Shared ownership properties represent an excellent way of getting onto the property ladder.
Home ownership is one of the most freeing and financially rewarding purchases you’ll make in your lifetime. With fees becoming more expensive, the shared ownership Government scheme is a great helping hand for millions of people.
If you’re first-time buyers unable to borrow enough or cannot afford to purchase a home outright on the property market, it’s potentially a good solution.
Here, we look at shared ownership pros and cons to help you understand whether it’s right for you.
In this article you’ll find:
- What is shared ownership property?
- Is shared ownership a good idea?
- What is the eligibility criteria for a shared ownership property?
- What are the advantages of shared ownership?
- What are the cons of shared ownership?
- How to apply for shared ownership
What is shared ownership?
Essentially, shared homeownership means that you have a part rent part buy arrangement for your property and own a certain percentage of the property.
Government schemes like Help to Buy enable buyers meeting certain eligibility criteria who want to get on the housing ladder to obtain a mortgage.
With this, they can purchase a stake of usually 25-75% in their chosen property while also paying rent to a private developer or housing association for the remaining share.
The housing association will charge the rent paid on that remaining share at a reduced rate.
Usually, the properties will be leasehold. This means you’ll be required to not only pay your rent and mortgage costs but to contribute to any large-scale maintenance works and pay a service charge every month too.
When you own a shared ownership property, you can benefit from “staircasing,” i.e., increasing the amount of share you have in your home by buying shares in increments of 10% – meaning you will own more of the property.
This reduces the amount of rent you pay as your mortgage will increase.
Both private developers and housing associations provide shared ownership properties with the restrictions, costs, and details varying between providers.
Therefore, you need to do your research well into each one’s individual merits and always make sure you’ve read your lease’s small print carefully.
Currently, the government is undergoing consultations about taking a more standard approach to shared ownership.
Some changes could be on the way regarding these schemes administration.
Is shared ownership a good idea?
If you are a first-time buyer looking to get on the property ladder, buy a share of the property, or someone who cannot get a large enough mortgage to purchase a new home on the open market – then this should be something you consider.
If you can buy a property that falls under the ownership scheme, you can purchase a certain percentage that suits your budget with shares starting from 25%.
The rest is then topped up as you also pay rent.
For example, – you could have a 30% shared ownership property, and the remaining 70% is rent.
It goes without saying that this ownership scheme is the same as having a mortgage on any other property, so it’s important to make all your repayments on your mortgage on time to avoid losing the property.
Is it difficult to sell shared ownership properties?
When it comes to selling, it can depend on anything that can make selling any property a challenge.
It depends on the property’s value – what buyers will it attract or what their budget is.
People who can afford to buy this type of property need to pass certain criteria within the housing association application.
Market value can also change frequently depending on the area the property is in and where you’re trying to sell.
Certain mortgage lenders don’t always offer mortgages for the shared ownership scheme, but there is still a large panel of lenders who do.
So your potential new buyers shouldn’t have any issues when applying for a shared ownership mortgage.
How does stamp duty work for shared ownership properties?
First-time buyers will pay no stamp duty on the first £300,000 of the total value of any shared ownership homes.
When purchasing your shared ownership home, you have the option to pay stamp duty on the full amount of the property or, just your share. The disadvantage of paying stamp duty on your share of the property is that, in most cases, you’ll have to continue to pay each time you buy more shares.
If you decide to pay the full amount upfront, you qualify for the stamp duty exemption. Yes, it’s a heavier fee up front but it could work out more cost-effective for you in the long run.
What is the eligibility criteria for a shared ownership property?
Different shared ownership eligibility criteria are depending on which housing association or private developer owns the property. Also, different rules apply in Northern Ireland, Scotland, Wales and England. Generally, though, you must:
- Have a yearly income less than £80,000 (or £90,000 in London)
- Be aged 18 or older
- Not own a property already (although you may already be a shared owner who wants to move)
- Not be able to afford a suitable property for sale on the open property market
- Have no rent or mortgage arrears
- Rent a housing association or council property
- Have proof you can afford to pay the mortgage repayments plus the rent and service charge
- Have a credit score that is good or better
If you are 55 or older, you may be eligible to make an application for Older People’s Shared Ownership.
With this scheme, you can only purchase a maximum of 75% of your property; however, once you own 75%, paying rent is no longer required on the 25% remaining share.
How can I get a shared ownership mortgage?
Firstly, you’ll need to research shared ownership properties in your area and find a property that you like!
Once you’re happy you’ve found the right home, you’ll need to arrange an appointment with a mortgage specialist to understand what your options are – based on your earnings, budget, and credit score.
Your mortgage advisor will let you know how much you can afford and what percentage of the property you can buy based on the minimum and maximum shares available.
Depending on which mortgage providers your mortgage broker works with, will determine which rate you can get your shared ownership mortgage for. Our advice to you: always shop around before committing to any providers.
If need additional mortgage advice or have general questions on shared ownership homes, we recommend visiting the Gov website for more information.
Who offers shared ownership mortgages?
Most major building societies offer shared ownership mortgages*. We recommend that you compare and review the mortgage market before making a decision.
Some of the most popular mortgage lenders for part-rent, part-buy properties:
- Lloyds Bank
What are the advantages of shared ownership?
There are several benefits associated with shared ownership schemes:
You will pay a much smaller deposit on shared ownership properties since you will have a smaller mortgage and the amount of deposit will be only a percentage of your share price and not the entire value of the property.
Remember, though, that you’ll still need to afford conveyancing, removal and surveying costs as well as your deposit.
Rent payments will also be lower than private rents. Typically, only 2.75% of the price the property is valued at per year.
Mortgage approval for lower-income earners will be much more likely since shared ownership mortgages lend smaller amounts.
When paying Stamp Duty, you can choose to make payments in stages when you staircase or as a single large payment.
You can sell the shares which you own at any time.
While staircasing, you’ll have more security compared with renting as a private tenant.
Typically, you’ll eventually be able to staircase to 100%, and this will mean you’ll be the property’s outright owner. After doing this, it’s possible you could also purchase the property’s freehold from your housing association.
What are the cons of shared ownership properties?
Although there are many fantastic advantages to shared ownership schemes, there are some downsides too.
Will I ever be the full owner?
Even though you’re only the owner of a property share, you’ll be responsible for making payment for all the repair and maintenance costs. You’ll need to ask the housing association at which point you’ll have the opportunity to buy the leasehold later on.
With any luck, the lower mortgage payments together with the monthly rent will still end up being cheaper than purchasing your home outright when opting for shared ownership, but maintenance charges will be added on too.
These charges may increase at some future point. Not only will you need to pay service charges for maintaining and caretaking communal areas, but you may also need to contribute to large-scale works such as roof maintenance.
Even though you’re only the owner of a property share, you’ll be responsible for making payment for all the repair and maintenance costs.
When you want to staircase or increase your property stake, be aware that this can be costly. It isn’t only the purchase of the share you’ll need to pay for.
There’s also valuation fees, legal expenses, stamp duty and mortgage fees.
There may be restrictions in your lease. For example, you may need to ask permission in your housing provider’s written format before making structural alterations. Some leases even require permission for redecorating.
There may also be restrictions put in place by your housing provider. There may be a limit that prevents you from obtaining outright 100% ownership or a limit on the number of times you’re able to staircase.
Purchasing any new build home makes most sense if you’ll be living in it for several years.
New builds have a premium added to their sale price, which depreciates immediately after moving in.
Should house prices go down, it’s possible you could end up in negative equity which would end up losing you money if you tried to sell the property.
Selling shared ownership properties
The process of selling a shared ownership property isn’t straightforward, making it difficult to move up the housing ladder later on.
Your housing provider will probably have “right of first refusal” before it goes up for sale. Should they then fail to source a buyer, you can market your own share of your property, but even then you’ll have to find a purchaser who can fulfil all the eligibility criteria.
Also, not every lender will provide a shared ownership mortgage, reducing your potential buyer pool.
Even though shared ownership schemes are government-backed, you get no additional protection. Maintenance fees and rents may increase over time, and you’ll still need to keep paying your mortgage.
How to apply for shared ownership
If you’re keen to apply for a shared ownership property, you’ll need to either contact the housing team at your local authority to ask about your area’s housing associations or check websites like Help to Buy or Share to Buy.
You’ll be able to obtain all of the details via one of these methods about how you can make your application. You’re likely to be asked:
- Where you’d like to live
- How much you earn
- The amount you’ve got in savings
- Your credit history
- Any debts you have
Within about four days, your application is likely to be assessed, and then, if you’re accepted, you’ll be able to begin searching for your ideal shared ownership home.
A Help to Buy local agent will show you the properties available near you, but it’s also possible to search on the Share to Buy and Property Booking portals where you’ll find listings for thousands of properties.
You’ll be able to book viewings via each appropriate housing association then once you’ve decided on the right property for you, you put down your reservation fee.
Usually, it will be £200; however, it may vary.
Some of your financial information will have been shared when you were making your scheme application. Still, you’ll also have to undergo a complete housing association financial assessment, carried out by independent financial advisers.
Typically, they’ll need to see:
- 3 months worth of payslips
- 3 months worth of statements from your bank
- Proof of your ID
- Information regarding the benefits you’re receiving
- Proof of your savings
- Information about your credit arrangements and existing debts
- You might also need to have a credit check carried out.
Once the assessment is complete, the mortgage lender will tell you the amount of property share you’ll be able to afford as well as the amount of rent you’ll have to pay.
The same financial adviser may also be able to arrange your mortgage on your behalf although you’re not obliged to use their service – you can arrange your own mortgage if you wish.
*Moovshack is not a mortgage provider or advisor. Any third-party providers we recommend are based on consumer research.