A halfway house on the road to ownership

Earning a regular salary but still can't afford to buy a house? Amanda Jarvis tells how she realised her impossible dream

A YEAR ago, I was devoting my spare time to flat hunting. But with only pounds 60,000 to spend on a property in south-west London I was getting nowhere, and after several months I gave up.

A year later I have my own two-bedroom house with garden, fitted kitchen and bathroom - in south-west London. How? No, I haven't won the Lottery, I did it with the help of the shared ownership scheme run by the South London Family Housing Association (SLFHA).

Shared ownership is a halfway house between renting and owning and is suitable for people with a regular income who can't afford to buy a home outright. "Shared ownership fills a niche, particularly in London and the South-east where house prices are high," says Jenny Wilson, policy officer for the National Housing Federation, which represents housing associations. "Many people aren't considered a priority by local authorities and don't qualify for social housing, yet they don't earn enough to buy a decent home," she adds.

There are 104,000 housing association-funded properties in England. Shared ownership can be arranged through local authorities or any non-profit- making housing company registered with the Housing Corporation, the body that funds shared ownership in England. Scotland, Wales and Northern Ireland have their own schemes.

Housing association and council tenants, and those on waiting lists, have priority for shared ownership but others on low incomes can apply. Applications are assessed individually. Debbie Theobold, manager of low- cost home ownership at the SLFHA, says: "The minimum salary for a single person we consider is pounds 12,500. The maximum varies. We won't accept anyone who could buy the property they want on the open market."

You buy a share of the property - between 25 per cent and 75 per cent - with a mortgage and pay rent on the balance. You can increase your share - known as staircasing - in chunks of at least 10 per cent until eventually you own the house outright. It's tempting to staircase, but mortgage payments can become onerous. There can also be drawbacks when it comes to moving, says Ms Theobold. "If you staircase over 75 per cent but don't intend to buy outright, you may have difficulty selling."

The first step is to call the Shared Ownership Information and Advice Line. You'll be asked some basic questions and if they think you suitable your details will be placed on the Housing Mobility Exchange Service (Homes) central register. You will be put in touch with shared ownership providers in your area - councils and housing associations - and be told of properties for resale. Alternatively, contact the Housing Corporation which will send you a list of associations in your area which run shared ownership schemes.

Once a property becomes available, you have to express an interest. There's lots of paperwork, and you will then be interviewed and asked detailed questions about your income and expenses. If you're accepted, the next step is to arrange a mortgage. There are very few lenders which back shared ownership and fewer still offer 100 per cent mortgages. If you need a 100 per cent mortgage, Paragon is the only lender offering a fixed rate.

You will need a good solicitor, preferably one with experience of shared ownership as some aspects differ from conventional purchase. I asked my lender, the Portman building society, to suggest solicitors it had used before.

As well as the usual costs of buying a property, such as legal fees, valuation and survey, you have to pay stamp duty at 1 per cent if the value of your property exceeds pounds 60,000. Stamp duty on shared ownership is complex and it is advisable to pay the lot upfront. I paid pounds 730.

You can pay initial stamp duty of 1 per cent on your share only, but then you'll also have to pay stamp duty at 12 per cent on the average rent paid over the term of the lease. You'll also have to pay duty on each 10 per cent "staircase" at the current market value, so it could be expensive.

You have to pay rent as well as a mortgage, and this generally rises annually. My rent increases each year at inflation plus 2 per cent, which means it could go up significantly. But paying rent on a shared ownership home will always be much cheaper than paying the equivalent mortgage - unless there is a dramatic drop in interest rates.

I own 45 per cent of a house valued at pounds 73,000 and I have a 100 per cent mortgage on my share. The monthly cost is pounds 360: pounds 240 for the mortgage and pounds 120 rent (which includes buildings insurance). A mortgage for the full value of the property would cost pounds 576 a month. There is a service charge of pounds 25 and the usual costs of council tax, gas and electricity and TV licence.

If you decide to sell, you have to contact the housing association or council which will try to find a suitable buyer from their waiting lists. If they can't find a buyer within a reasonable time (usually three months), you can sell on the open market. Any profit is divided between the owner and the housing association or council.

If you are already a social housing tenant and want to buy a home, there are other options. Housing association or council tenants can qualify for a cash grant of up to pounds 16,000 towards the cost of buying a home in the private sector. Tenants may also qualify to buy the property they are living in at a discount.

q Contacts: Housing Corporation, 0171-393 2000 (Wales, 01222 741500; Scotland, 0131 313 0044; Northern Ireland, 0800 333644). Shared Ownership Information and Advice Line (Homes central register), 0345 585757.

q These lenders offer mortgages to people buying a share of 25 per cent or more in a property owned by a housing association:

Abbey National, 0800 555100; Bank of Ireland, 0118 951 0100; Birmingham Midshires, 01902 302000; Bradford & Bingley, 0800 570800; Dunfermline BS (Scotland only), 01383 627727; Nationwide, 0800 302010; Paragon, 0800 440099; Portman, 01672 517230.