Shared Ownership
1. What is Shared Ownership?
Shared ownership is a scheme that facilitates access to full home ownership in two or more stages by persons who could not afford full ownership immediately. The applicant initially acquires a share (minimum 40%) in a house and rents the remainder from the local authority, with an undertaking to acquire the remaining equity within a 25 year period
2. Who is eligible?
The following are eligible for consideration under the shared ownership scheme:(a) tenants and tenant purchasers of local authority houses who intend to return their houses to the authority on providing a private house for their own occupation under the scheme;
(b) persons included by a local authority in its latest assessment of housing needs under section 9 of the Housing Act, 1988 and Section 6 of the Housing (Traveller Accommodation) Act, 1998, or accepted for inclusion in the next such assessment;
(c) tenants of one year's standing of houses provided by approved housing bodies under the Loan Subsidy Scheme who intend to return their houses to the approved body on providing a private house for their own occupation under the scheme;
(d) persons in need of housing whose household income in the preceding tax year, calculated in accordance with a formula, does not exceed €100,000. Under the formula, income will be reckoned as follows:
- in the case of a single income household, two and a half times the borrower's income in the preceding tax year;
- in the case of a two income household, two and a half times the income of the principal earner, plus once the other income.
Examples of how the proposed formula and limit would work in different circumstances are shown below:-
| Single income household |
Single income household |
Two income household |
Two income household | |
| Principal Income |
€40,000 | €45,000 | €26,000 | €33,000 |
| Subsidiary Income |
nil | nil | €16,000 | €24,000 |
| Formula | €40,000 x 2.5 |
€45,000 x 2.5 |
€26,000 x 2.5 + €16,000 |
€33,000 x 2.5 + €24,000 |
| = €100,000 | = €112,500 | = €87,000 | = €106,500 | |
| Eligible? | Yes | No | Yes | No |
Local authority tenants, tenant purchasers or tenants of houses provided by approved housing bodies under the Loan Subsidy Scheme who avail of the Mortgage Allowance Scheme may not avail of the Shared Ownership Scheme as well.
3. How to Apply?
Application should be made to Kerry County Council by way of completing the appropriate application form. Kerry County Council will then arrange an interview with the applicant in order to explain fully the shared ownership scheme and the commitments that he/she will be taking on under the scheme. The local authority, when it has determined the applicant's general eligibility, will issue a certificate of provisional approval which will establish entitlement to a shared ownership lease provided the selected house complies with the requirements of the authority and the terms of the scheme are otherwise met.
No commitment regarding the purchase of a house should be entered into until approval in principle has been received from the local authority.
4. What kind of house may be purchased?
Under the Shared Ownership Scheme, a new or existing house may be purchased. A new house being built on the applicants site is not covered under the Scheme. It is the applicant's choice but the local authority must be satisfied that the house being acquired is reasonably priced, of suitable size and standard to cater for the applicant's needs and free from structural defects. An existing house must have hot and cold water systems, a fixed shower or bath and an indoor toilet. If it is a new house, the requirements as to the construction standards, floor area etc. for new houses set out in the Department of the Environment and Local Government's Memorandum HAI/93 must be met.
5. What happens when an approved applicant selects a house?
The applicant must go back to the authority that issued the provisional approval and pay them a deposit of at least €1,270 that will go towards paying for the applicant's share of the house.
The authority will inspect the house and, if it is a new house, examine the plans and specifications. If they are satisfied that it meets the requirements as set out in paragraph 4 above, they will issue a certificate of final approval of eligibility under the scheme.A local authority may, at their discretion, dispense with the €1,270 deposit where the applicant proposes to move his/her household from a built up area to a rural or village environment and;-
(a) is a tenant/tenant purchaser of a local authority dwelling or a tenant of not less than one year of a unit provided under the Loan Subsidy Scheme who is surrendering that dwelling to the authority or approved housing body, or
(b) has been included by a local authority in their most recent statutory assessment of housing need or accepted for inclusion in the next such assessment..
6. Valuation Reports
If an authority carries out a valuation report on a house for the purposes of this scheme, it is obliged to provide a copy of the valuation report to the applicant with a note stating clearly what the purpose of the report is (i.e. to establish the adequacy of the value of the house offered as security for the loan). A fee may not be charged in respect of a valuation report if the loan application is refused.
Authorities should advise borrowers to arrange for their own independent survey to establish the structural condition of the house they are purchasing
7. How does the applicant pay for his/her share?
The applicant's share in the ownership of the house will be paid for by:-
(a) the deposit of at least €1,270 (where applicable); and,
(b) a mortgage loan (see paragraph 8 following).
8. The Mortgage
The applicant's share in the house will normally be funded by way of a mortgage loan from the local authority but cash may be contributed if the applicant is in a position to do so. Participants in the scheme should be warned that if they do not keep up payments on the mortgage, their homes are at risk and that interest may be charged by the authority on arrears on the mortgage loan. The mortgage interest rate may be adjusted upwards or downwards from time to time.
9. What rent has to be paid?
Rent will be calculated at 4.3% (3.8% interest rate plus 0.5% administration charge) of the value of the share in the ownership held by the local authority. The rent is payable monthly to the local authority and will be increased annually by a fixed 4.5% on the 1st July. In all cases where rent is due, a minimum of €2 p.w. rent is payable, including those who qualify for subsidy - see paragraph 12.
10. Will there be transaction costs?
No stamp duty will be payable but some legal etc. fees will be payable by the applicant. All such fees will be clearly specified by the authority. They may be included in the overall cost of the house. Every effort will, however, be made by the local authority to keep these to a minimum. It is a matter for the applicant to choose whether to have independent legal advice on the transaction.
Any costs incurred by the authority arising from the legal investigation of title in relation to the making of the loan on or after 1 September 1997 must be paid by the authority and cannot be passed on in any way to the borrower
11. How much will it cost monthly/weekly?
Examples of the calculation of the total outgoings (on both mortgage and rent) on a shared ownership house are shown in the Table 1 on page 8 of this memorandum. In addition, applicants will be responsible for the maintenance, insurance and other ongoing costs related to the house.
12. Subsidy towards payment of rent
Households with a gross income not exceeding €28,000 in the preceding tax year will qualify for an annual subsidy towards the rent as follows:
Household Income |
Subsidy per annum |
€13,000 and under |
€2,550 |
€13,001 to €15,500 |
€2,300 |
€15,501 to €18,000 |
€2,050 |
€18,001 to €20,500 |
€1,800 |
€20,501 to €23,000 |
€1,550 |
€23,001 to €25,500 |
€1,300 |
€25,501 to €28,000 |
€1,050 |
Over €28,001 |
Nil |
"Household Income" is the total gross income of the purchaser and his/her spouse or of the joint purchasers.
The subsidy, in any case, will not reduce the rent payable below €2 per week. The subsidy payable will be reviewed with effect from 1st July each year by reference to gross household income in the previous tax year. An applicant approved for subsidy in a particular band will be moved to a lower subsidy band where an increase in gross household income amounts to at least three times the difference between the subsidy in the previous band and the subsidy at the band to which the applicant is being moved.
13. When and how is the remainder of the house purchased?
A person occupying a house under the shared ownership scheme will have the right to buy out the local authority's share of the ownership and acquire full ownership at any time. Alternatively, this may be done by purchasing, from time to time, additional shares of the authority's equity. The amount and frequency of such purchases are a matter for determination by the local authority. The cost of purchasing an additional share or the redemption value of the outstanding share, for transactions commenced from 1 January, 2003, will be its initial cost adjusted annually to compensate for fluctuations in the interest rate vis a vis the cost of funds to the Housing Finance Agency. This means that indexation of the outstanding capital will no longer apply – see indicative example at Table 2. Purchases of additional shares may be financed by raising a further mortgage loan or by cash payments.
Applicants will be required to buy out the full ownership within a 25 year period. However, there is no requirement to repay all capital outstanding on the mortgage within the 25 year period. In fact, the occupier could buy out the remaining equity when the original mortgage is paid off.
14. Applicable date
These modifications will apply to all transactions commenced under the Shared Ownership Scheme from 1 January, 2003. The previous method of calculating the rental element and purchase price of any additional shares will continue to apply for existing purchasers.
TABLE 1: HOW THE OUTGOINGS ON MORTGAGE AND RENT ON A SHARED OWNERSHIP HOUSE ARE CALCULATED
Example of Shared Ownership Transaction
Cost of house (including legal fees etc.) €150,000
Initial value of share owned by applicant (40%) € 60,000
deposit of €1,500
mortgage loan (20 years) €58,500
Value of share owned by local authority €90,000 ____________________________________
Outgoings for borrower:
Yearly repayment on a 25 year mortgage of €58,500 at 3.5%
(interest rate of 2.8% plus 0.7% administration plus 0.598% mortgage protection insurance)
= €3,514.32 p.a.
Yearly rent i.e. 4.3% (interest rate of 3.8% plus 0.5% administration) of the
local authority share (€90,000)
= €3,870
This element will increase by a fixed 4.5% each year on 1st. July
Total outgoings: €7,384.32 p.a. or €615.36 p.m.
or €142 p.w.
See notes on following page which relate to this table
NOTES ON TABLE 1
1. The amount of the rent will be increased by 4.5% with effect from 1st July each year.
2. The mortgage payments may go up or down depending on interest rates.
3. Income tax relief is available on the interest paid on the mortgage element - it is not reflected in the example.
4. Where the rent subsidy is payable, the outgoings shown above would be reduced; e.g., the subsidy (for households with incomes of €20,000) would reduce the outgoings from €693 to €543 monthly and from €159 to €124 weekly.
5. In the example shown outright purchase with a deposit of €4,500 and a mortgage loan of €145,500 would mean monthly payments of €922 (€212 weekly) calculated at 4.37% (incl. MPI) over 20 years.
6. All figures rounded to nearest €1.
TABLE 2: CALCULATION OF REDEMPTION VALUE
The purchase price of the outstanding equity will increase/decrease to compensate for fluctuations in the variable interest rate vis a vis the coupon rate e.g.
Capital outstanding: €90,000
Date advanced: 1 January, 2003
Rental charged: 3.8% increasing by a fixed 4.5% annually
Variable Interest rate: 3% (subject to fluctuation in line with market rates)
| A | B | C | D | ||
| Year | Opening Principal | Prevailing Interest | Rate Rental | Paid Interest | Due Capital Outstanding at end -year |
| 2003 | €90,000 | 3.00% | €3,420 | €2,700 | €89,280 |
| 2004 | €89,280 | 3.20% | €3,574 | €2,857 | €88,563 |
| 2005 | €88,563 | 4.50% | €3,735 | €3,985 | €88,814 |
| 2006 | €88,814 | 5.10% | €3,903 | €4,529 | €89,440 |
| 2007 | €89,440 | 5.50% | €4,078 | €4,919 | €90,281 |
| 2008 | €90,281 | 6.00% | €4,262 | €5,417 | €91,436 |
| 2009 | €91,436 | 6.50% | €4,454 | €5,943 | €92,926 |
| 2010 | €92,926 | 7.00% | €4,654 | €6,505 | €94,776 |
| 2011 | €94,776 | 7.00% | €4,864 | €6,634 | €96,547 |
| 2012 | €96,547 | 6.50% | €5,082 | €6,276 | €97,740 |
| 2013 | €97,740 | 6.50% | €5,311 | €6,353 | €98,782 |
| 2014 | €98,782 | 7.00% | €5,550 | €6,915 | €100,147 |
| 2015 | €100,147 | 6.50% | €5,800 | €6,510 | €100,856 |
| 2016 | €100,856 | 6.00% | €6,061 | €6,051 | €100,847 |
| 2017 | €100,847 | 6.20% | €6,334 | €6,253 | €100,766 |
| 2018 | €100,766 | 6.00% | €6,619 | €6,046 | €100,193 |
| 2019 | €100,193 | 6.50% | €6,917 | €6,513 | €99,789 |
| 2020 | €99,789 | 6.00% | €7,228 | €5,987 | €98,549 |
| 2021 | €98,549 | 6.50% | €7,553 | €6,406 | €97,401 |
| 2022 | €97,401 | 6.00% | €7,893 | €5,844 | €95,353 |
Column A: Prevailing variable mortgage interest rate as notified by HFA exclusive of the administration charge of 0.7% and MPI of 0.67%.
Column B: Opening balance X by percentage rate i.e. cost of funds to the HFA - 3.8% (exclusive of the administration charge of 0.5%) X fixed 4.5% annually thereafter.
Column C: Opening balance X A
Column D: Opening balance - B + C
Note:
Where the interest due (Column C) is less than the rental paid (Column B), including rental subsidy where applicable, the amount in Column B should be decreased so that any rental subsidy is not being used to reduce the outstanding capital amount (Column D) i.e. rental subsidy is not offset against the outstanding capital.
Contact Information
Housing Dept,
Rathass, Tralee,
Co. Kerry
Telephone: 066/7183862
Fax: 066/7183612
Email: housing@kerrycoco.ie
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