Difference Between Shared Ownership And Shared Equity

Affordable housing schemes are a great way to enable buyers who would not otherwise be able to afford a home to purchase a property through government-funded and privately-operated schemes.

Shared ownership and shared equity arrangements are available to First Time Buyers with an income of less than £60,000 who are unable to obtain a mortgage on the open market. The UK Government’s shared ownership scheme is called Homebuy and their scheme for First Time Buyers is First Buy.

What is shared equity?

Shared equity schemes in the UK form the basis of the Government’s FirstBuy scheme that launched in September 2011. The premise of shared equity is that the buyer can pay a small deposit – usually 5% – and top up to 20% of the purchase price with a low or no cost ‘equity loan’, with the remainder paid by your mortgage.

In the short term a shared equity agreement can be a very welcome deal as it enables First Time Buyers to acquire a home without paying a big deposit.

Nevertheless, you should always bear in mind the long-term consequences of shared equity. After 25 years of the loan period you will be required to pay it off in full. As an equity loan, the loan will be proportionate to the value of the property at the time 25 years on rather than a fixed figure, which means you could be paying back significantly more than you first borrowed if the housing market recovers.

What is shared ownership?

There are similar benefits to shared ownership schemes as shared equity arrangements. First Time Buyers usually enter into a shared ownership arrangement with a housing association or similar organisation, paying rent to them for the part of the property they own but you are allowed to live in.

For example, you may purchase a stake of 40% of the market value of a property and pay rent on the remaining 60% of the property that’s owned by your local housing association.

The rent you pay must be set at an ‘affordable rent’, usually around 3% of the other party’s share of the property value. The most welcoming aspect of a shared ownership scheme is that you can increase your percentage stake in the equity of the building over time, as and when you can afford to do so.

In order to increase your stake in the property you will require a shared ownership mortgage. By part-owning your property you will therefore require a smaller mortgage and a smaller deposit – 10% of the share you are buying.

Shared ownership in London

With prices in London being higher than the rest of the country, there are some slight differences when attempting to buy in the capital. Whilst the average price of a property in the UK is around £269,150, First Time Buyers in London are looking at property prices of an average of £496,066. As such, some of the schemes have adapted to encourage those looking to buy in London. The shared equity scheme, for example, will offer a loan of 40% of the property value, instead of the 20% offered across the rest of the UK.

There are also a variety of shared ownership schemes for London, with the earning thresholds being slightly different. For example, if you are looking to be part of a shared ownership buying scheme in London, you need a household income of under £90,000 and to be a First Time Buyer.

Special shared ownership schemes

Certain groups of people have access to shared ownership schemes with preferential conditions. For people aged over 55, the Older People’s Shared Ownership (OPSO) scheme allows you to buy a percentage of your home between 25% and a maximum of 75%. As with other shared ownership you pay proportional rent on the remainder. The greater the ownership share the less rent you have to pay, and once you own 75% you no longer have to pay rent.

People with a disability can also buy a shared ownership property under the Home Ownership for People with Long-term Disabilities (HOLD) scheme. This scheme is particularly helpful for those who may have special housing needs due to their disability – for example needing a property on the ground floor – as it allows homes on the open market to bought on a shared ownership basis if there are no suitable properties available from the housing association.

Selling a shared ownership property

When you decide to sell your shared ownership property there are a number of factors that need to be considered. To make the process easier reallymoving have highlighted some important points to help get you started.

You are entitled to sell your shared ownership home at any point. If you have been staircasing and own 100% of your home, you can sell the property yourself.

If you own a share in your property, under the terms and conditions of your lease, the housing association will have 8 weeks to find a buyer for your home.

The 8 week process will only begin once the housing association receives your signed contract of sale. The contract of sale can only be completed once you have:

• Informed your housing association that you would like to sell your home.
• Paid the fee for a RICS surveyor to carry out a survey to value your home. A list of recommended surveyors will be provided by your housing association.
• Agreed your share of the house sale based on the valuation with the housing association.
• Include the details of your solicitor who will be working on the sale.

If you have bought the property with someone else, they will need to sign the contract of sale.
It is also a requirement for you confirm that an Energy Performance Certificate has been commissioned before you sell your home.

The advantage of selling your shared ownership property is that the housing association can help you find a nominated buyer that who is eligible to buy your property.

After 8 weeks, if a suitable buyer has not been found by the housing association, you can sell your property through an estate agent or privately. The estate agent will still need to complete a shared ownership form to ensure that the potential buyer is entitled to buy your home.

Updated April 2021