What is Shared Ownership?

Shared Ownership is a government-backed scheme designed to help people take their first steps onto the property ladder by allowing them to purchase a share of a property, while renting the remaining portion.

It’s particularly beneficial for those who cannot afford to buy a home outright or struggle with the high deposits often required.

Through this scheme, homebuyers can own a percentage of the property, usually between 10% and 75%, with the option to gradually increase their ownership over time through a process called staircasing.

The scheme is typically managed by housing associations, non-profit organisations that provide affordable housing. Shared Ownership allows buyers to invest in their future while still having the flexibility to live in a property that might otherwise be out of financial reach.

However, it is important to note that these properties are always leasehold, even in the case of houses, which is an unusual aspect compared to most home purchases in the UK.

Shared Ownership is part of a broader range of government initiatives aimed at helping individuals, particularly first-time buyers, access the housing market.

Other schemes include Help to Buy, where the government provides a loan of up to 20% (or 40% in London) of the property value, reducing the initial financial burden for buyers. However, Shared Ownership works differently, offering part ownership in exchange for lower mortgage payments and an ongoing rental fee for the portion of the property that remains in the ownership of the housing association.

How Does Shared Ownership Work?

When purchasing a Shared Ownership property, you begin by deciding what share of the home you can afford to buy. This can range from 10% to 75% of the property’s market value, depending on your financial circumstances and the housing association’s terms.

You’ll then put down a deposit of at least 5% of the share you are buying and take out a mortgage to cover the remainder of that share.

For example, if you buy a 50% share of a property valued at £200,000, your share would be worth £100,000. A 5% deposit on that share would be £5,000, and you’d need to secure a mortgage for the remaining £95,000.

Once you own your share, you’ll pay rent on the portion of the property that remains owned by the housing association.

This rent is often charged at a reduced rate compared to market rental values, making it more affordable than renting a similar property outright. Additionally, you’ll need to cover other costs typically associated with leasehold properties, such as monthly service charges and potentially ground rent.

One of the most attractive features of Shared Ownership is the ability to staircase.

This means that over time, as your financial situation improves, you can purchase additional shares in the property.

This increases your equity and reduces the amount of rent you have to pay. In some cases, you may be able to staircase until you own 100% of the property, at which point you would no longer pay rent. However, not all housing associations allow buyers to purchase the full 100%, so it’s essential to check the terms before committing to a property.

It’s also worth noting that there are legal costs associated with staircasing, so it might be financially prudent to purchase larger chunks at a time rather than smaller increments. Some housing associations also limit the number of times you can staircase.

In April 2021, the government introduced a new version of the Shared Ownership scheme with updated rules and features designed to make the scheme even more accessible.

However, properties qualifying for the new version won’t be widely available until 2022, with only a limited number of homes available before then.

The key differences between the existing and new schemes include a lower minimum share requirement and the introduction of support for essential repairs, which we will cover in more detail later in this blog.

Eligibility for Shared Ownership

To qualify for Shared Ownership, there are a few basic criteria you must meet. Firstly, you need to be over 18 years old and have an annual household income of less than £80,000 outside London or less than £90,000 if you live in London.

Shared Ownership is primarily aimed at helping first-time buyers or those who are currently renting but would prefer to buy. However, even if you have previously owned a home, you may still be eligible if you can no longer afford to buy a property on the open market.

This makes Shared Ownership a flexible option for a wide range of buyers, from those entering the property market for the first time to those who have had to sell their home due to a change in financial circumstances.

The goal of the scheme is to make homeownership more affordable for those who might otherwise struggle to secure a mortgage for the full value of a property.

Pros and Cons of Shared Ownership

As with any property scheme, Shared Ownership has its advantages and disadvantages. It’s important to weigh these carefully before deciding if the scheme is right for you.

One of the biggest advantages of Shared Ownership is that it makes homeownership more accessible. Because you are only purchasing a share of the property, your deposit and mortgage will be smaller, making it easier for buyers on lower incomes to get onto the property ladder sooner than they might otherwise be able to.

This can be especially helpful for buyers in expensive areas like London, where property prices are significantly higher.

Another benefit is the flexibility of staircasing, which allows you to increase your share in the property over time as your financial situation improves. This means that as you pay off your mortgage and perhaps earn more, you can gradually own a larger portion of your home, reducing the rent you have to pay.

Additionally, Shared Ownership properties can include both new-build homes and existing properties, giving buyers a range of options when choosing their home. Whether you prefer the modern features of a new build or the charm of an older property, there are likely Shared Ownership homes that suit your tastes.

However, Shared Ownership does have downsides that potential buyers need to consider. One of the main disadvantages is that Shared Ownership properties are always leasehold, rather than freehold, which means that you will not own the land the property sits on. Instead, you’ll need to pay service charges and possibly ground rent, even if you own a large share of the property.

Another drawback is that when you come to sell your property, you may have to sell it through the Shared Ownership scheme rather than on the open market.

This can potentially limit your pool of buyers and may result in a longer selling process compared to freehold properties. Additionally, while staircasing allows you to buy a larger share of your home, it comes at a cost.

Each time you staircase, you’ll need to pay legal fees, and some housing associations may restrict the number of times you can staircase or impose minimum thresholds for each additional share.

Overall, Shared Ownership is a good option for those who want to buy a home but are unable to afford the full value of a property. However, it’s essential to consider the long-term costs and responsibilities involved, especially if you plan to staircase or sell your home in the future.

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The New Shared Ownership Scheme (2022 Onward)

In 2021, the government announced updates to the Shared Ownership scheme, with new rules set to apply to properties available from 2022. While the core principles of Shared Ownership remain the same, the new version of the scheme introduces several important changes designed to make the scheme more accessible and affordable.

Under the existing scheme, buyers need to purchase a minimum share of 25% of the property. However, the new version reduces the minimum share to just 10%, making it even easier for first-time buyers and those on lower incomes to get onto the property ladder.

Additionally, while the current scheme requires buyers to staircase by a minimum of 10% each time, the new scheme allows buyers to purchase as little as 1% at a time, with reduced fees for these smaller increments.

Another significant change is the introduction of repair support for new Shared Ownership buyers. Under the existing scheme, buyers are responsible for all repairs and maintenance on the property, which can add significant costs to homeownership.

In contrast, the new scheme provides buyers with support from their landlord for essential repairs for the first 10 years, helping to alleviate some of the financial burdens associated with homeownership.

These changes are designed to make Shared Ownership more flexible and affordable, especially for those who may struggle with the costs of home maintenance or who prefer to staircase in smaller, more manageable increments. If you’re considering buying a Shared Ownership property, it’s worth asking the housing association whether the home you’re interested in qualifies for the new scheme.

How Shared Ownership Compares to Help to Buy

When considering government-backed schemes to help you buy a home, you may come across Help to Buy in addition to Shared Ownership. While both schemes are aimed at helping first-time buyers, they work in different ways and are suited to different financial situations.

Help to Buy is an equity loan scheme that allows buyers to purchase a new-build home with a small deposit, typically as low as 5% of the property value.

The government provides a loan of up to 20% of the property value (or 40% in London), which reduces the size of the mortgage you need to secure. Unlike Shared Ownership, Help to Buy enables you to own 100% of the property from the outset, although the government loan must be repaid after 25 years or when the property is sold, whichever comes first.

In contrast, Shared Ownership allows you to buy a share of a property and pay rent on the remaining portion, with the option to staircase over time.

This means that your initial outlay will be smaller, making it more affordable for buyers who cannot afford the full price of a property. However, unlike Help to Buy, you will not own the entire property from the outset and may need to pay additional costs like service charges and ground rent.

Choosing between Shared Ownership and Help to Buy depends on your financial situation and long-term goals.

If you want to own the entire property as quickly as possible, Help to Buy may be the better option.

However, if you prefer to start with a smaller share and gradually increase your ownership over time, Shared Ownership could be a more suitable choice.

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Conclusion

Shared Ownership is a valuable scheme for those who are struggling to buy a home on the open market. By allowing buyers to purchase a share of a property while renting the remaining portion, it offers an affordable way to get onto the property ladder. With the flexibility to increase your ownership over time through staircasing, Shared Ownership can be a stepping stone to full homeownership.

However, it’s important to weigh the costs and responsibilities involved, including service charges, ground rent, and legal fees for staircasing. Additionally, the leasehold nature of Shared Ownership properties means that buyers do not own the land the property sits on, which can add further complications when it comes to selling or maintaining the property.

With the introduction of the new version of Shared Ownership from 2022, the scheme is becoming even more accessible, offering lower minimum shares and support for essential repairs. If you’re considering Shared Ownership, make sure to explore the different options available and consult with a housing association to find the best fit for your needs.

Ultimately, Shared Ownership can be a great option for those who want to own their own home but need a more affordable and flexible route to do so.