Shared ownership is a scheme that allows you to buy a portion of your property, making it cheaper and easier to get on the ladder.
If you’re struggling to find a property in your price bracket, or are worried about saving up a deposit, shared ownership may be a good option for you. It’s a slightly different process to standard buying and selling, so have a look through our clear and simple guide to see whether this scheme can make your home buying dreams come true.
Before you buy
What is shared ownership?
Shared Ownership is a government scheme to help people with smaller deposits get on the property ladder. You can apply to buy a portion of your property, and then you pay rent on the remaining portion. If you want to gradually increase how much of your property you own, you can ‘staircase’ – buying more of it in chunks until you own the whole thing.
How do you qualify?
Shared Ownership schemes are designed to help people who would not otherwise be able to afford to buy a property. That means if you’re a
first time buyer or you’re local to the area but can’t afford to buy and stay there, you have more of a chance. There are separate (but similar) schemes for those
over 55 years of age, or who cannot buy due to a
long term disability.
Your annual income must be below £80,000 (or £90,000 in London) to qualify.
How does part rent part buy work?
You buy a portion of the property (say the minumum 10%) and go about this in a similar way to buying a whole property. You put down a deposit and get a mortgage. Although, of course, because you’re buying a portion, your deposit will be smaller, and your mortgage will be smaller. You then pay rent to the housing association on the remaining 90%.
Rents are lower than they would be otherwise for a property of that size. The more of the property you own, the less rent you pay. But be aware, rents will rise over time with inflation.
Just be sure to
check what is included in the rent, as it will be a leasehold property, so you will likely pay a service charge and may be required to cover maintenance costs as and when they arise.
What is a shared ownership mortgage?
Certain mortgage lenders will offer mortgages specifically for Shared Ownership. This is because you have to meet the criteria of the scheme, and because you’re only buying a section of the property.
How much does it cost to buy a shared ownership property?
A Shared Ownership property is designed to be more reasonably priced, because you’re only buying a portion. This means that you need a much smaller deposit, around 5%, which (depending on the area you’re buying in) could be as little as a few thousand pounds.
However, this doesn’t mean that there aren’t other costs associated with buying a shared ownership home. Whilst the deposit will be low, you will have to be able to cover not only the monthly cost of a mortgage, but also the rent you need to pay on the remaining portion of the property. On top of that there may be service charges and one off maintenance fees. Be aware that these service charges can increase, as can your rent.
It’s also important to remember that every time you wish to increase the portion that you own of the property, you’ll have to get a valuation, pay for a
conveyancing solicitor and pay for stamp duty again. If your property increases in value, you may find that the next portion you buy is worth more than expected.
Who can I buy a shared ownership property from?
Shared ownership properties are originally built as part of a new build plot and belong to the housing association. This allows the property developers to fulfil ‘affordable housing’ obligations that allow them to build. The housing association then sell them on to people who fulfil the criteria and could not afford to buy a property in that area otherwise.
The vast majority of rental homes delivered through the new Affordable Homes Programme also have a right to shared ownership. Though tenants in these homes must meet certain eligibility requirements in order to become shared owners. They:
- Must have lived in the property for at least 12 months & been a social tennant for at least 3 years.
- Must have a maximum household income of £80,000 or less (£90,000 in London).
- Will be required to undertake an affordability assessment to prove they can afford to own a home.
- Must not be going through bankruptcy proceedings.
It is possible that you could buy a shared ownership property from someone who already owns one – meaning that it’s a second (or third) hand new build. In this case, you would be buying the existing percentage from the owner, and then would take on the rent and everything else. You could then staircase later on.
If you are buying it from a previous owner, you cannot buy a smaller percentage than is up for sale. You still need to fit the criteria set our by the scheme, even if you are buying it from the home owners, rather than directly from the housing association.
What about Stamp Duty?
Whilst first time buyers are now exempt from
Stamp Duty on properties up to £300,000 and discounted up to £500,000, this doesn’t always translate when shared ownership comes into play. Firstly, as many of the properties are new build, they are above the £500,000 threshold, even though you are only buying a portion.
For those who do find a property under that amount, it is worth considering which way you intend to pay your Stamp Duty, as the difference can mean thousands of pounds.
When paying Stamp Duty on your shared ownership property, you can choose to either pay the amount related to the portion of the property you have purchased, or the total Stamp Duty for the property. Most, when given the option, will pay only for the portion upfront, and intend to pay the rest when they staircase.
However, if your property falls under the
Stamp Duty exemption bracket, and if it’s likely to increase in value before you staircase, paying the total may be a smarter move.
The exemption cannot be used on a portion, but if you paid the total amount in advance, you would end up saving yourself thousands in the long run.
E.G:
Property total: £325,000
Portion purchase: 50%
Stamp duty on 50%: £750
Stamp duty to be paid when staircasing: at least £5000
Stamp Duty if paid in total in advance: £1250
If you do intend to staircase, and the property is currently under the threshold, paying the Stamp Duty in advance will save you money. You can calculate your stamp duty by using our
online stamp duty calculator.
After you’ve bought
What is staircasing?
Staircasing is when you increase the portion of the property you own. By being able to increase your ownership in increments, it is thought that you’ll save money, as you can live in your property whilst saving to own more of it. When you are ready to buy your next portion, you simply get in touch with the housing association and check to see if they accept.
As of April 2021, you can staircase in increments of 1% minimum.
How much does staircasing cost?
There are various costs associated with staircasing, and it’s important to time them well. You will need to value the property, arrange for a conveyancing solicitor to oversee the transfer of property, and will need to pay Stamp Duty. You may also need to pay a fee if you are breaking your mortgage early in order to organise a new one for the increased portion.
Should I staircase?
You are under no obligation to staircase when you buy your shared ownership property. You are welcome to simply own the percentage you start with, and when you come to sell it, sell that portion.
Some people question whether it is better to staircase or simply pay off more of their mortgage so they fully own the portion they have. This is a personal choice, but it is worth not underestimating the cost of staircasing – each time there is a significant cost, especially as conveyancing fees tend to be higher with leasehold properties, and your conveyancer needs to be experienced in shared ownership sales.
However, the higher portion you own, the smaller portion you pay rent on. Depending on the rate of your mortgage, this may be more beneficial for you, month to month.
What do I need to know?
The change in value of your property will have a big impact on your decision (and ability) to staircase. If your property increases in value too quickly, it may feel impossible to catch up and increase your percentage. You will also need to check if there are any regulations about the increments you can buy in.
On the other hand, if the property has not increased, you may be left with
negative equity, which will leave you at a loss when you sell.
It’s also important to remember that owning too much of an expensive property may make it difficult to sell it on, as buyers will have to fit the criteria set out by the scheme, but people may be unable to afford to buy your 75% share. In many ways, if you are intending to sell on after a few years, it is probably better to pay off your mortgage rather than owning the whole property. If this property is going to be your long term home, it is better to try to own as much as the property as you can.
In some cases, the housing association may demand first opportunity to buy back your property when you decide to sell. This may have an impact on how much you can make on it. Be sure to check this in your paperwork.
Also be aware that even when you own 100% of the property, you will still be subject to the rules of the housing association, so regulations regarding pets, building work or subletting may be enforced.
When you want to sell
You’re allowed to sell your property whenever you like, but it’s not necessarily as straightforward as selling a regular property.
How do I sell a shared ownership property?
You will need to alert the scheme that you intend to sell your property, and bear in mind that buyers must fit the same criteria you did when you bought the property. Buyers can only buy your existing share of the property – they can’t buy a smaller share. This means that if you have bought quite a large share of an expensive property, it may be harder to sell.
What if I own the whole property when I sell?
In some cases, depending on your agreement, the housing association has the first right of refusal – this means you have to offer to sell it to them before you attempt to sell it elsewhere. This is because the property has been earmarked to help those who could not otherwise afford a property – if you sell it on, you are removing the property from the shared ownership market.
The housing association may wish to buy the property back so that it can remain part of the shared ownership scheme. This could be whether you own the whole amount or just a portion. Check your agreement.
The advantages and disadvantages of shared ownership
Shared Ownership has multiple advantages - it’s designed to support those who would otherwise have trouble getting on the ladder, and by buying a shared ownership property, you will be able to have a larger property than you would normally be able to buy.
Buying a portion allows you to work out a comfortable monthly outgoing, balancing your mortgage and your rent, alongside your other bills and costs.
Shared Ownership also comes with a 10-year period for new Shared Owners whereby the landlord or housing association will cover the cost of any repairs and maintenance to be carried out on the home. This will keep your monthly costs down for thse first 10 years, helpul for anyone for whome money can be tight.
However, there are some issues with
Shared Ownership – mainly in that getting a new valuation and paying for a solicitor every time you want to increase your share can be costly, it can be difficult to sell on the property, and most importantly, it is a leasehold agreement.
This means that whilst you own your property, there will be limitations on your home from the freeholder – you may not be allowed to have pets, have a lodger or make certain decorative or structural changes to the property.
Another main concern is
what happens if you fall behind on the rental payments – whilst technically you own your percentage of the property, that seems to become null and void if you are behind on payments. The housing association are allowed to take possession of your property, and you won’t get any of the money you put into the property back.
This is different to a mortgage provider, who will usually work with you to organise a repayment system if you are having difficulties. As you are technically leasing the property from the freeholder (the housing association) always read your contract carefully.
Similarly, if you fall behind on mortgage payments and decide to sell the property, remember that this could be more difficult, unless the housing association wishes to buy back your portion.
It’s important when considering a Shared Ownership property to assess what it is you’re looking for – if you’re planning on staying in the property long term or short term, what the likelihood for increase in value is in the area and how any changes in value would affect you.
Updated April 2021