Buying a home is a big cost. In fact, it’s one of the biggest costs most of us will face in our lifetimes. Shared ownership offers a stepping stone when searching for a house seems to lead to a dead end. Perhaps you haven’t considered shared ownership, or maybe you’ve never even heard the words before! We’re going to explore shared ownership and investigate the pros and cons to help decide whether it could be the correct option for you.
You may be a beginner when it comes to shared ownership, perfect- this article will tell you everything you need to know! Or maybe, you’re just looking for something specific. Either way, this list will help you gain an insight into what we’re going to explore:
- What is shared ownership?
- Pros and cons of shared ownership
- How do I know if I qualify for shared ownership? How do I apply?
- What happens when it comes to selling the property?
- If I become able, can I buy the rest of the property?
- Help to buy vs shared ownership
- So, is shared ownership a good idea?
What is shared ownership?
Maybe shared ownership are completely new words to you and so a good place to start would be to find out what exactly is shared ownership. Shared ownership schemes are run by housing associations, giving first time buyers or those who don’t currently own a house the opportunity to purchase a share of a property. This share can be anywhere from 25% to 75%. The buyer must pay the housing association rent for the remaining percentage of the property. As the buyer is purchasing a percentage of the house, they only require a mortgage on their share, meaning the amount of money required for a deposit is a lot less than if the house was being bought outright.
Pros and cons of shared ownership
- Easier than full ownership– As you’re buying a share of a house, the mortgage you will require is smaller and therefore the deposit on the house will be smaller. This makes shared ownership easier to achieve.
- Gain equity- The portion of the house you own will grow in value, as the value of the whole property increases. This will mean when it comes to selling, you will gain equity on your portion of the house, which is great as it will make it easier to continue to try climb the property ladder.
- Stamp duty choice- On purchasing, you will be given the option to pay stamp duty on the full price of the house, as if you were buying it outright. This will mean you won’t have to pay anymore stamp duty on the house again, even if you choose to purchase the whole house. Alternatively, you can choose to just pay stamp duty on the share you’re purchasing, meaning an initial lower cost.
- Lower monthly payments– The monthly payments often work out cheaper than if you had an outright mortgage or private renting.
- Opportunity to increase share- We will cover this more later on, but shared ownership does allow you to later purchase more of the property, by a process better known as ‘staircasing’. For more details on this, look at ‘can I buy the rest of the property.
- Costs and repairs- Even though you may not own all the property, you will still be expected to cover 100% of ground rent, service charges and any repairs needed. However, if you buy a new build, most come with a 1 year warranty for defects and a longer warranty for structural problems.
- Sub-letting- Unless you have ‘staircased’ your way to 100% of the property, you are not allowed to sublet you home. You can, however, let out one or more rooms but you must live in the property permanently.
- Eviction- As you’re renting a share of the house, if you don’t pay you can be evicted for rent arrears. Alongside this, if you don’t pay your mortgage, you can be evicted for mortgage arrears.
- Pet restrictions- Unfortunately, a lot of shared ownership houses won’t let you keep your pet, especially if it’s an apartment. You will have to check your lease as each property is different but generally it will be harder to find a place for you and your furry friend.
- Housing improvements- Although you will have freedom to decorate your home on the inside, there are likely to be restrictions as to the improvements you can make to your house on the outside. Having said this, you may be able to gain permission for structural alterations as, once again each lease is different and there isn’t a ‘one size fits all’.
How do I know if I qualify for shared ownership?
- You must be at least 18 years old.
- You must not own another home. Generally, those applying for shared ownership are first time buyers. However, if you’re not a first time buyer you must not currently own another property. If you do own another property, either in the UK or abroad (jealous), you must be in the process of selling it.
- Your annual household income must be less than £80,000, or £90,000 if you live in London.
- You mustn’t be in rent or mortgage arrears.
- You must demonstrate you can afford regular payments and also that you have a good credit history.
- You will need between 5-10% of the equity share you’re buying for the deposit.
- You mustn’t be able to afford to buy a house on the open market.
If you read that list thinking you tick all those boxes, then great! Shared ownership is definitely something you can consider.
How do I apply?
If you’ve decided shared ownership is the route you want to take, then you’ll be glad to know applying is quite simple. To apply, you need to contact your local council’s housing team to ask about housing associations nearby. Alternatively, you can visit websites such as the government’s help to buy page or websites like ‘Share to buy.’ You do need to keep in mind that not all mortgage providers offer mortgages for shared ownership and so having a mortgage broker on your side to get you the best deals is always a plus.
What happens when it comes to selling the property?
The good news is that selling a shared ownership property is pretty much the same as selling a regular property. However, unless you have ‘staircased’ to own 100% of the property there will be restrictions. If you want to sell your home and you don’t own 100%, you must give the housing association the option to find a buyer, before you put it on the open market. The good news is you will receive a share of the sale price, in line with the percentage that you own. To give you an example, if the property sells for £200,000 and you have a 50% share, you will receive £100,000.
If I become able, can I buy the rest of the property?
If you’re only here for the short answer, yes you can! If you want more than a yes, this section has got you covered. A great part of shared ownership is that you can actually purchase up to 100% of the property, by a process known as ‘staircasing’. I told you I’d explain staircasing in more detail! Essentially, at any time during your tenancy you can increase your owned share of the property up to three times. For example, if you own 25% you could staircase to 50%, then 75% and finally 100%. Something you will need to bear in mind when it comes to staircasing, is you will buy the share at the current market value. When you decide you want to buy more of the property, your housing association will value it for you. You may also want to keep in mind that you will have to remortgage, should you choose to purchase more of the property.
Help to buy vs shared ownership?
Help to buy is another scheme put in place to provide help for those who can’t afford a home by themselves. The government will give you an equity loan of up to 20% (40% in London) of the cost of your new home. Both help to buy and shared ownership enable buyers to take their first steps on the property ladder. The main difference between the two is that in shared ownership, you’re paying both a mortgage and rent (to your housing association), and in help to buy you’re only paying mortgage. A shared ownership is initially cheaper as you’re only purchasing a share of the home, whereas in a help to buy you’re purchasing the whole house. Which scheme is better is down to personal opinion and depends on each situation. If you want to own the full property on initial purchase, then help to buy is the better option. If you don’t have the desire to buy the whole property initially, or it’s something you’d prefer to work up to, then shared ownership is more suited to you.
So, is shared ownership a good idea?
Whether shared ownership is a good idea is down to the individual and their personal situation, like I said earlier there’s no ‘one size fits all’. However, a scheme which is put in place to make purchasing a house more affordable, to me can only seem like a good idea. Getting onto the property ladder seems a daunting experience, which only looks increasingly difficult and by applying for a shared ownership scheme, buying a house is only going to get easier!