Helping hand on the first rung

Unable to afford a full mortgage for the place you want? A shared ownership scheme eases the burden

CAROLINE MATTHEWS is a single mother. She lives with her three- year-old daughter, Misty, in a three-bedroom house at East Grinstead, West Sussex, which she part-owns with the local housing association.

"I really wanted to own my own home. But it was very difficult to get a foot on the housing ladder. I just couldn't afford a full mortgage for the sort of place I wanted to live in, with a small child. A studio just wasn't enough.''

Ms Matthews had first approached the local council to see if it could offer housing for rent, but was told she earned too much to qualify. She works in air cargo at nearby Gatwick Airport.

Instead the local authority pointed her in the direction of the Moat Housing Society, a housing association operating in Kent, Essex and mid- Sussex.

Moat manages more than 5,000 homes. Some are at affordable rents, of which a proportion are reserved for people needing supported housing. Others are run under shared-ownership schemes.

Ms Matthews applied a year ago for a Do-It-Yourself Shared Ownership scheme (DIYSO), through Moat. Under this scheme the individual selects a home of his or her choice, within certain parameters laid down by the housing association.

The association then buys the property - in most cases the freehold - and leases a proportion of the home's value to the client, who gets a mortgage to cover the part of the house he or she actually owns. A subsidised rent is paid on the part owned by the housing association.

Shared ownership allows participants to increase the proportion of house that they are buying in stages, so that eventually they can own the whole property. This practice, known as "staircasing", is designed to implement government policy to increase home ownership.

Caroline Matthews owns 50 per cent of her house at the moment. But she has an endowment policy to cover the value of the whole property, so that one day she will be able to buy the rest of the equity from the housing association. "But it's really having your own place from the start. You choose it, it's in the area you want to live in, and you decide on the way you'd like to decorate,'' she said.

There are two types of shared-ownership schemes available through housing associations - DIYSO and new-build houses. Housing associations receive an average of 58 per cent grant on the unsold equity of shared properties from central government, through the Housing Corporation. The rest of the capital they raise privately. This year 42 per cent of Housing Corporation funds will go into shared ownership. (Most of the rest will go into rented social housing.)

Shared-ownership schemes are aimed principally at local authority tenants, freeing precious rental accommodation for those on waiting-lists.

Another client group is of individuals emerging from broken marriages - "middle-income people, that is, who are on the margins of purchasing, but who don't have enough money for a full mortgage,'' said Chantelle Hayes, development manager of the National Federation of Housing Associations.

To qualify, aspiring participants, usually first-time buyers, have to fulfil certain criteria defined by the housing association in question. They then raise their mortgages in the same way as any other purchaser.

People need around £1,500 to cover costs involved in the purchase, although some of this may be refundable. Often, after the initial outlay, the type of buyer admitted to shared-ownership schemes has little or no money left over for a deposit.

There are a few mortgage lenders who offer 100 per cent loans to sharing owners, including Nationwide and Portman building societies.

This sort of lending represents a pretty good risk, as the loans are effectively underwritten by the housing association's subsidy from the Housing Corporation. This "Mortgagee Protection Clause'' is written into the lease, and saves the individual from having to pay expensive mortgage indemnity guarantee insurance, which would normally be demanded by lenders, on this percentage of debt.

During the housing slump, some shared-ownership purchasers dipped into negative equity for the proportion of the houses they own.

But the part owned by the housing association will have also fallen in value. So someone wishing to increase his or her stake in a property can buy it at the new, lower value, and pay much less than originally expected.

Prospects, however, are not so rosy. Government grants to the Housing Corporation for Approved Development Programmes dropped this year by 21 per cent.

In October new social security regulations will come into force that will slash mortgage repayments for those who become unemployed.

Existing borrowers will now have to wait nine weeks before receiving payments, which will be provided at only half-rate until 27 weeks. New borrowers will get nothing for 40 weeks.

The cuts are likely to affect shared-ownership purchasers particularly badly, and may discourage new buyers altogether.

Private redundancy insurance costs £12 to £20 a month and accident, sickness and unemployment insurance pay-outs kick in only after 30 days.

For more information write to: Chantelle Hayes,National Federation of Housing Associations, 175 Gray's Inn Road, London WC1X 8UP.

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