Is Shared Ownership a Good Idea?
The road to saving for a first property can often be a painstakingly, long one. However, the Shared Ownership Scheme can provide a unique solution. Supporting buyers who cannot afford to buy on the open market, shared ownership can be an excellent way of getting on the property ladder. However, it can come with some pitfalls too.
What is Shared Ownership?
Shared Ownership is a government-initiated scheme, designed to help a buyer purchase a share of a property from a housing association (a not-for-profit organisation supplying housing). A buyer can purchase a proportion of a property (between 25% and 75%) and pay rent on the outstanding amount. Over time, a buyer will have the option to ‘staircase’ their way up to 100% ownership.
For example, if you bought a 25% share of a £400,000 property, your share value would be £100,000. If you pay a 10% deposit on this, you will need to put down a deposit of £10,000. A 5% deposit would require a £5000 deposit. This can be a far more accessible route for those struggling to save for a full home deposit.
Whilst considering shared ownership, it is essential to take into account that you will still incur the usual property purchasing fees, e.g., conveyancing and survey costs. Therefore, always factor this into your budget.
Who is eligible?
To qualify for Shared Ownership, you need to be:
- Aged 18 and over.
- Unable to afford a property that is suitable for your needs on the open market.
- Have a household gross income of less than £80,000 per year or £90,000 per year for homes in London.
- A first-time buyer or have previously owned a home but can no longer afford to.
What is ‘Staircasing’?
After a period of time, you can increase your ownership by buying further shares. This is referred to as ‘staircasing’ and allows you to gradually build up the amount of shared ownership you have in your home. The greater the share you buy, the less rent you will pay. When purchasing additional shares, the current market value is always taken into account, meaning there is a high chance that each time you buy, your payment will increase.
What are the benefits of the Shared Ownership Scheme?
There are several benefits to the government-initiated scheme including:
- It can be an affordable way to access to the property market.
- The deposit is smaller as it is taken from the share price, not the entire property.
- Rent payments tend to be considerably lower than privately renting.
- By ‘staircasing’, a buyer can obtain a greater portion of the property as finances allow and in their own time.
- Shared ownerships are likely to be new builds, meaning they will require less maintenance, over time, than an older home.
- You can sell your share at any time.
What are the cons of the Shared Ownership Scheme?
There are a few points to watch out for including:
- Unlike renting, home maintenance costs will still need to be factored in.
- Even though you do not own the property outright, you will still need to pay 100% of costs such as ground rent fees and service charges.
- Selling can be complicated. The Housing Association has first refusal even, in some cases, if you own 100%. If a buyer is not found, the property can go on the open market but it must be purchased by an individual who fulfils the housing providers criteria for shared ownership.
- If you ‘staircase’, then further shares of the property are likely to increase in cost.
- All shared ownerships are leasehold. This is fine if the lease is long, but problematic if it is short and you want to sell. Read our guide on the differences between leasehold and freehold here.
- Unless you own 100% of the property you are unable to sublet your home.
Shared ownership is a great scheme for those who cannot envisage a way onto the property ladder. It allows the freedom to purchase a property gradually in instalments, if your finances improve. However, there are many factors to take into consideration before entering the scheme. Have you purchased through the Shared Ownership scheme? We would love to hear how you found the process.