Getting onto the property ladder in much of the UK remains tough. For first-time buyers who don’t have significant financial support, it’s getting tougher. Fortunately, there are government-backed schemes and alternative paths to purchasing a property that can help. Shared Ownership can be a very helpful way of easing you onto your first property if getting a full deposit isn’t feasible.
Shared Ownership is a home ownership scheme set up by the Government to help people invest in property more easily. It is designed as an easier way for first-time buyers to get their foot on the property ladder. By gradually buying part of a home a piece at a time, buyers can get out of the rental trap on a more manageable investment timeline.
How does shared ownership work?Rather than buying a property upfront, shared ownership allows you to purchase a stake in the chosen property run by a housing association, usually between 25%-75%. From this initial share, you can gradually buy more of your home over time. Previously, the scheme required you to purchase further shares in increments of at least 10%. However, new rules recently dropped this threshold to 1%.
You can keep investing in your property until you own all 100% of it. This is called staircasing and we have a full guide on it here.
You qualify for the Shared Ownership scheme if the following applies:
You’re over 18 years old.You’re a first-time buyer, or you used to own your home and can no longer afford to.Your household earns less than £80,000 per year.There are also some checks involved where you have to prove you can afford the monthly bills and other charges. This involves a compulsory financial interview with an independent financial advisor to check that you can reliably cover the costs involved.
Do you pay rent on shared ownership?Under shared ownership, you must pay rent on the portion of the property that you don’t own. Fortunately, rental rates charged by housing associations are usually much lower than those usually charged by private owners. They tend to be around 2.75% of the value of the property per annum.
The main advantages of Shared Ownership are:
It requires a much smaller deposit, because it will be based on the share value rather than the full value of the property.Mortgages are significantly easier to secure. This is because you are borrowing a much smaller amount, making you a smaller credit risk.You can sell your share in the property back to the housing association at any time.If a more traditional deposit and mortgage loan package isn’t on the cards, Shared Ownership lets you get your foot in the door. From there, you can gradually increase your stake on a timescale that is affordable and works for you.
The main disadvantage of Shared Ownership is that you still have to make monthly rental payments, as you don’t fully own the property.
The other main drawback is that you’re also liable for all the charges you would expect to pay as a tenant. Utility bills, ground rent, service charge, council tax – these all need to be paid by you. This applies no matter the size of your share in the property, even the minimum 25% stake. You’ll also have to cover various repair costs, despite paying rent on part of the property.
Finally, all properties sold under the Shared Ownership scheme are leasehold. This isn’t a big issue if the remaining lease is long (anywhere around 100 years) but shorter ones can be problematic if you’re trying to sell. This Money Advice Service post will give you a firmer understanding of the differences between leasehold and freehold.
Your Shared Ownership agreement should tell you exactly who is responsible for different types of repair works. Generally, you would be expected to pay for repairs and maintenance issues or anything you damage.
Can you be kicked out of shared ownership?You cannot be evicted from a shared ownership home, since you own part of it. The housing association will not be able to evict you like a normal tenant if, for example, you fail to make rental payments. However, if you repeatedly fail to make scheduled payments, or cause significant damage to the property, the housing association may secure a court order that forces you to pay for outstanding rent/damages or sell your share of the property.
In order to sell a Shared Ownership home the first thing you need to do is to inform the housing association you bought it from. They have what’s known as ‘right of first refusal’ if you decide to sell.
Whether they buy it or not, the housing association will give you a choice of surveyors, which will lead to a valuation. This allows the housing association to work out the value of your share. Then they will try to find a buyer looking to purchase through the scheme.
Of course, if you have increased your share of ownership to 100% during your time in the property, then you fully own it and can sell it yourself.
Is it hard to sell a shared ownership property?Selling a shared ownership property can be harder if you live in an area where this purchasing option isn’t popular. However, it can be easier and quicker, since the housing association may buy it back or find a buyer within the nominated period.
Applying to buy a Shared Ownership property starts with contacting a ‘help to buy’ agent. This Gov.uk link can help you find an agent in your area. The agent will take you through all the eligibility checks and can guide you throughout the sale process.
If you’re looking to get on the property ladder without overstretching your finances, Shared Ownership can be a good way to do it. You can put your money towards buying your own home more quickly than saving to buy outright.
The lower rent payments, government backing and low buy-in costs are all major benefits. However, unless you plan to increase your share value over time, it might not be the most cost-effective choice.
You’ll still be paying rent on a proportion of your home, along with the associated costs of leasehold ownership. These include ground rent and service charges or maintenance fees. However, unlike a tenant, you’ll have to cover the costs of any repairs to your own home in full.
You’ll also be limited to particular new build properties which offer the scheme. In some cases, Shared Ownership homes do not include the use of certain facilities available to full owners in the same development.
Ultimately, you need to work out whether buying a smaller share today is better than saving up for a full purchase tomorrow. Both paths carry costs with them, but Shared Ownership gives you the advantage of greater certainty. You can invest what you have now, safe in the knowledge that you are working towards your goal of homeownership.
Is Shared Ownership being phased out?Shared Ownership is not being phased out, but the scheme is being looked at closer by the governemnt and is likely to change in the coming years. The current rules apply to all shared ownership homes built under the government’s Affordable Homes Programme (AHP) from 2021-2026.
However, the affordability of housing is a very sensitive political issue in the UK in 2023. Therefore, we can expect more debate and possibly more changes regarding the programme in the next few years.
Whether you’re buying, selling or renting, our guides have got you covered. From top tips on buying new builds, to different help to buy schemes, we can help you figure out the best approach for you.
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