CIS Shared Ownership Mortgage
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CIS Shared Ownership Mortgage
We talk about how a shared ownership mortgage works if you are a CIS worker – with David Sharpstone.
Podcast approved by The Openwork Partnership on 13/12/2024
Can I get a shared ownership mortgage if I’m CIS registered? How does it work?
If you’re paid through the CIS scheme, there are five lenders that I could think of immediately that lend on shared ownership property. So you could use your gross CIS income for a shared ownership mortgage. There are lots of options.
Are there any CIS friendly lenders that offer shared ownership mortgages?
Yes, there are plenty we could consider.
Are there any restrictions on the types of property a CIS worker can get a shared ownership mortgage for?
Not really. Most shared ownership properties being bought are likely to be a new build. They could be flats or houses, no problem at all.
For secondhand properties, there are no real restrictions I could think of. I was wondering about tower blocks, but I don’t think you get many shared ownerships in those. For an inner city, new build development, where it’s the penthouse suite right at the very top, it could have some lending implications, but I can’t say categorically one way or another.
How much deposit does a CIS worker need for a shared ownership mortgage?
Believe it or not, there is a CIS-friendly or subby-friendly lender that allows you to do shared ownership with no deposit [at the time of recording in November 2024].
They do expect you to have a squeaky clean credit record, but it is possible to use your CIS income and no deposit. The other lenders want a minimum of 5% of the share itself.
As an example, if the overall market value is £200,000 for the property and you’re buying a 50% share for £100,000, a 5% deposit would be £5,000.
A 5% deposit for most lenders is the minimum, although it is possible with no deposit.
Can a CIS worker buy a bigger share of their home at a later date?
This is known as staircasing. Usually, a housing association owns the other share of the property. They will allow you to staircase the property ownership up, normally in 10% chunks. You can’t decide to buy 7.5% of the property – it’s usually 10% upwards.
Before you put down a deposit or a reservation fee, double check with the housing association that it does allow staircasing up to 100% ownership. That way you could ultimately buy the property outright. That’s really important because some mortgage providers will only lend if the agreement has that clause in it. So watch out for that one.
Can I ever fully own a shared ownership home?
Yes, but do check that it’s possible on the scheme you’re considering.
How does the remortgaging process work for CIS workers with shared ownership?
If you already own a shared ownership property, you’re paid through the CIS scheme and you’re looking to remortgage, the approach depends on the reason to remortgage.
Let’s say your deal has come to an end and you want to move to another mortgage lender for a new deal. You’re going to be restricted to lenders that offer shared ownership mortgages. If your CIS income is still important, they would also have to cater for CIS income as well as shared ownership.
There is more legal work involved than a normal remortgage – because lenders need the permission of the housing association. Moving from one lender to another may not be worth the aggravation if it’s only going to save you a few pounds every month. You could actually end up spending more on legal costs.
However, if you want to remortgage to raise some finance and staircase, or even buy 100% of the home, that could either be done with the same lender or with another. It’s pretty much the same process.
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How does stamp duty work for a CIS worker on shared ownership properties?
Always get tax advice. We’re recording this on 27 November, 2024. At the moment, if you are a first time buyer, stamp duty land tax is calculated on the market value of your share.
That’s my understanding – and I am not a tax advisor. Do double check that and get your own advice.
Are there any other fees for CIS scheme members on shared ownership?
If you’re buying a shared ownership property and you’re paid through the CIS scheme, then there are a few fees to factor in.
First of all there are generally more legal costs on a shared ownership property because there’s more documentation for the solicitor to review – including what you could and can’t do with that property. You’re probably not going to get much change from £2,000 to £2,500.
There may be valuation fees. Some housing associations say you need a Level Two Homebuyers Report – but some don’t. You could just get away with a basic valuation, which costs up to a couple of hundred pounds. A Level Two Homebuyers Report could be anything between £500 and £1000.
Stamp duty may apply. There may or may not be lender booking fees or arrangement fees – it just depends on the deal. If you’re using a mortgage broker, they may charge you a mortgage broker fee for the advice and arrangement.
What are the alternatives to shared ownership mortgages for CIS workers?
What we’re really talking about here is affordable housing options, and there aren’t as many as there used to be. Help to Buy is no longer available.
There is the Right to Buy scheme, where if you have lived in council accommodation for long enough, you could qualify to buy that property at a discount. Check with your local authority on your eligibility.
There is also Military Help to Buy which may not apply necessarily for CIS, but it’s a scheme for military personnel.
If you’re renting a housing association property rather than a council property, you may have the Right to Acquire. Again, you could get a discount off of the property you are currently renting.
What are the advantages and disadvantages of shared ownership?
It’s a really good way to get onto the housing market if you only have a small deposit. Your deposit might only be 5% of a £100,000 share – which is £5,000. That wouldn’t be enough to buy as a deposit on a standard property, so shared ownership gets you onto the housing ladder quicker with a smaller deposit.
The other advantage is that your rent will be subsidised. Shared ownership is part mortgage and part rent, but it’s normally subsidised rent – so it will be typically less than the equivalent market value. That’s definitely an advantage in keeping your monthly outgoings as low as possible.
One disadvantage is that you only own part of a property. You have the benefit of using all of the property, but you don’t own it all. When it comes to selling, it could be a little bit more difficult because you could only sell to somebody looking for a shared ownership property.
Typically, you have to give the housing association a period of time to market the property first on their own website.
To remortgage the property, there could be more hoops to jump through and more legal work and expenses involved. Because the housing association also has an interest, they have to approve everything – that cold slow it down.
How do I apply for shared ownership if I’m CIS registered?
Note that shared ownership properties appear on the housing association’s website first, before they’re released to the general public on the big portals. Find out who the housing associations are in your area and look on their websites. You’ll potentially be able to buy that property before it goes on to general sale.
If you’re going on the big property portals like Rightmove, you could filter for various home buying schemes. Another way to look for shared ownership properties on these portals is to set the price range quite low.
If you see a house being sold by an estate agent for half of the typical market price and it looks quite new, read the small print. It will probably be being sold as a 25% or a 50% share.
You’ve demonstrated how a mortgage broker can help here, but have you got anything else you’d like to add?
If you’re not paid through CIS, you’ve got really straightforward circumstances and you’re not looking to buy shared ownership, perhaps you’re brave enough to do this yourself.
But when you start stacking up mortgage lending criteria – like the need for shared ownership and the need to use CIS gross income, you’re in territory where you really should be speaking to an expert.
Funnily enough, that’s what I consider myself to be. Hopefully other people consider that as well, especially the 20 years of home buyers that have used my services. I do consider myself a CIS expert, but there’s plenty out there, I’m sure, with good knowledge of the CIS scheme and shared ownership properties.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Approved by The Openwork Partnership on 13/12/2024
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