What is Shared Ownership and how does it work?
Shared Ownership is a governmental home ownership scheme, offering a route onto the housing ladder for people who can’t afford to buy a property upfront. You own a share of a property, with a housing association owning the remaining share. You pay mortgage repayments on the share you own and rent on the share you don’t.
To begin with you can buy between 25% and 75% of a property and then you can staircase, purchasing more and more of the property over time. At the moment you must purchase increased shares in increments of at least 10%, but staircasing in 1% increments is one of many proposed changes to the scheme
Read more about how Shared Ownership works
Who is eligible for Shared Ownership?
The eligibility criteria for Shared Ownership will differ depending on the housing association, and there are also different rules for England, Wales, Scotland and Northern Ireland. However, generally you must:
- Be 18 or over;
- Earn an annual income of less than £80,000 (£90,000 if you live in London);
- Not already own a home (you can be an existing shared owner looking to move);
- Be unable to afford to buy a suitable home on the open market;
- Not be in mortgage or rent arrears;
- Be able to prove you’ll be able to afford the monthly rent and mortgage payments, and have a good credit score;
- Rent a council or housing association property.
If you’re aged 55 or over you can apply for Older People’s Shared Ownership
. This scheme only lets you buy up to 75% of a property, but once you own 75% you don’t need to pay rent on the remaining share.
What are the benefits of Shared Ownership?
- The deposit is much smaller on a Shared Ownership property because the mortgage is smaller and the deposit is taken as a percentage of the share price, not the price of the whole property. However remember that you must still be able to afford surveying, conveyancing and removal costs on top of the deposit.
- The rent payments are much lower than renting privately – usually 2.75% of the property value per annum.
- Low income earners are much more likely to be approved for a mortgage, because the amount lent will be much smaller.
- You can choose how you pay Stamp Duty Land Tax – you can do one large payment, or choose to pay in stages as you staircase.
- The shares you own can be sold at any time.
- Whilst staircasing you get much more security than you would renting privately.
- Usually you can eventually staircase up to 100%, so you own the property outright. Once you’ve done this you may also be able to buy the freehold from the housing association.
- You also don’t have to staircase if you don’t want to. Choosing not to staircase means you’re less vulnerable to changes in the property market.
What are the disadvantages of Shared Ownership?
- Because Shared Ownership properties are always leasehold, ground rent may apply and you must pay this in full no matter what size share of the property you own. This is the same with service charges.
- The smaller the share you own, the less you will benefit from the property increasing in value.
- It might be more difficult to find a mortgage lender who offers Shared Ownership mortgages, although more and more lenders are offering them now.
- There could be restrictions on what alterations you can carry out on the property.
- Staircasing costs money – as well as saving up for multiple (albeit smaller) deposits, you’ll also need to pay for surveys, legal fees and mortgage fees each time you do, whilst buying a house the conventional way only requires each of these costs once. You can make sure you’re getting the best deal on your conveyancing and survey costs by getting quotes from reallymoving.
- When you decide to buy an additional share of the property, the price is based on an independent valuation at the time. Therefore, the price you pay per share will rise with house prices the longer you wait.
- Selling a Shared Ownership property can be a little more complicated than an ordinary sale. If you don’t own all of it you might first need to offer it back to the housing association (known as first refusal). If they cannot find another buyer in a given timeframe (usually 6-8 weeks) you can market the property yourself. Even if you own 100% of the property you might be unable to sell it on the open market because you might not own the freehold.
Is Shared Ownership a good idea?
It’s important to think carefully and do your research into all the governmental housing schemes before making a decision. There are some things that are not necessarily drawbacks of the scheme, but should be taken into consideration when deciding whether Shared Ownership is right for you:
- Shared Ownership properties are always leasehold, so be sure to check whether this suits your needs. Learn about the differences between freehold and leasehold properties.
- Different housing associations in different locations may have certain rules relating to priority. For example, in England military personnel are given priority over other Shared Ownership applicants.
- There may be a limit on the number of times you can staircase.
- There are also certain circumstances where staircasing is restricted or capped, usually at 80%. This is more common in rural areas, to deter buyers from making the property a second home.
- There is often a certain period of time you must wait before staircasing for the first time – usually a year or two.
- If you have a Lifetime ISA you can use it for the deposit of the initial share of the Shared Ownership property, but if you want to use it to purchase any further shares you will need to pay the 25% government withdrawal charge. Read more about Lifetime ISAs.
Shared Ownership offers another great way to get onto the housing ladder without having to save up for too large a deposit, and without your mortgage being so restricted by your income. However you should do your research and budget the long-term costs to be sure that it’s right for you.