What is Shared Ownership?
Shared Ownership is a type of home ownership scheme that is aimed at individuals who do not have the upfront capital required to purchase a home outright.
With Shared Ownership, you are able to own a share of the property, whilst the rest is owned by your local Housing Association.
Effectively, the scheme gives you financial help to own your own home rather than rent.
You are able to purchase between 25 and 75% of a property upfront, and then slowly purchase more shares in increments of at least 10%. Purchasing more shares of the property is known as staircasing.
The specific eligibility for the scheme can differ slightly based on where you reside in England, Wales, Scotland or Northern Ireland.
Additionally, there can be slightly different rules depending on your Housing Association. Generally, you must be:
- aged 18 or over
- have an annual income lower than £80,000
- not already be a homeowner
- be financially unable to purchase a home outright
- not have a bad credit history
- be able to provide proof of affordability
Key benefits of Shared Ownership
Shared Ownership offers a viable pathway to home ownership for those who would not be able to purchase a home outright through other means. There are significant key benefits which you can view below.
Smaller deposit required
The most obvious benefit of Shared Ownership is the reduction in financial capital required to purchase a home.
The total mortgage taken out will be lower, and therefore the deposit requirements are also lower, and this is taken as a percentage of the share price rather than the value of the property.
Whilst rent payments will be due, these are usually far lower than the rates you would be paying to rent a property outright. The rental figure for a shared ownership scheme tends to be 2.75% of the property value per annum.
Regardless of how many shares you own in the property, they can be sold off at any time. You also have far more control of the property than you would in a usual renting situation. There is also the security of knowing that your rent won’t suddenly rise or that you won’t be forced to move out.
Ability to own home outright
Once you have bought all of the shares in your home then you will own the property.
You may also be able to buy the freehold from the Housing Association.
However, there is also no strict requirement to staircase.
Disadvantages of Shared Ownership
It is also vital to weigh up some of the disadvantages of Shared Ownership Schemes.
Fixed ground rent
It is important to note that Shared Ownership properties will always be leasehold. This means that ground rent may be payable, and the figure will usually be fixed regardless of how many shares you own in the property.
Shared Ownership mortgages are less common
In recent years, more lenders have begun to offer Shared Ownership mortgages. However, this type of mortgage is still not as common as standard types. This means you may have fewer choices as to which lender you go with.
Restrictions on alterations
Although you will usually get more freedom to change your home in comparison to renting, there may still be certain restrictions on alterations. The specificity of them will depend on the rules set out by the Housing Association.
The process of staircasing can be costly, and alongside the costs of saving up for more deposits, you will also need to consider the fees for conveyancing, surveys, mortgage fees and legal fees. Whilst, these are usually only required once when buying a property outright, they can be required each time you choose to increase your shares in the property. Additionally, the valuation changes each time you staircase. Therefore, if house values rise, you will pay more for each share.
Selling can be more difficult
If you choose to sell your home, then it will get the first refusal from the housing association. If they are unable to find a suitable buyer, then you will be able to market it yourself. It is important to note that even 100% ownership may not allow you to sell the property on the open market because you will not own the freehold.
Making the Right Choice
Homeownership isn't right for everyone. It is vital to consider the various advantages and disadvantages whilst also taking into account your long-term requirements.
Shared ownership is always leasehold, and you should be sure to understand the difference between these two types.
Understand the rules
Every housing association may have slightly different rules in terms of which applicants are given priority, and what is expected of them after they enter the scheme.
Read the fine print, and ensure that you are clear about the rules.
Understand how staircasing works
Staircasing is a pivotal aspect of any shared ownership scheme, and at times it can seem complex.
There can be restrictions in some areas. For example, some schemes may cap stock ownership at 80%, and there may be a certain waiting period before you can purchase additional stock after a sale.
Usually, you will need to wait 1 or 2 years before staircasing for the first time.
Staircasing can be a fantastic option for individuals to get on the housing ladder with a smaller deposit. There are, of course, considerations to take into account, and it is not a decision to take lightly.
Taking into account the long-term costs, and consulting with a professional is vital in order to make the right decision.