Shared Ownership is a government-backed scheme which provides an opportunity for first-time buyers and those on lower incomes to become homeowners. It allows buyers to purchase a share of a property, between 25-75%, and pay rent on the remainder to a housing association or social housing provider.
In this blog, we’ll explore what shared ownership is and who is eligible, as well as its associated pros and cons with regards to property value, stamp duty, staircasing, and the new Shared Ownership model introduced in 2021. We’ll look at whether shared ownership can be a viable option for those looking to own their own home but may not be able to afford it outright.
Why buy a Shared Ownership home?
If you’re looking to get onto the property ladder, a shared ownership property could be a great option. Shared ownership schemes allow you to purchase a share of the property, usually between 25% and 75%, and pay rent on the remaining share.
One of the main benefits of buying a shared ownership property is that it can make homeownership more affordable. By purchasing a smaller share of the property, you’ll need to borrow less money from a mortgage lender, which means lower monthly mortgage payments.
In addition, the deposit required for a shared ownership property is often smaller than for a traditional property purchase.
Another advantage of shared ownership is that it allows you to get a foot on the property ladder in an area that might otherwise be unaffordable. For example, if you want to live in a desirable location where property prices are high, purchasing a share of a property could be a more realistic option.
One important thing to note is that you can usually purchase further shares in the property over time, known as staircasing. This means you can gradually increase your ownership of the property, which will reduce the amount of rent you need to pay.
Of course, there are also some potential drawbacks to consider. For example, shared ownership properties are usually leasehold, which means you’ll need to pay ground rent and service charges to the freeholder. In addition, there may be restrictions on making alterations to the property, and you may need to seek permission from the housing association that owns the remaining share of the property.
Buying a shared ownership property can be a great way to get onto the property ladder, especially if you’re struggling to afford a traditional property purchase. Just be sure to weigh up the pros and cons before making a decision, and seek advice from a property conveyancing solicitor to ensure you fully understand the legal implications of shared ownership.
Am I eligible for Shared Ownership?
Shared ownership schemes are a great way for first-time buyers and those who cannot afford to buy a property on the open market to get a foot on the property ladder. However, it’s important to know whether you’re eligible to participate in the scheme.
Here are some eligibility criteria to consider:
- You must be at least 18 years old to be eligible for shared ownership properties.
- You must be a first-time buyer, or a former homeowner who can no longer afford to buy a property on the open market. This is a key requirement for shared ownership properties.
- Your household income must be below a certain threshold, which varies depending on the location of the property. In England, this threshold is £80,000 per year, or £90,000 in London. This limit is in place to ensure that shared ownership properties are accessible to those who cannot afford to buy a property on the open market.
- You must not own any other property at the time of purchasing a shared ownership property. This is a requirement to ensure that those who own properties on the open market do not participate in shared ownership schemes.
- You must have a good credit history and be able to obtain a mortgage. This is a key eligibility criteria for shared ownership properties, as obtaining a mortgage is an essential part of participating in the scheme.
- Some housing associations may have additional eligibility criteria, such as
having a local connection to the area where the property is located.
It’s worth noting that demand for shared ownership properties can be high, so you may need to be patient and prepared to wait for a suitable property to become available.
It’s also important to seek advice from a property conveyancing solicitor before making an offer on a shared ownership property.
This will ensure that you fully understand your rights and responsibilities as a shared owner and get expert guidance on the legal process. With the right eligibility criteria and advice, shared ownership properties can offer an accessible path to home ownership.
When I part-buy part-rent my home, what am I buying?
Shared ownership schemes allow you to part-buy and part-rent a home by purchasing a share of the property (between 25% and 75%) and paying rent on the rest owned by the housing association. You’ll be responsible for paying a mortgage on your share, as well as rent and other costs such as service charges and ground rent.
It’s important to consider associated costs, but over time, you can increase your ownership through staircasing, reducing the amount of rent you need to pay. This arrangement can be ideal for those who cannot afford traditional property purchases.
What portion of a property can I buy with Shared Ownership?
The exact percentage of the share available for purchase will depend on the specific property and location. However, it’s important to note that the larger the share you purchase, the less rent you will need to pay on the remaining share that is owned by the housing association.
How does stamp duty work with shared ownership?
When buying a property through shared ownership, the amount of SDLT you will need to pay depends on the property’s purchase price and the portion of the property you’re purchasing. If the purchase price is below the SDLT threshold, which is currently £125,000, there is no need to pay SDLT.
In contrast, if the purchase price is above the SDLT threshold, you will need to pay SDLT on the full purchase price, but may be eligible for a reduced rate based on the portion of the property you’re buying.
It is important to note that if you stair-case to purchase more shares in the property, you may be required to pay SDLT again, based solely on the value of additional shares you are buying. It is prudent to seek advice from a legal professional to help you understand these financial aspects when considering shared ownership.
Is it easy to sell my Shared Ownership home?
Selling a shared ownership property can be more challenging than selling a traditional property, but it’s still possible. The housing association or social housing provider that owns the remaining share of the property has the first right to purchase your share. If they decline, you can find a buyer, but the housing association may have specific criteria that potential buyers must meet.
Once you find a buyer, the housing association will need to approve them before the sale can proceed. You retain the proceeds from the sale of your share based on the percentage that you own. If you own 100% of the property, you can sell it without involving the housing association or social housing provider.
What is the new Shared Ownership model?
The UK government introduced a new Shared Ownership model to make homeownership more accessible to first-time buyers. The new model allows buyers to purchase shares as small as 10% and buy additional shares in increments as little as 1%.
Rent payments on the share they don’t own will be reduced to 2.75% per year, increasing with inflation plus 0.5%. Additionally, buyers will be able to sell their share in smaller increments (part-sale), and a new online platform called “Share to Buy” will help them search for properties and apply for mortgages. The new model is designed to make homeownership more affordable, accessible, and user-friendly for first-time buyers.
Can I increase my ownership of the property?
Yes, you can increase your ownership of a shared ownership property through staircasing, which involves purchasing additional shares in the property.
The new Shared Ownership model introduced in 2021 allows you to staircase in smaller increments of just 1%, making it more affordable to increase your ownership gradually over time.
However, there may be limits on how much you can staircase and various costs such as property evaluation and legal fees to consider.
The cost of buying additional shares will depend on the current market value of the property, which could rise or fall since you initially bought your share. Nonetheless, staircasing is a great way to increase your ownership of a shared ownership property, but you should consider the costs and restrictions involved.