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Guide to Home Ownership Plans
Home Ownership Plans are a small but emerging niche in the mortgage market.
In a climate of increasing affordability problems, particularly for first-time buyers, home ownership plans are a shared equity solution that could enable the borrower to genuinely afford more.
The following mortgagecase.com guide to home ownership plans outlines what they really are and how they work.
How does a Home Ownership Plan differ from shared ownership mortgages?
Home Ownership Plans are similar to shared ownership mortgages in that they provide assistance to buyers who might otherwise not be able to get onto the property ladder.
Shared ownership allows a first-time buyer to purchase a property with between 25-75 per cent mortgage. The remaining equity in the property is rented from a housing association.
Where Home Ownership Plans differ is that the borrower buys 100 per cent of the property.
How do Home Ownership Plans work?
Home ownership plans (HOPS) have two components. The first is a normal mortgage loan charged at a competitive interest rate. The second is a Residential Ownership Loan. The levels of each depend on the salary and deposit that the buyer has, but a usual split is 65 per cent mortgages, 35 per cent ROL. Residential Ownership Loans are charged at a very low rate of interest, and on a fixed rate.
How is a Home Ownership Plan beneficial?
Although the borrower has to take out a separate loan to afford the Residential Ownership Loan, this provides a massively increased buying power. For instance, borrowers with a home ownership plan can afford considerably more than their money would otherwise allow them. This could make all the difference between a one and two bedroom flat. As well as allowing the borrower to potentially live in a much nicer house, a home ownership plan may also cut down on the need to move, saving the borrower lots of money and time.
How long have Home Ownership Plans been around for?
Home Ownership Plans (HOP) are a completely new form of mortgage solution that allows the borrower to buy property above the value that they could afford with a standard mortgage, particularly in a climate of high interest rates.
Who can apply for a Home Ownership Plan mortgage?
Many people are eligible for a home ownership plan, and anyone can apply. The amount of loan that can be offered will depend on how credit-worthy the applicant is and how affordable repayments are. Home Ownership Plans are available for first-time buyers and existing home owners who wish to move. HOPs are available for both single and joint applicants. Any adverse credit will affect home loans, and the affordability assessment takes into account any other loans outstanding.
What does the Residential Ownership Loan mean in a HOP?
The residential ownership loan (ROL) is designed to fund a percentage of the purchase price of the property. This loan is repaid with the same percentage of the sale proceeds when the property is sold on. The ROL attracts an extremely low rate of interest. The maximum ROL is 35 per cent of the value of the property, generally repaid at 2.99 per cent. The ROL can be repaid at any time.
How much deposit does a borrower need for a Home Ownership Plan?
Currently, a maximum of 97 per cent of property value can be borrowed. This means that borrowers needs to find a 3 per cent deposit, as well as funds to cover stamp duty, application fees and solicitors fees.
How much money can one borrow with a Home Ownership Plan?
Generally, the maximum amount that can be borrowed will be equal to around 6 times applicants gross annual income, or combined income if there is more than one applicant.
Are Home Ownership Plans flexible?
Home Ownership Plans are a very flexible mortgage loan product, giving borrowers the possibility of partial redemption, portability to another property within normal lending criteria, and potential further advances.
What type of mortgage is included in a Home Ownership Plan?
Mortgages are generally fixed-rate and competitive, with a fixed deal lasting for the first three years. Normal loans are possible between 15-35 years, with 25 years the standard dependant on age and circumstance.
Can I have a Home Ownership Plan and rent the property out?
No, HOP is available to borrowers as their main residence only.
Do I have to buy a certain type of house?
HOPs have very few restrictions on the type of property that can be bought.
I think a Home Ownership Plan could help me achieve my property purchase objectives, what should I do?
Get a free, no-obligation Home ownership plan quote below.
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