With property prices continuing to rise, shared ownership schemes offer an attractive prospect to those looking to secure their first step on the property ladder.
This guide will explore how shared ownership works, anything you need to consider, and what the pros and cons are of buying a property in this way.
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Shared ownership schemes allow you to buy a portion of a property and pay rent on the remaining share. It is an attractive option for those who would struggle to afford to buy the whole property.
Shared ownership allows you to purchase between 10% and 75% of a property. The remaining share of the property is owned by a landlord/freeholder.
With shared ownership you can buy a larger share of the property as and when you afford it, up to 100% ownership.
If you buy a shared ownership home, you will need to budget for:
No, shared ownership may be appropriate in a number of different scenarios.
Some of the most common circumstances where shared ownership might be suitable include:
To be eligible for shared ownership, the following must be true:
One of the following must also apply to you:
If you’re considering buying a shared ownership home, you’ll first need to check that you meet the eligibility criteria.
Next, you’ll need to research shared ownership properties available in the area you want to live.
If you find a shared ownership home you like, and the organisation selling the property is happy that you meet the eligibility and affordability criteria, you’ll need to reserve the property to stop anyone else being able to buy it. This will involve paying a reservation fee. This fee is usually around £500, but it will be taken off the property purchase price if you go ahead with buying the property.
Once the shared ownership property is reserved, you will need to hire a solicitor to handle the legal process of buying the property. You will also need to apply for a mortgage to cover the share of the property you want to buy.
Most online property portals (Rightmove, Zoopla etc.) now have a filter to search for shared ownership homes in a specific geographic area.
You can also research individual housing associations and homebuilders that offer shared ownership properties. You can find a list of these companies on the government website.
Shared ownership mortgages work in a very similar way to normal mortgages. You’ll apply to the lender, be provided with a mortgage offer (if you’re accepted). Once the property sale goes through, you’ll make mortgage repayments every month for the term of the mortgage.
Not all mortgage companies offer shared ownership mortgages, so you’ll need to work with a mortgage broker who is familiar with the best lenders to approach.
Some of the larger lenders that offer shared ownership mortgage products include:
Once you’ve registered with the shared ownership scheme and found a property, you can start looking for a mortgage.
Along with your application, you’ll need to provide some information about you and the property you’re buying, including:
Yes, you will usually need a deposit to buy a shared ownership property. Typically, you would be expected to have a deposit worth 10% of the cost of your share, but some lenders may be happy with a 5% deposit.
You will need to have your deposit ready before you apply for a shared ownership scheme.
Yes, you will pay mortgage repayments on the share you own and rent on the remaining share. If you buy a greater share of the property over time, the amount of rent you pay will reduce.
On new build shared ownership properties, the rent is limited to 3% of the value of the share you don’t own. Most landlords charge around 2.75%.
Example:
Value of property: £250,000
Share you’re buying (40%): £100,000
Remaining share (60%): £150,000
Rent on share you don’t own (2.75% of £150,000): £4,125 per year
On shared ownership properties that have been lived in previously, the rent will start at the level the previous resident was paying.
Your rent will usually be reviewed each year, so it’s important to understand that your rent may go up over time.
There are limits to how much your landlord can increase your rent. These limits are calculated using two different measurements of inflation. It will either be limited to the Retail Price Index plus 0.5% or the Consumer Price Index plus 1%.
You are only charged rent on the share you do not own. If you buy a greater share of the property, your rent will go down.
Stamp duty may be payable, depending on your circumstances and the price of the property you’re buying.
You will have the choice of paying stamp duty for the full market value of the property or just for the share you are buying. If you pay stamp duty for the entire market value, you will not have any stamp duty to pay in the future if you buy a greater share of the home. If you choose to pay stamp duty just for your share of the property, you will be required to pay any further stamp duty if and when you buy a larger share.
A shared ownership sale will typically take around 12-16 weeks.
This is a little longer than the legal process for a standard property sale, which typically takes 8-12 weeks.
Buying a shared ownership property may take longer for a few different reasons.
Staircasing is the term used to describe buying a greater share of your shared ownership property.
Details of your options for staircasing will be included in a ‘key information’ document provided during the property buying process. Some landlords will allow you to buy as little as 1%, others may require you to buy at least 10% every time you staircase. It’s important that you’re familiar with the details of the individual ownership scheme you’re part of.
Legal services may be required each time you buy an additional share. Legal fees will be payable for this service. You may also be required to pay an administrative fee to the landlord.
Selling a shared ownership property may take a little longer than selling a standard property.
If you own less than 100% of the property, you’ll need to consult your landlord about wanting to sell. Your landlord may have a ‘first refusal’ right that would allow them to either purchase your share of the property themselves or source a buyer for your share.
If your landlord does not wish to do so, they will allow you to list your property for sale on the open market. The property will usually need to be sold as a shared ownership property, with just your current share being for sale. The new owner will then have the option to buy a larger share at a later date if they wish to.
If you list your property on the open market, there may be several factors that make shared ownership more challenging to sell than a standard property.
These factors include:
Yes, if you’ve outgrown your current home but can’t afford the full cost of a new home that meets your current needs, you can explore moving to another shared ownership property.
If this is something you’re considering, you should inform your landlord and begin your search for a new shared ownership property.
There are a number of pros and cons when it comes to shared ownership.
Shared ownership allows aspiring homeowners to get a foot on the property ladder before they can afford the deposit and mortgage required to buy a property outright.
Shared ownership schemes offer a great deal of flexibility with the ability to staircase. You can buy a share you can afford initially, and then purchase a greater share as and when you can afford to do so.
Buying a property with shared ownership is likely to result in fewer moves. This is likely to save you money, time and stress. Without shared ownership, you may be required to move between rental properties whilst you save up for your own home, or you may be forced to buy a property that is too small for your needs or in an area that doesn’t work for you, simply to get a foot on the ladder. Shared ownership allows you to buy a home that is more likely to meet your needs for longer, allowing you to stay in one property.
With shared ownership, the rent you pay is capped. This offers better financial security than the private rental market. You will also be building up equity in the share of the property you own.
Shared ownership is offered on a small number of properties, and therefore choice of property is likely to be very limited.
The majority of shared ownership properties are new build homes. It is widely accepted that new build homes are sold at a higher price than an equivalent older property, so some aspiring buyers may be concerned about whether their new home will hold its value. There’s also a question about how the price is agreed on. With a normal outright purchase, the buyer will negotiate the sale price. In the current market, few properties are bought for the full asking price. Your options as a shared ownership buyer may be more limited, and you may have little negotiating power.
As previously mentioned, if you decide to sell your shared ownership property, you’ll likely be required to give the landlord first refusal to buy your share or source a buyer for it. This can add an additional 2-3 months to the usual property selling process. A smaller pool of potential buyers also means the property may take longer to sell on the open market.
Most shared ownership properties are leasehold (you can read more about this in our guide to leasehold properties). This means you are buying the property itself, but ‘leasing’ the land the property sits on. If the lease runs out without be bought or extended by the property owner (which requires additional funds), the property will need to be handed back to the person who retains ownership of the land – the freeholder. This sounds more scary than it really is. Leasehold properties are very common, and most will be sold with a 99 or 125-year lease, but it’s important that you understand what you’re buying. Leasehold homeowners may also have to budget for additional costs such as ground rent and service charges.
Generally, the terms of the shared ownership scheme will prohibit you from renting out a shared ownership property.
If you buy further shares so that you eventually own 100% of your home, you may be able to rent out the property (subject to the conditions of your lease).
Yes, you do. Council tax is based on occupancy, not ownership. This means you will be required to pay full council tax on a shared ownership property.
You can read more about council tax and how much you might be required to pay here.
Yes, you can use a Help to Buy ISA for shared ownership, as long as the property meets certain Help to Buy criteria.
Yes, you can.
If you’re buying a new build property, it’s advised that it is left to ‘settle’ for around a year before decorating. This is to ensure that all plaster etc has fully dried out and any settlement has eased. Once that initial period has passed, you can begin decorating your home.
If you’re buying a property that has previously been lived in, you should be able to start decorating straight away.
If you would like to make any structural changes to the property, you may need to seek written permission from the landlord. This is because structural changes can have a big impact on the property’s value.
In general, you are responsible for all upkeep and repairs in a shared ownership property. If your property is a new build home, some things may be covered by a housebuilder warranty or the NHBC, so it’s worth checking this. Some properties also have an ‘initial repair period’. During an ‘initial repair period’, it is the landlord who is responsible for major repairs.
You will be given information about any warranties and any applicable initial repair period during the conveyancing process (the legal process of buying the property). It’s important to read this information carefully so you have a thorough understanding of what your responsibilities are.
Shared ownership schemes are designed to help people who wouldn’t otherwise be able to afford to buy a home. To be eligible for the scheme, you must be a first-time buyer, a former property owner who can no longer afford to buy, someone setting up a new household after a relationship breakdown, or a current shared ownership owner who needs to move to a different shared ownership property due to changing needs.
You may be able to have a lodger in your shared ownership property, but you would need to get permission from the freeholder/owner of the remaining share. You would also need to inform your mortgage company and home insurance provider.
It’s important that you declare any income generated to HMRC, as it may have tax and benefit implications.
Shared ownership properties cannot be sublet in their entirety, so you would need to remain living at the property.
No, shared ownership properties cannot be sublet, therefore you cannot Airbnb them
Yes, receiving universal credit will not exclude you from buying a shared ownership property. You will, however, have to pass the eligibility and affordability assessments to ensure that shared ownership is the right option for you.
You may be able to have pets in a shared ownership property, but it’s important to check the lease carefully for any restrictions. You may also be required to request permission from the landlord in advance.
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