to buy an extra 25%, perhaps because your income has increased or maybe you’ve inherited some money. That is definitely something that we see a lot of clients do. You can do that, depending on the restrictions of the provider you’ve bought through.

The government has also stepped in over the last few years to try and make it easier for people to staircase. It’s a natural conversation at the point of somebody’s remortgage. When you buy a property with a mortgage, you’d have a product period of two, three, or five years.

If it is a shared ownership property, when we’re talking about your remortgage we will ask if you want to increase your share and buy a bigger slice of the property. Your mortgage provider – either your existing provider or a new one – may be more than happy to support this, and as your mortgage advisor we would guide you.

We’ve got lots of good examples where, over time, clients end up owning the whole property. That’s done over a series of years through staircasing. That’s one of the reasons I like shared ownership – it allows you to get a foot in the door towards ownership and build it up over time.

Can I ever fully own a new build home through shared ownership?

Yes, you absolutely can and we see examples all the time. It’s something to ask about at the start of the process. Sometimes shared ownership providers don’t want you to own 100%, which is something you should always check out.

When you’re thinking of buying that property, understand from the housing association or builder whether 100% staircasing is available.

The nice thing is that if there aren’t any restrictions around that, you can own the property in full at the end of it. And again, we’ve seen great examples of that.

Clearly, during your time in that property, whilst you haven’t owned 100% you have had a mortgage payment and a rental payment on part of the property you don’t own yet. So it’s not been for free. But it is a nice way to be able to fully own a property over a period of years at a pace that works for you as the buyer, which I think is very important.

It particularly works for people who are early on in their career, where they know their income will increase as they get promoted. We see it a lot with people who work in the public sector, with that predictability around where your income is going to go.

You can buy a shared ownership property with an initial 25% or 50% stake, feeling confident that you can buy more of it over the next five or 10 years. In the end, you can own your home at a pace that really works for you.

What happens if the value of my shared ownership new build changes?

It’s the same as any other property. Property prices can go up and down. The same applies when it comes to shared ownership. So just be mindful that if you buy that property, it doesn’t necessarily mean it’s only going to increase in value.

There have been ups and downs in property prices over the past 15 years. At the time of recording in October 2024, we are coming out of quite a choppy period. So the value of your share of the property can go up and down, which can impact things like staircasing.

Rather than start getting very technical, I would encourage you to get in touch with a mortgage advisor and have a proper conversation on this. Go into it with your eyes open – prices can go up or down and that will impact your ability to do certain things. Just make sure that you’re aware of that at the outset.

What are the advantages and disadvantages of shared ownership for new build properties?

I touched on some local authority restrictions that sometimes exist. You may need to be a key worker, or to have been born and raised in a particular postcode.

But nowadays we’re seeing a much broader range of qualification criteria, and most of the boxes that need to be ticked are the same as any other mortgage. That could be seen as a disadvantage – that certain things need to be ticked off within the application.

The big advantage of shared ownership is that the barriers to entry are much lower. By buying a smaller portion, you could be potentially buying a property much sooner than you would have otherwise.

In fact, we’ve got examples of clients who may not ever have been able to buy, had it not been for shared ownership. Being able to staircase over the years and buy the property at a pace that works for you is a real win. There are huge benefits for anybody considering shared ownership.

Any final thoughts before we return with part two?

One thing I would say is that wrongly or rightly, there’s been a stigma around shared ownership. Perhaps people have looked at it and wondered if it may be right to buy privately without that scheme.

In my view, that stigma shouldn’t exist. Given our national obsession with buying houses and owning property, we need as many different routes to that as possible. I certainly don’t think shared ownership should be looked at as a second-class option.

It should be looked at as equal, and a really good opportunity for people to buy that otherwise wouldn’t have been able to. It is a great scheme and you’re on the right track if you are considering it.

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New Build Shared Ownership (Part 2)

Continuing the conversation on new build shared ownership mortgages with Matt Coulson and Richard Campo. Episode two of two, recorded in November 2024.

Could I sell my shared ownership new build home?

Yes. It’s all about the equity that’s built up in the property. The property is split between the housing association and yourself. You’ll own a proportion and you’ll rent a remainder.

This is definitely a growing area. I got some interesting stats out of the English Housing Survey where in 2020, roughly 202,000 people were living in shared ownership property.
Certainly post the Autumn budget, we are going to see a lot of growth in this sector. It’s not such a niche thing any more.

Can I make home improvements or extend a new build bought with the shared ownership scheme?

Yes, you can. It would depend really on your share and the landlord for the part of the property that you don’t own.

Basically, you just need to engage with them. Normally things like painting, decoration and refurbishment are straightforward, but if you are looking at structural changes, you need to speak to that landlord first. It’s normally a housing association who owns the other part of the shared ownership property.

It’s not out of the question, but it’s always good to have a conversation with them and get permission first.

What warranties or guarantees are included with new build properties with shared ownership?

It’s going much the same as with any new build property. You get the big guarantees like NHBC (National House Building Council) and others. The property will be built to high standards because all new builds have to be.

New homes are typically far more energy efficient, as well. We’re a big advocate of that, and we’re encouraging clients in properties of standard construction to retrofit their property to make them more efficient.

But with a new build you’ve probably got an A or B rated property straight off the bat. That’s very relevant to mortgages, because lenders are now factoring that in. When you buy any electrical goods, they have an energy rating. It’s the same with your property.

With an A or B rated property, you may be able to borrow more or find preferential products. That’s going to be a big theme through the mortgage industry in the coming years.

How does the remortgaging process work with shared ownership on a new build property?

Regular listeners will be used to Rich and I saying that it’s exactly the same as a normal mortgage. It’s the same again here. There are a couple of caveats, similar to the previous answer around home improvements – just make sure that any remortgage has been greenlit by the housing association.

Generally, there are shared ownership specific products. Some lenders really focus on shared ownership or have a really good offering. Normally these are applicable for any shared ownership remortgage.

The process would involve an affordability calculation as normal and an assessment on your income. In the previous episode, when we talked about buying shared ownership, we talked about the rental payment forming part of that affordability assessment. That’s no different here.

Bear that in mind when you are talking to your mortgage advisor – the rental payment you have every month would need to be factored in. But beyond that, it’s pretty straightforward.

One real positive is that we’ve seen real growing support for the space. A lot more lenders now have, if not specific shared ownership ranges, support for the shared ownership sector. So as with any kind of remortgage, have a conversation with your mortgage advisor seven or eight months out from that mortgage being due.

We can secure a rate for you up to six months ahead and review it as we go. If a better rate becomes available while you have an offer in place, we can always switch to a new deal. So get in early – there’s a lot of choice out there for you.

Can I port my shared ownership mortgage to move house?

Potentially. It depends what you’re doing. If for example, you’re taking the mortgage onto a regular property, getting rid of the shared ownership and moving to another property, all mortgages are portable.

The assessment will be on the section of the property that you own. As a simple example, let’s say you own 50% of the property and that’s worth £250,000. You have a £100,000 mortgage, meaning you have £150,000 equity to use as a deposit on the next property.

If you’re staying within a housing association and moving to another shared ownership property, you just need agreement from the relevant housing associations. Because you’re a part-owner with them, they need to agree on the sale value and potentially the purchase value of the next property.

Normally, it’s really straightforward. They’ve got good contact details and it’s all done online. Talk to the housing association first, because they need to agree, and then come to us. That’s probably the only real difference in porting – you do need to engage with the housing association.

How does stamp duty work for new build shared ownership properties?

You effectively have a choice with a shared ownership property. You can elect to pay the stamp duty on the full value of the property, even though you’re only buying a portion of it at that point in time. By doing that, you rule out any future stamp duty payments on that property. You get it over and done with, out of the way.

Alternatively, you can elect to pay it on just the share. Often that means a much smaller stamp duty bill, and potentially no bill at all. It really depends on the price you’re paying and your expectations about stamp duty in the future.

The key with this is to talk to a solicitor early in the process. There are conveyancers who are shared ownership specialists. They really know their stuff in this space, so having a conversation with a solicitor who understands shared ownership and the stamp duty choices is really helpful.

Are there any other fees we need to know about?

Nothing outside of the usual. Matt talked through how stamp duty works, which is the main difference. In terms of the mortgage, there are sometimes arrangement fees – that depends on your preferences and the product we’re going for.

Same with the survey – some banks will give you a free survey and others won’t. We’ll make sure all the fees are laid out and go through your preferences and your budget.

The mortgage itself is all standard. The only difference is the rent you’re paying on the remainder of the property, which we’ve touched on already.

Can I use the shared ownership scheme to buy a new build if I have bad credit?

Yes. There are quite a lot of options now. As I mentioned previously we’re seeing more lenders come into the shared ownership space.

It is a little bit more specialist from a mortgage point of view and historically, only certain lenders have been fully supportive. The good news is that the situation is rapidly changing. Everybody knows about the affordability challenges that a lot of people face in the UK property market. Shared ownership has emerged as an excellent solution.

Because buyers are now very interested in this and it is a genuine route to ownership, lenders have had to go with it. And as more lenders enter a market, criteria expands, affordability improves and choices get better.

There are more lenders now within the shared ownership space, so more lenders could potentially consider somebody who may have had one or two credit blips in their past history.

Much like any other mortgage, the key really with this is just to have a full understanding of what those credit issues have been, by looking at your credit file. There are lots of free options online to do that. If you’re planning to buy via shared ownership and you think there may be some credit issues on your file, go and get a copy.

Don’t put your head in the sand – have that with you when you talk to your mortgage advisor, because that will really help us understand which lenders and which products are going to be suitable for you.

Can I use the shared ownership scheme to buy a new build property as a First Time Buyer?

This is a really good route for First Time Buyers. Just to be really clear, shared ownership is a specific thing. You can’t just apply shared ownership to a new build, if that’s what the question is implying.

On a new build site, there’s normally an element of affordable housing – and shared ownership fits into this category. If a section of a new development is allocated to shared ownership, you work with the housing association, as we’ve gone through previously. Where that is in place, it’s very much designed for First Time Buyers.

As of the Autumn Budget in October 2024 the Labour government is going big on building, and has £3.1 billion set aside for affordable homes, plus £3 billion worth of guarantees for smaller builders.

So we’re going to see more and more of this. It’s an absolutely fantastic route, particularly around major cities, London and the south east, where house prices are so high. As we talked about previously, staircasing is a great way of buying a property now and scaling up later [podcast recorded in November 2024].

How do I apply for shared ownership on a new build? What is the process?

It’s a little different from a regular purchase, in that there are some criteria to qualify for the scheme itself. This is outside of the mortgage, which I’ll come to in a moment.

Some local authorities have specific rules that often relate to having either grown up in the borough or being a key worker. Sometimes there are additional rules that might not apply to a regular new build purchase.

There are some really good online tools to help. I would recommend the Share2Buy site for anybody thinking about this. It’s a fantastic resource and will really help you get a start on finding a property.

Once you’ve established the area you want to be in and started to look at specific schemes, talk to the provider to find out if there are any additional criteria that might prevent you from being able to apply. If not, and you’re ready to go and ticking all the boxes, an affordability assessment is key.

That is the mortgage side, which is slightly more stringent. We touched on it in the previous episode, but we need to consider the rental payment and service charges as part of affordability. Most of the time, the house builder or housing association would require you to speak to an approved mortgage advisor who understands shared ownership.

Once you’ve been through a mortgage assessment you’re ready to reserve a property, and it’s a ‘normal’ purchase from that point onwards.

What else do we need to know about getting a shared ownership mortgage on a new build?

The one thing, as highlighted in Matt’s last answer, is that it’s just slightly more complex. There are more rules.

We’re very lucky at Heron to have a long heritage of working with house builders. We understand the sector and know how it works. We’re very familiar with developers and we can actually smooth that transition as well as arranging the mortgage.

As a broker, we’ll always get access to exclusive products. We’ve got great research tools and direct access to underwriters. We can save you a lot of time and effort to make sure you get the right outcome.

Then you can focus on the fun bit, which is getting the keys, picking out the sofa and arguing over what colour you’re going to paint each room.