What is Shared Ownership?
Shared Ownership is a government housing scheme that allows you to buy a portion of a property, enabling you to step onto the housing ladder without having to save such a big deposit or take out such a big mortgage. You pay mortgage repayments on the part of the property you own and discounted rent on the part you don’t, which is usually owned by a housing association.
Later, you can decide to ‘staircase’ – buy more of the property in gradual increments. Some people do this until they own the property outright.
Read more in our guide to Shared Ownership.
Is Shared Ownership right for you?
Shared Ownership is not for everyone, and indeed not everyone is eligible. You must not already own a home (unless you’re an existing shared owner, in which case you’re eligible), and you must be unable to afford to buy one on the open market. Your household income must also be less than £80,000 a year (£90,000 in London).
Read more about Shared Ownership eligibility.
Whether or not Shared Ownership is right for you is an entirely personal decision. It’s a great way of getting onto the property ladder without having to save such a big deposit, but you must bear in mind that you won’t own the property outright and therefore will be subject to other charges on top of your mortgage repayments (for example, rent, as well as additional costs like service charges).
Our article on the pros and cons of Shared Ownership can help you decide whether it’s right for you.
What percentage should I buy?
Shared Ownership requires you to buy between 10% and 75% of a property. This is quite a big range, so you’ll need to think about is what sort of percentage you want to buy.
This will, of course, partly be determined by the average house price in your area, as well as availability of Shared Ownership properties. But here are some extra things to consider when you’re thinking about what sort of proportion to save up for.
How much you can afford
It sounds obvious, but think about how big a deposit you’ll realistically be able to save. You’ll need to save up between 5-10% of the share you’re buying as a deposit. If you can save up a lot (or if you’ve already got a lot in your savings), it might be worth buying a bigger share, as this will lower your rental payment. If you’ve got less disposable income and less already in your savings, it might be realistic to aim for something closer to 25%.
How much you can borrow
Most people still need a mortgage to buy a Shared Ownership property, so you’ll need to consider how much you’ll be able to borrow. Generally mortgage lenders won’t lend you more than 4.5x your annual household income. If your calculations show you’ll need to borrow more than that, consider aiming for a lower percentage of the property, or saving up a bigger proportion of that share as a deposit.
We would recommend talking to a mortgage broker right at the start, even if you’re just getting an idea of whether Shared Ownership is for you. You will need to be approved by a broker before you can even visit a Shared Ownership property, in most cases, so they will alert you to how much you can afford.
When you need to buy
When you’re working out how much you can afford, it’s good to have a timeframe in mind. If you need to buy immediately, there’s no time for extra saving. But if you’re happy to put it off for a few months, there’s time to bulk out your savings a bit so you can afford a larger proportion of a property.
What you want your monthly repayments to be
Think about how much you can realistically afford to be paying each month in rent and mortgage repayments, and use this to guide your decision about how big a portion you want to buy. Remember to consider additional charges – because Shared Ownership properties are always leasehold, there will likely be additional fees like ground rent and service charges.
How much of an investment you want to make
When you buy a property you’re investing your money into it, which means your wealth will fluctuate as the housing market changes. This change will be bigger if you own a larger proportion of the property. You’ll benefit more from house prices rising, but you’ll also be more at risk to falls in house prices.
You’ll need to consider what you want here. The duration you plan on staying in the property will come into play as well. Would you be able to wait it out if there was a crash in the housing market, and wait for prices to recover again before selling? If no, it might be safer to own a smaller proportion of the property.
Remember, too, that the part of the property you don’t own will change too. So if you go to buy an additional 5% in a few years’ time, you might find that portion will cost you much more (or less) than it would now.
When you'll sell
It’s worth considering what your long term plans are – do you want to own the whole thing at some point? Or do you think you’ll sell it on before that? If you’re not planning on staircasing to 100%, you’ll need to sell it to other Shared Ownership buyers, in which case it will be easier if you’re selling a smaller portion. This is because you’ll need to find a buyer for the percentage you’re selling or higher. So if you’re not planning on staircasing to 100% ownership and think you’ll end up selling it on as a Shared Ownership property, there’s something to be said for keeping your share a bit smaller.
Stamp Duty Land Tax is a tax paid on most property transactions in England (there are equivalents in the devolved nations). The amount you pay is dependent on the price of the property you’re purchasing. With Shared Ownership, you only pay Stamp Duty on the portion of the property you’re buying, so it’s an important consideration when you’re deciding what percentage to buy.
The threshold is £125,000, so if you buy a portion of the property worth less than that then you won’t pay any Stamp Duty on that initial transaction. If you buy a part over that threshold, then it’s something else you’ll need to budget for. You can use our Stamp Duty calculator to work out how much Stamp Duty you’ll need to pay – just remember to put in the cost of the share you’re buying, not the value of the whole property.
Good news, though – if you’re a First Time Buyer you may well be exempt completely, as First Time Buyers don’t need to pay any Stamp Duty on properties worth less than £300,000.
Read more about how Stamp Duty works with Shared Ownership on the government website.
It’s worth considering what your plans are with regard to staircasing. Staircasing costs money each time you do it (e.g. mortgage arrangement fees and conveyancing costs) so it’s a good idea to minimise the number of times you have to do it. As a result, there’s something to be said for buying a bigger share initially (if you can), instead of paying to own more of the property a few years down the line.
Read about how much it costs to staircase.
The size of the percentage you buy with Shared Ownership is a personal decision, but it might also be one that’s purely decided by your financial situation, and that’s ok. Don’t worry if you can only afford to buy the minimum – a quarter of a property is still a great investment, and will give you more security (and freedom) than renting does. If you are approved for a higher percentage, but are a little unsure as to how that will affect your budget and savings, talk to a mortgage broker, who will be able to guide you through how the affordability assessment is calculated.
Read more about Shared Ownership.