Shared Ownership has been around for a while now, and along with its sibling, the Help to Buy Equity Loan
, the goal has been to make home ownership more affordable. Shared Ownership allows you to buy a portion of the property, and pay a reduced rent on the remaining amount. Further down the line, you can ‘staircase’, which means buying up more of the property as and when you like.
However, buying a Shared Ownership property is a rather different experience to traditional purchases, so it’s worth looking at our tips below if you’re considering it.
1. You need to be approved before you can view the property
Shared Ownership properties (especially new developments) are in short supply and competition is fierce. To ensure no time is wasted, you will only be allowed to view the property if you meet the criteria
and can afford it.
To this end, the estate agent will need you to fill in a personal information form, and go through their mortgage company to check what percentage of ownership you would be approved for. This isn’t a mortgage offer or even a mortgage in principle, it just offers a rough outline of how much the outgoings would be.
Only once they are certain you meet the criteria will you be allowed to view the property.
2. A bigger share increases your chance of getting the property
If there are a few people competing for the same property, it comes down to who the Housing Association prefers. This will be based on a few factors, but the main one seems to be the size of the share you apply for. The bigger your share, the more likely you are to be the preferred choice. Talk to your mortgage advisor about what your options are, and whether you can afford a larger share.
3. The specifications might be different
If you want to buy in a new build development, it might be a mixture of general purchase, Shared Ownership and affordable rental properties. Often in this case, the Shared Ownership and rental properties aren’t quite as luxurious as the full sale ones.
Sometimes, the full ownership properties have perks, like an extra car parking space or more expensive tiling in the bathroom. It’s worth asking if there are any differences, confirming you still have access to all shared spaces and checking that the plot you are eligible for is one that meets your needs.
4. Everything moves more quickly
There’s a lot of back and forth with paperwork, but if you’ve been approved to buy a Shared Ownership property, you could exchange within a month. That’s because you’re making a deal directly with the developer and the Local Authority. There’s no negotiating on price, and no chain, which saves a lot of time. But it does mean if you’re in a rental contract, you may need to pay a fee to end your contract early.
5. You pay a holding deposit
After your offer has been accepted, you will need to pay a holding deposit to reserve the property. This won’t be as much as your actual deposit, but is usually a few hundred pounds. Try to be certain that you will be approved for your mortgage before you pay this money, as if the sale falls through you are likely to lose it. (Check your credit report
before starting the process). The holding deposit takes the property off the market so there is no other competition from potential buyers.
6. Check the limitations in the agreement
It’s important to read the lease thoroughly, as you are essentially renting part of your property. Whilst general changes to the property are fine (painting the walls or putting up shelves, for example) bigger structural changes are usually not allowed. There are also sometimes unexpected restrictions, for example pets may not be allowed, so it’s important to check these. Also, if you are planning to staircase over time, make sure the lease allows for 100% ownership.
7. You don’t need to use their recommended mortgage lender
You’ll be assessed by a mortgage lender in order to view the property – this lender will want to be your chosen advisor, but you aren’t obligated to use them. However, using a mortgage company that specialises in Shared Ownership may be beneficial. Similarly, the developer or mortgage advisor may want to put you in touch with a conveyancing solicitor. It’s worth asking directly about the referral fees involved here, and comparing quotes online
8. Consider all the costs
Your monthly payment will now include your rent and your mortgage. Your service charge may be paid annually in advance, but you’ll need to remember to save that amount every month ready to pay next year. Buildings insurance
, which you need to purchase when buying a property usually, may be included in your monthly costs already. In many cases you don’t pay ground rent until you own 100% of the property.
There are a lot of moving parts here, even before you add in council tax, utilities and other bills. If you’ve got a fixed rate mortgage for a few years and you’re happy with the percentage share you’ve bought, your payments will be unchanging. However, if you’re thinking about your next steps you may want to look into whether remortgaging or staircasing is the better option. Usually, if you decide you want to staircase it’s better to do this sooner rather than later, to avoid the property going up in value too much and increasing your rent.
Shared Ownership is an affordable way to get on the property ladder, but it is quite different to the standard way of purchasing a property. A mortgage advisor will make sure you can afford your monthly payments but it’s worth thinking long term.
Many people used Shared Ownership as a way of saving more money that they would normally be able to when paying rent. Their mortgage is a savings account of sorts. When they sell their property, their share is enough for a deposit for a non-Shared Ownership property.
On the other hand, you may find you adore your home, and want to staircase in order to buy all of it. Every time you increase your share, your rent should go down as the portion you are paying rent on is reduced. However, it’s important to take into account the value of the property – if it increases significantly, your rent may do too.
If the traditional method of buying is out of reach, but you really want to get on the ladder, Shared Ownership might be the right option for you.
Find out more in our Shared Ownership Guide
Updated April 2021