Is shared ownership worth it? It can be an avenue to home ownership if you can’t afford a full deposit or mortgage payments for the house or flat that suits your needs. However, like every financial commitment, it’s important to know the risks before you dive in. Read on to find out more.
If you’re looking to purchase in shared ownership, the good news is that recent reforms aim to make this more doable. The amendments intend to put the property ladder in reach for more people by reducing how much:
- You have to put in initially
- You can increase your share of ownership every year
That being said, it’s not the best option for every household. We’ll take you through the factors to consider before deciding if it’s right for you.
First up, let’s take a look at exactly what shared ownership is.
Shared ownership: meaning
Shared ownership means buying a share of your home and paying rent to a landlord for the rest.
- Your ownership share can be anywhere between 10 and 75% of the home’s full market value
- Your deposit can be as little as 5% of the price of your share
You then have the option of purchasing a greater share of the property. Increasing your share of ownership in steps is aptly called staircasing. The more you own, the less rent you’ll pay.
You’ll likely also have to pay towards ground rent (the cost of the land that the house is on) and service charges for things like the day-to-day maintenance of communal areas.
A shared ownership home is a leasehold property, meaning you’ll only own it for a period of time. After this period ends, ownership is returned to the landlord.
Landlords of shared ownership homes are also called “providers” and are usually organisations like housing associations or local councils.
So buying a property in shared ownership doesn’t mean you’re sharing ownership with another person. Rather, it means you own a share of your home, and a landlord owns the rest.
For your share, you can take out a mortgage, or you can pay cash.
It’s important to note that there are different rules about shared ownership if you’re buying in Northern Ireland, Scotland, or Wales. If you’re looking to buy in one of these locations, check in with the local government services to ensure you have all the info you need.
Is it a good idea to buy shared ownership?
Shared ownership may be right for you if a home that suits your needs is beyond your price range. It allows you to start working towards homeownership sooner than you may have otherwise been able to.
In April 2021, a new shared ownership scheme came into effect — with many perks for those looking to buy in this model. It’s part of the Affordable Homes Programme (AHP) 2021–2026 and aims to get more people started on the property ladder.
According to the new scheme, you can now:
- Buy in a shared ownership model by contributing just 10% of the market value (this is a decrease from the previous rule of 25%)
- Staircase in 1% rather than 10% increments in the first 15 years
Plus, your landlord:
- Must contribute to repair and maintenance costs rather than you having to take on this whole cost yourself
- Can only have exclusive rights to market the property to be sold for four rather than eight weeks — after that, it’s yours to sell on the open market (more on this below)
Another amendment is that the lease length is now 990 years rather than the previously stipulated 125 (which was extended from 99).
It’s important to note that these amendments don’t apply retroactively, so homes on the current market may still be subject to the older regulations. If you’re looking to buy a property in shared ownership, check to see what model applies.
What makes you eligible for shared ownership?
You’re eligible to buy a home through shared ownership if:
- Your annual household income is £80,000 or less, and you’re buying outside London
- Your household income is £90,000 or less, and you’re buying in London
You also need to either:
- Be buying your first home
- Currently own in shared ownership and want to move
- Have owned property before but now can’t afford to
- Own property but want to move to a home that suits your needs better
- Be forming a new household (after a divorce, for example)
In some cases, you may need to prove that you have work, family, or other ties to the area you want to buy in.
If there is a limited supply of shared ownership properties in a specific area, military personnel are granted priority in government-funded schemes. Local councils may also choose to grant preference depending on the local housing needs in their area.
The government provides this handy tool to check if you’re eligible.
Do shared ownerships go up in value?
Yes, like all properties, your shared ownership home will increase and decrease in value according to the property market. That means that your share of the house will go up and down accordingly.
What are the downsides of shared ownership?
The major downside of shared ownership is that it’s not full ownership. That means you still have to make monthly rental payments. You’ll also have to pay monthly maintenance fees and service charges. Ultimately, you can land up paying more in total by the end of your term.
If you buy into a new build, you may also find yourself in negative equity. Like a new car, the value of a new property can depreciate once it’s no longer new, so there may be a period of time when the value dips. Consider how long you want to stay in your home. Do you see a long-term future there? If not, it’s important to think carefully about whether this is the right option for you.
The selling process can also be tricky. Because shared ownership properties are leaseholds, you can have trouble selling if you’re coming to the end of your lease period. You also have to involve your landlord in the sale from the moment you decide to sell.
We’ll take you through what it might look like.
Is it hard to sell a shared ownership property?
While you’re allowed to sell your shared ownership home at any time, the process is more complex than other kinds of home sales.
Here’s how it works:
- Step 1: Unless you have climbed the staircase to 100% ownership, your first step is to tell your landlord that you would like to sell.
- Step 2: The landlord then has what’s called a “nomination period”, where they have either four, eight or 12 weeks to find a buyer. The amount of time they have will be part of your original lease agreement. In some instances, they may also offer to buy back your share.
- Step 3: If your landlord finds a buyer, the property must be valued by a surveyor registered with the Royal Institution of Chartered Surveyors. They must sell for no more than the price of your current market share based on that evaluation. If they don’t find a buyer, you can sell your share on the open market.
(Note that the rules may be slightly different if anyone on the lease dies or you have to transfer ownership for some reason.)
There are certain types of leases that have specific restrictions on them. If you have a “designated protected area — mandatory buyback” lease, the landlord will have to buy the home or find another buyer for your portion. It’s important to know what type of lease you have. Check your key information document and seek legal advice if you’re unsure.
Is shared ownership right for you?
There are many advantages to shared ownership. It might be ideal for you if:
- You want to buy a new-build home but can’t afford it yet.
- You don’t have enough for a deposit on a home that you could own outright. In shared ownership, you generally have to put down a deposit that’s 5% of your share — far more doable than a deposit on the full amount.
- You would like to work towards full home ownership through staircasing.
- You have the option to buy a home through a shared ownership resale scheme.
- Shared ownership allows you to purchase a home that fulfils specific needs.
- You’re 55 or over. There are added benefits if you’re in this age bracket. Through the government’s Older Person’s Shared Ownership Scheme, if you own 75% of your home, you don’t have to pay rent on the rest.
- You’re looking to save on stamp duty. This can usually be deferred until you own 80% of the property.
What to be aware of before buying in shared ownership
Unfortunately, although it’s a government scheme that can help you get on the property ladder, it’s not without its downsides.
- Because you’re buying into a leasehold property, you’ll have to pay a monthly service charge and maintenance fees.
- Your rent will go up according to inflation. If you’re ever in a situation where you can’t pay your rent, you can be evicted from the property, and your share of the ownership can be in jeopardy.
- There are generally rules around renting out your property — in most cases, subletting is not an option.
- Staircasing comes with additional fees. You’ll have to pay for a surveyor to assess the property’s worth, legal fees to change your current lease, and an increase in mortgage fees. You may also have to pay stamp duty.
- Some leases prevent full ownership. If you plan on staircasing, it’s important to understand the restrictions before you go into the deal.
- Selling your property is more complicated. You have to wait out your landlord’s nomination period.
- You may land up with negative equity if you buy into a new build property.
In summary
Shared ownership is one of the government’s affordable home ownership schemes.
It means buying a stake in a property rather than the whole thing. Your share can be as little as 10%. You’ll pay rent to a landlord for the rest. In a process called staircasing, you can gradually increase the share of the home you own.
Shared ownership may be right for you if you’d like to get on the property ladder, but you’re not yet in a position to put down a full deposit or pay full mortgage payments.
There are downsides, however.
You still have to factor in monthly rent, maintenance fees, and service charges. Shared ownership houses can also be harder to sell as you have to involve the landlord in the process.
All shared ownership homes are also leasehold properties, meaning you’ll never fully own the land. If you’re coming towards the end of a lease, this can make a sale more challenging.
Whether shared ownership is worth it ultimately depends on your unique set of circumstances. If you’re looking to get a leg up onto the property ladder, it might just be the right option for you.
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