Can You Rent Out a Shared Ownership Property?

Shared ownership properties have become an increasingly popular way for people to get a foot on the property ladder. The scheme offers the opportunity to purchase a share of a property, while paying rent on the remaining portion owned by a housing association or other relevant body.

But as life circumstances change, many shared ownership property owners may wonder, "Can I rent out my shared ownership home?".

This blog explores whether it's possible to rent out a shared ownership property, what restrictions are in place, and under what circumstances it may be allowed. We'll also touch on the responsibilities, legalities, and tax implications of renting out a shared ownership property in the UK.

Understanding Shared Ownership

Before delving into the details of renting out a shared ownership property, it’s important to understand how the Shared Ownership Scheme works.

The scheme was created to help people, particularly first-time buyers, afford homeownership. It allows individuals to purchase a portion (typically between 25% and 75%) of a property and pay rent on the remaining share to a housing association or other provider.

For instance, if you purchase 50% of a property, you will pay a mortgage on that portion and rent on the remaining 50% still owned by the housing association. Over time, you may have the option to buy additional shares in the property, a process known as "staircasing," until you potentially own the entire property outright.

Because shared ownership properties are designed to help people get into homeownership, they come with restrictions that prevent owners from turning the property into an income-generating rental without approval.

Can You Rent Out a Shared Ownership Property?

In most cases, renting out a shared ownership property is not permitted. The terms of shared ownership leases generally prohibit subletting or renting out the property unless there are exceptional circumstances, which must be reviewed and approved by the housing association.

This restriction is put in place because shared ownership properties are intended to help people into homeownership, not to provide a profit-generating opportunity. By limiting the ability to sublet, the housing association ensures that the property is being used for its intended purpose – as a home for the buyer, rather than a rental investment.

However, this does not mean that renting out a shared ownership property is entirely impossible. Let's explore the scenarios where it might be allowed.

Exceptions to the Rule: When You Might Be Allowed to Rent Out a Shared Ownership Property

While the general rule is that subletting is not permitted, housing associations may allow it in certain exceptional circumstances. These are often personal situations that make it difficult or impractical for the owner to live in the property. Some common reasons why a housing association might grant permission include:

• Temporary Work Relocation: If you have been offered a temporary contract to work abroad or in a different part of the country, the housing association may consider allowing you to rent out the property during your absence. This is especially relevant if your job requires you to be away for an extended period.

• Caring Responsibilities: If you need to move away temporarily to care for a sick relative or friend, the housing association may consider this a valid reason to rent out your shared ownership home.

• Medical Needs: In cases where a medical condition makes it impractical for you to live in your property, you may be granted permission to rent it out. For example, if your home is no longer suitable due to mobility issues and you need to move into specialised accommodation, the housing association may approve subletting.

• Financial Hardship: In rare cases, financial difficulties may prompt housing associations to allow temporary subletting if this would prevent repossession or further financial strain. However, this is typically seen as a last resort, and you would need to provide evidence of your circumstances.

How to Get Permission to Rent Out a Shared Ownership Property

If you believe that your situation qualifies for an exception, you will need to seek formal permission from your housing association. Here’s how to go about it:

• Contact the Housing Association: Your first step is to notify your housing association of your intention to rent out the property. You will need to provide detailed reasoning for your request and any supporting documents (e.g. proof of a work relocation, medical evidence, or details of caring responsibilities).

• Submit Details of the Letting Arrangement: The housing association will likely ask for details about who will be renting the property, whether you plan to use a letting agent, and a copy of the proposed tenancy agreement. They will want to review the terms of the agreement to ensure they comply with the conditions of your shared ownership lease.

• Await Approval: The housing association will assess your request on a case-by-case basis. There is no guarantee that permission will be granted, as it will depend on their internal policies and the specifics of your situation. If approval is given, it will be provided in writing.

• Consider Mortgage Consent: If you have a mortgage on the property, you’ll also need to seek permission from your lender before renting it out. Lenders may require you to switch from a residential mortgage to a Buy-to-Let mortgage for the duration of the tenancy. This is important as failing to obtain lender consent could result in you breaching the terms of your mortgage agreement.

Subletting the Entire Property vs. Part of It

In most cases, if permission to sublet is granted, the housing association will only allow you to sublet the entire property. You cannot rent out part of the property, such as a spare bedroom, while continuing to live in it yourself. This is because shared ownership properties are typically not designed for multiple occupants who are not related.

Renting out part of the property could also create complications with your mortgage lender and insurance provider. Therefore, it is unlikely that partial subletting will be approved.

What Are the Risks of Renting Out a Shared Ownership Property Without Permission?

Renting out your shared ownership home without the required permissions can have serious consequences. Here are some of the risks involved:

• Breach of Lease: If you sublet your property without permission, you could be in breach of your shared ownership lease. This could result in the housing association taking legal action against you, including seeking repossession of the property.

• Mortgage Breach: Subletting without your mortgage lender’s consent could also result in a breach of your mortgage terms. This could lead to penalties or even repossession by the lender.

• Insurance Issues: Many home insurance policies are void if the property is rented out without the insurer being informed. If you sublet your home without updating your insurance, you could find yourself without cover in the event of an emergency or damage to the property.

Legal and Financial Responsibilities of Subletting

If you do receive permission to rent out your shared ownership property, it’s important to understand your new responsibilities as a landlord. While you may no longer be living in the property, you will still be held accountable for certain legal and financial obligations.

Landlord Responsibilities

As a landlord, you will need to comply with all relevant landlord and tenant laws. This includes:

• Ensuring the property is safe: This means making sure that gas and electrical appliances are safe and that the property meets health and safety regulations.

• Carrying out repairs: You are responsible for maintaining the property and carrying out any necessary repairs. This includes repairs to both the shared ownership portion and the part you rent out.

• Protecting the tenant’s deposit: If you take a deposit from your tenant, you are legally required to place it in a government-approved tenancy deposit protection scheme.

• Providing an Energy Performance Certificate (EPC): You will need to provide your tenant with a valid EPC, which outlines the energy efficiency of the property.

Tax Implications

Subletting a shared ownership property may also have tax implications. Any rental income you earn will be subject to income tax, and you will need to declare this income to HMRC. Additionally, if you sell the property in the future, you may be liable for capital gains tax on the portion of the property you rent out.

We recommend seeking advice from a tax specialist or accountant before renting out your shared ownership property to ensure that you fully understand the tax obligations and implications.

Related:

What is Residential Conveyancing?

What does a Residential Conveyancer do?

How much does Residential Conveyancing cost?

Is Land Tax the same as Stamp Duty?

How to Transfer Property Ownership: A Step-by-Step Guide

Conclusion: Is Renting Out a Shared Ownership Property Possible?

In summary, while the general rule is that you cannot rent out a shared ownership property, there are exceptions where permission may be granted. Exceptional personal circumstances, such as temporary work relocation, medical needs, or caring responsibilities, may allow for subletting, provided you obtain the necessary consent from your housing association and mortgage lender.

If you are considering renting out your shared ownership home, it is essential to follow the correct procedures and understand your legal and financial responsibilities as a landlord. Failure to do so could result in serious consequences, including legal action and financial penalties.

Finally, always seek professional advice, whether from a solicitor, tax advisor, or property expert, to ensure you remain compliant with all relevant laws and regulations. Renting out a shared ownership property can be a complex process, but with the right guidance and approvals, it is possible in certain circumstances.