What is Shared Ownership? Everything you need to Know

Shared Ownership is a government-backed housing scheme designed to help aspiring homeowners get onto the property ladder when they might otherwise struggle to afford a home outright. This innovative approach to homeownership has gained popularity in recent years, offering a more accessible route to owning property for many first-time buyers and those on lower to middle incomes. If you’re interested in learning about How to Maximize Affordability When Buying a New-Build Home be sure to check out this article.

How Shared Ownership Works

At its core, Shared Ownership allows you to purchase a share of a property while paying rent on the remaining portion. Here’s a breakdown of the key aspects:

1. Partial ownership: You buy a share of the property, typically between 10% and 75% of its full market value.
2. Rent payments: You pay a subsidized rent on the portion you don’t own, usually at a rate of 2.75% of the property value per annum.
3. Mortgage: You’ll need a mortgage for the share you’re buying, with a minimum 5-10% deposit of your share’s value.
4. Staircasing: Over time, you can increase your ownership share through a process called staircasing, potentially up to 100% ownership.

Shared Ownership homes are offered on long-term leases, providing both flexibility and security. This arrangement allows buyers to enter the property market at a more affordable price point while still enjoying the benefits of homeownership.

Eligibility Criteria

To qualify for Shared Ownership, you must meet certain criteria:

1. Age requirement: Applicants must be 18 years or older.
2. Income threshold: Your annual household income must not exceed £80,000 (£90,000 in London).
3. First-time buyer or non-homeowner: You cannot own another property at the time of purchase.
4. Affordability: You must be unable to afford a suitable home on the open market.
5. Good credit history: You should have a good credit record with no bad debts or county court judgments (CCJs).

Some housing providers or local authorities may have additional requirements, such as a connection to the area where the property is located.

Costs Associated with Shared Ownership

When considering Shared Ownership, it’s important to understand all the costs involved:

1. Mortgage payments on your share
2. Rent on the remaining portion
3. Service charges and ground rent
4. Utility bills and council tax
5. Contents insurance
6. Property maintenance costs
7. Legal and conveyancing fees

While the initial costs may be higher than renting, the long-term expenses often work out cheaper than paying rent to a private landlord.

Advantages of Shared Ownership

Shared Ownership offers several benefits that make it an attractive option for many:

1. Lower entry costs: The scheme allows you to purchase a property with a smaller deposit and mortgage, making homeownership more accessible.
2. Affordability: Monthly repayments can often be lower than renting privately or having an outright mortgage.
3. Stability: As an owner-occupier, you gain long-term stability without overstretching your finances.
4. Flexibility: You have the option to increase your ownership share over time through staircasing.
5. Property ladder entry: It provides a way to get onto the property ladder when you might otherwise be priced out of the market.
6. Stamp Duty savings: It’s often not necessary to pay Stamp Duty Land Tax on initial purchases.

Disadvantages of Shared Ownership

While Shared Ownership has many advantages, it’s important to consider the potential drawbacks:

1. Ongoing rent payments: You’ll still need to pay rent on the portion you don’t own, in addition to your mortgage.
2. Full financial responsibility: Despite only owning a share, you’re liable for all charges associated with the property, including repairs and maintenance.
3. Restrictions on subletting: Shared Ownership homes cannot be sublet, which may limit flexibility for some buyers.
4. Limited property selection: The pool of available Shared Ownership properties may be more limited compared to the open market.
5. Leasehold nature: All Shared Ownership properties are leasehold, which comes with its own set of considerations.

Recent Changes to the Scheme

The government has recently introduced some changes to make Shared Ownership even more accessible:

1. Minimum initial share reduced to 10% (previously 25%).
2. Ability to staircase in 1% increments, making it easier to increase ownership over time.
3. 10-year period where the landlord supports essential repairs, reducing the financial burden on new homeowners.

Comparison with Other Schemes

Shared Ownership is one of several government-backed schemes designed to help people onto the property ladder. It differs from other programs like Help to Buy in terms of deposit requirements, ownership structure, and eligibility criteria. When considering your options, it’s crucial to compare these schemes to determine which best suits your circumstances.

The Buying Process

If you’re interested in pursuing Shared Ownership, here’s a general outline of the process:

1. Check your eligibility and register with your local Help to Buy agent.
2. Search for Shared Ownership properties in your desired area.
3. Arrange a financial assessment to determine what you can afford.
4. View properties and make an offer on your chosen home.
5. Once your offer is accepted, appoint a solicitor and apply for a mortgage.
6. Complete the purchase and move into your new home.

Staircasing: Increasing Your Share

One of the key features of Shared Ownership is the ability to increase your share of the property over time through staircasing. This process allows you to gradually own more of your home as your financial situation improves. Here’s how it works:

1. You can usually purchase additional shares in increments of 10% or more.
2. The cost of additional shares is based on the property’s current market value.
3. As you increase your share, your rent will decrease proportionally.
4. In most cases, you can staircase up to 100% ownership, at which point you’ll no longer pay rent.

Selling a Shared Ownership Property

If you decide to sell your Shared Ownership home, the process is slightly different from selling a property on the open market:

1. You’ll need to inform your housing provider of your intention to sell.
2. The housing provider usually has the right to find a buyer for your home first.
3. If they can’t find a buyer, you can sell your share on the open market.
4. The sale price will be based on the current market value of the property.

Is Shared Ownership Right for You?

Deciding whether Shared Ownership is the right choice depends on your individual circumstances. Consider the following:

1. Your current financial situation and future earning potential
2. Your long-term housing goals
3. The property market in your desired area
4. Your willingness to take on the responsibilities of homeownership
5. Your ability to afford the combined costs of mortgage, rent, and associated fees

Conclusion

Shared Ownership offers a unique pathway to homeownership for those who might otherwise struggle to enter the property market. By allowing buyers to purchase a share of a property and pay rent on the remainder, it provides an affordable stepping stone to full ownership. While the scheme comes with its own set of considerations and potential drawbacks, for many, it represents a valuable opportunity to gain a foothold on the property ladder.

As with any major financial decision, it’s crucial to thoroughly research and understand all aspects of Shared Ownership before committing. Consult with financial advisors, mortgage specialists, and housing providers to ensure you have a comprehensive understanding of the scheme and how it aligns with your personal circumstances and long-term goals.

With recent changes making the scheme even more accessible, Shared Ownership continues to evolve as an important tool in addressing housing affordability challenges. For those dreaming of homeownership but finding traditional routes out of reach, Shared Ownership may well be the key to unlocking that dream.