Shared Ownership Explained

Navigating the property market can be challenging, especially for first-time buyers. Shared ownership is a scheme designed to make buying a home more accessible, particularly for those who might struggle to afford a property outright. In this article, we will explain what shared ownership is, who benefits from it, and how the scheme operates.

What is Shared Ownership?

Shared ownership is a government-backed scheme aimed at helping individuals get on the property ladder. It allows buyers to purchase a share of a property, typically between 25% and 75%, while paying rent on the remaining share owned by a housing association. Over time, the buyer can increase their share through a process known as “staircasing” until they potentially own 100% of the property.

Who Benefits from Shared Ownership?

Shared ownership is particularly beneficial for first-time buyers, those who do not currently own a home, and individuals with a lower household income. It offers an opportunity to purchase a home with a smaller deposit compared to the conventional market.

Key Beneficiaries:

1. First-Time Buyers: Young professionals or families looking to purchase their first home.
2. Low to Moderate Income Earners: Individuals or households earning less than £80,000 per year (or £90,000 in London).
3. People Needing to Relocate: Those who need to move for work or personal reasons but cannot afford full market prices.
4. Individuals Requiring More Suitable Housing: People needing to move due to health or family reasons and finding market prices out of reach.

How Does Shared Ownership Work?

Initial Purchase

To start with, buyers need to find a property offered under the shared ownership scheme. This is usually done through housing associations or estate agents that specialise in shared ownership properties. Once a property is selected, the buyer decides on the share they wish to purchase, typically between 25% and 75% of the property’s value. A mortgage is taken out to cover this share and a deposit, usually 5-10% of the share’s value, is required.

Paying Rent

For the share of the property not owned, the buyer pays rent to the housing association. This rent is usually set at a lower rate than market rent, making it more affordable. The combined cost of the mortgage repayment and rent can be significantly lower than paying a mortgage on 100% of the property or renting privately.

Staircasing

One of the significant advantages of shared ownership is the ability to increase your ownership share over time, known as staircasing. When financially feasible, the owner can purchase additional shares, usually in 10% increments. The cost of additional shares is based on the current market value of the property. As more shares are purchased, the amount of rent paid decreases accordingly. Eventually, it is possible to own 100% of the property, at which point no rent is paid.

Selling the Property

When it comes time to sell a shared ownership property, the process is slightly different from selling a fully owned home. The housing association usually has the first right to find a buyer. If they are unable to do so within a specified period, the owner can sell their share on the open market. The value of the shares will be based on the current market value, and any increase in property value benefits the owner proportionally to their share.

Advantages of Shared Ownership

1. Lower Initial Costs: Smaller deposits and reduced mortgage requirements make homeownership accessible.
2. Reduced Rent: Rent is typically lower than market rates, providing savings.
3. Gradual Ownership: Flexibility to increase ownership shares over time.
4. Security of Tenure: Long-term leases provide stability and security compared to renting privately.

Disadvantages of Shared Ownership

1. Service Charges and Manitenance: Even as a part-owner, you may be liable for service charges and maintenance costs.
2. Staircasing Costs: Additional shares must be bought at market value, which can fluctuate.
3. Selling Restrictions: The process of selling can be more complex and potentially slower due to the housing association’s involvement.

Is Shared Ownership Right for You?

Shared ownership can be a viable option for many prospective homeowners, especially those struggling to afford full market prices. However, it’s essential to consider all aspects, including the long-term costs, responsibilities and potential complications. Consulting with a financial advisor or mortgage specialist can provide personalised advice and help determine if shared ownership is the best path forward.

Shared ownership offers an accessible route to homeownership for many people in the UK. By allowing buyers to purchase a share of a property and pay rent on the remainder, this scheme lowers the barriers to entry in the property market.