What is Shared Ownership and how does it work?
Shared ownership is a government scheme that offers you the chance to buy a share of a property from a Housing association, it’s an alternative home buying product for people who would like to purchase a property but can’t afford to buy one on the open market. It’s also known as part buy, part rent.
It’s designed to help people with small deposits and lower incomes get on the property ladder and allows you to purchase a share of a property, usually between 25% -75%, while paying discounted rent on the remaining share you don’t owe.
You can take out a mortgage to buy your share or pay for it with savings. You’ll also need to pay a deposit, usually between 5% and 10% of the share you’re buying, but a deposit is not always required.
Shared Ownership homes can be new builds, existing properties, houses or flats. All Shared Ownership properties are leasehold including houses. Because you only own a part of the property monthly costs will include mortgage payment to your mortgage lender, rent to the housing association and service charge/ground rent.
To be eligible for shared ownership you need to be either a first-time buyer, a former homeowner, or an existing shared ownership owner who would like to move. For some homes you may need to provide evidence that you live in, work in or have connection to the area where you want to buy in. Your household income would need to be £80,000 or less (If buying in London £90,000 or less)
What is Staircasing?
If you bought your home through shared ownership, you can usually purchase further shares in the property when it is affordable to do so. This is called staircasing and it allows you to increase your equity share and will reduce the amount of rent you pay monthly. You can usually staircase a minimum 10% and dependent on the terms of your lease you can own up to 100% of your home.
The price you pay will be based on the current market value of your home. Because property prices can go up or down, the price of any further shares is unlikely to match the original purchase price. By increasing your share, you can borrow and take out a bigger mortgage subject to affordability and your personal circumstances.
What are the advantages of Shared Ownership?
- Mortgage affordability is based on the share you are buying and can afford.
- The monthly mortgage, rent and service charge payments on shared ownership can sometimes work out less than the cost of private renting.
- You can choose how to pay Stamp Duty Land Tax. If stamp duty is applicable you can choose to pay the stamp duty on the market value from the outset (and then none if you staircase in the future) or decide not to pay stamp duty based on your share price (but then pay it when you staircase in the future).
- You can buy more shares in your home at any time, subject to terms on the lease and affordability. If you decide to staircase up to 100%, you will own your home outright.
- You don’t have to staircase if you don’t want to.
- You might be able to get on the property ladder sooner compared to waiting until you’ve saved a deposit.
- You have security of tenure – as long as you pay your mortgage and rent on time, the housing association will never evict you, and unlike renting, you can decorate as you please!
What could be the disadvantages of shared ownership?
- The smaller the share you own, the less you will benefit from house price increases. Your equity is based on your share value.
- If you decide to staircase there are costs involved buying more shares, you will have to cover these costs. These include legal costs, valuation fee, housing association costs and mortgage application fees.
- Shared ownership homes are always leasehold (regardless of whether you buy a flat or house) There will be a monthly service charge, sometimes ground rent charges. These costs can also increase over time with inflation.
- Shared ownership rent on the share you don’t owe can also increase overtime due to inflation.
- Selling a shared ownership home can be a little more complicated than selling on the open market. You will have to give the housing association first opportunity to sell your home to someone on the shared ownership waiting list. The housing association will have typically 4 weeks to find someone. If they don’t find someone, then you have the option to sell privately.
Shared Ownership can be a great springboard into home ownership, so if this has got you thinking, we’d be delighted to help. Get in touch and we’ll be help you understand what’s possible, or sign up to our monthly newsletter, to keep your finger on the pulse.
Undray Griffith – 28th April 2023