The Pros and Cons of Shared Ownership
Shared ownership is a government scheme, offering an easier, alternative way to purchase a home – ideal for buyers who are struggling to get onto the property ladder in the traditional way and can’t afford to buy a house upfront.
If you’re considering purchasing a part ownership house, then read on to discover if it’s the right choice for you.
In this article:
- What is shared ownership?
- Reasons to opt for shared ownership
- How to qualify for shared ownership
- Benefits of shared ownership
- Disadvantages of shared ownership
What is shared ownership?
In basic terms, you own a percentage share of a property – usually between 25% and 75% – and a housing association will own the rest of the share, which you then pay rent on, at a rate that’s usually much lower than market value. You can purchase more of the property over time, but you only pay mortgage repayments on your share. It’s a tempting prospect, especially for first time buyers and anyone on a low income – but is it the right option for you?
Reasons to opt for shared ownership
If you’re struggling to find a property that’s suitable for you or your family in your price range, then shared ownership might be right for you. For most first-time buyers, or buyers who’ve been renting for a long time, getting together a deposit can be the big blocker to getting onto the property ladder, or could mean that your housing options are very limited. Shared ownership homes can help with that, and the arrangement is designed to be flexible – so you can choose to purchase more of your home over time, or remain with your share. If you’re on a lower income wage and you’re concerned about being turned down for a traditional mortgage application, you’d need to borrow less for a shared ownership property, and any stress testing will be less strenuous.
How to qualify for shared ownership
Different housing associations will have different criteria, but generally shared ownership rules mean you must:
- Be 18 or over
- Earn £80,000 or less per year as a household (increasing to £90,000 in London)
- Not already own a home
- Be unable to afford a suitable home on the market
- Have a good credit score and prove that you can afford monthly rent and mortgage payments
- Not be in mortgage or rent arrears
Benefits of shared ownership
There are several reasons why you might choose a part ownership property:
A smaller deposit
The deposit on a shared ownership house will be much smaller, as the deposit is calculated from your percentage share. Affording a deposit is one of the biggest barriers stopping people from buying a house, especially for low earners, so this can be a real help.
Easier for low-income earners to get a mortgage
If you’re a low-income earner, you’re more likely to be approved for a mortgage compared to a traditional mortgage, as you’re borrowing a lot less from the bank.
You can gradually purchase more shares in your home
You can ‘staircase’, buying extra shares in your property over time. Currently this is set at a block amount, so you can add 10% each time – but eventually you could purchase your way up to 100% of your home and own the property completely.
Unlike traditional renting, you have a lot more security – you’re not vulnerable to landlords raising rent or selling your home. As long as you pay your rent and mortgage payments on time and in full, you can usually remain in your home for the entire length of the leasehold should you choose – usually leaseholds are around 90-100 years, but this may vary.
Disadvantages of shared ownership
At the same time, buying a shared ownership property isn’t for everyone, so it’s important to consider these potential drawbacks before you jump into anything:
Staircasing is affected by housing prices
While staircasing offers you certain protections, it also means you’re more vulnerable to changes in the housing market. Each time you buy another ‘block’ of percentage shares in your home, the property will be independently valued, and you pay based on this price – so if house prices in your area go up, you’ll end up paying more.
Cost of staircasing
Staircasing can also be expensive, as each time the property has to be valued you’ll need to pay conveyancing fees and also instruct a solicitor to manage the new purchase.
Limitations on some structural changes
There might be restrictions on what you can do with the property in terms of major structural alterations. Cosmetic changes should be absolutely fine (though this does vary depending on your housing association).
Ground rent costs
Shared ownership properties are always leasehold, so you may have to pay ground rent – the rules on this will vary, as some housing associations don’t require you to pay until you own 100% of your property, while some will charge ground rent throughout your tenancy.
Limitations on selling
When you decide to sell, if you don’t own the whole property share, you might have to offer the sale back to the housing association for first refusal – as the property has been specifically earmarked to help buyers like you get on the market, they may well want the property to remain in the shared ownership scheme. Also, bear in mind that buyers can only buy your current share of the property – if you’ve ‘staircased’ and bought a higher percentage share, they can’t buy a smaller share, which may make the property harder to sell.
Shared ownership houses can be a blessing for any buyers who really can’t afford to purchase a new home on the open market, and can offer a better standard of living compared to renting – though this comes with certain drawbacks. If you’re looking to invest, the cost of gradually purchasing your home can be off-putting, and you’ll need to carefully look at the total cost of your rent and mortgage, plus any service charges and ground rents to make sure you wouldn’t be better off with a traditional mortgage. But for families who are tired of renting and ready to make their move onto the property ladder, shared ownership home offers a clear and convenient route to owning your own place.
For more advice on selling and buying homes, check out our blog.