Shared ownership opens some doors for home purchase

Under normal circumstances, the State aims to house those who cannot afford to buy or rent their own place to live. That is how the system worked for many years, albeit with incomplete success. However, the housing market departed from the norm several years ago and the average house now costs seven times the average industrial wage. At the same time, increasing demand and lack of regulation in the rental sector have combined to make renting a lot less affordable, especially in urban areas.

Two years ago more than 39,000 households were on the housing lists awaiting a home and the authorities concede that the figure has risen since then. There is a growing subset of people who are not earning enough to buy but are way down the list or ineligible for a local authority house. There is a third way for those people on the fringes of home ownership to get a roof over their heads - shared ownership with a local authority.

The scheme is open to people who satisfy an income eligibility test. The qualifying limit for a single-income household is £25,000 (€31,766).

Once an application is approved by the local authority, and a property is found and deemed acceptable, the local authority will buy it and grant you a shared-ownership lease.

Initially, ownership of the house is shared between the householder and the local authority, with a view to the former eventually buying out the latter.

From the start, you must purchase at least 40 per cent of the house and rent the remaining share from the local authority.

The advantage of the deal is that the individual or family can enjoy the benefits of home ownership but have more affordable outgoings than with a conventional mortgage.

The National Development Plan includes provision for the funding of shared ownership for 7,000 households. That is the projected total over the next six years. Almost 10,000 households have bought properties through the scheme since its inception in 1991.

The arrangements for shared ownership vary, depending on the local authority. In some cases, a pool of houses is identified by the council or corporation and approved households can apply for one. In other areas it is the applicant who selects a new or second-hand house or has one built, and the local authority comes on board for the financing of the purchase. Some areas may operate both systems, depending on the volume of applications. Those taking part in the scheme usually pay for their share in the property with a minimum deposit of £1,000 and by taking a mortgage loan from the local authority at a standard variable rate (currently 6.17 per cent APR). It is also possible to supply cash of your own.

There is a restriction on the deal that the rental and mortgage repayment cannot exceed 35 per cent of your net income. Rent is calculated at 4.5 per cent of the cost of the rented share per annum and the individual is obliged to buy out the rented share within 25 years.

You don't have to live in the local authority area your application is for but approval is not transferable from one area to another. There is a maximum property value allowable within the scheme. This cap varies from area to area to reflect regional differences in property prices. It is £140,000 in the Dublin Corporation area. The mechanisms for increasing the householder's share of the property over time are very flexible and the rented share of the house can be bought out in full at any time.

The individual may purchase additional shares from time to time, either by adding to the mortgage or paying cash. The requirement to purchase full ownership within 25 years does not mean that you have to repay all the capital outstanding on the mortgage within that period. A shared owner may take out another mortgage to buy out the remaining share when the original mortgage is paid off. Under the shared ownership scheme, you can sell your house at any time. The local authority will of course be entitled to claim any outstanding equity it has in the property.