What is Shared Ownership – how it works and should I do it?

What is Shared Ownership?

The Shared Ownership scheme aims to help people who are struggling to buy a home to get on the property ladder. It works by allowing prospective homeowners to buy a percentage of a property, paying rent on the remaining portion with the option to increase the share of the part they own over time.

In this article we outline the scheme in England, including updates that were introduced on 1 April 2021. There are different versions of the scheme for Wales, Scotland and Northern Ireland , with details outlined on each nation's government websites.

How does Shared Ownership work?

Shared Ownership is based on people buying new build or resale properties on a leasehold basis. The purchase is structured as:

• Deposit: Buyers pay 5%-10% of the price of the share of the property they wish to buy, not of the value of the property as a whole.
• Buy a share of the property: Buyers can opt to buy between 10% and 75% of the property. They get a mortgage to cover this purchase, with certain lenders offering Shared Ownership mortgages, including Barclays, Halifax, Santander, The West Brom, Leeds Building Society and Nationwide. It is worth consulting with a good independent mortgage broker - you can source one that specialises in shared ownership using the financial directory Vouchedfor - to help you find the best deal, particularly as not all lenders offer Shared Ownership products and the terms will differ.
• Pay rent on the remaining portion of the property: The rent is payable to a housing association and is significantly lower than the amount that would be charged on the open market. Generally, the rent is around 3% per annum of the value of the part of the property you don't own, although you will need to check the exact amount with the housing association.

The purchaser can increase their share of the property over time, simultaneously reducing the amount of rent they have to pay. This process is known as "staircasing", with most schemes allowing the buyer to eventually own the property outright. Again, you need to check with the housing association, as there are a few instances where there is a cap of 80% on the total amount of the property that can be owned.

How much Stamp Duty do I have to pay on a Shared Ownership property?

When you buy a Shared Ownership property, you have two options for how to pay Stamp Duty:

• You can make a one-off, upfront payment for stamp duty land tax on the market value of the whole property as if you were buying it outright. You then won't have to make any more Stamp Duty payments when you buy further shares of the property in the future.
• You can pay the stamp duty land tax in stages, with the first payment based on the value of the share you are buying. You then won't have to make a further Stamp Duty payment until you own more than 80% of the property.

There is further guidance on the rules governing Stamp Duty on Shared Ownership properties on the government website.

Who is eligible for Shared Ownership?

The housing association will set out the specific requirements for the individual property, but generally people applying for the Shared Ownership scheme are required to:

• Be over the age of 18
• Have a household income of less than £80,000 (or £90,000 in London)
• Have the money for the 5-10% deposit
• Be able to afford the costs of buying the property, including Stamp Duty and legal fees
• Not have any mortgage and rent arrears and be able to afford the costs of buying and owning a home
• Have a good credit history

In addition, you have to meet one of the following criteria:

• Be a first-time buyer
• Have previously owned a property, but can't afford to do so now
• Have an existing shared ownership property

What happens if you want to sell your Shared Ownership property?

• Contact the housing association to inform them you want to sell. They will then have a set time in which to sell the property, after which time you will have the opportunity to sell privately if it hasn't been sold.
• Get a valuation using a surveyor from a list provided by the housing association. This valuation will be used to calculate the value of your share.
• Complete a contract of sale, including details of the solicitor you will be using

If you don't own 100% of the property when it comes to sell, you are obligated to sell on a Shared Ownership basis. The buyer will need to buy a share equivalent or higher to the one you own. For example, if you own 75% of the property, the buyer will need to agree to buy 75% or more.

What changes have been made to Shared Ownership in 2021?

A number of key changes have been made to Shared Ownership as part of the government's wider £12bn Affordable Homes Programme. The overhaul, which came into effect on 1 April 2021, means that:

• Purchasers can now buy a minimum share of 10% of the property, down from the 25% that was required previously. It is worth bearing in mind that many of the mortgage lenders haven't yet caught up with these changes and are still offering a minimum 25% mortgages.
• The "staircasing" can now be done in 1% increments, rather than the 5% or 10% increments on the old scheme.
• There is now a 10-year period after you buy a share in a Shared Ownership New Build when you won't have to pay for maintenance and repairs

In addition, most social tenants in properties provided through the Affordable Homes Programme will have a right to Shared Ownership, as long as they have:

• Lived in the property for a minimum of 12 months
• Been a social tenant for at least 3 years
• Have a maximum household income of £80,000 (£90,000 in London)
• Be able to meet affordability criteria and not be going through bankruptcy proceedings

What is the Older Persons Shared Ownership scheme?

The Older Persons Shared Ownership scheme is open to people over the age of 55 and allows them to buy purpose-built homes to meet their needs in older age. It works in much the same way as the main Shared Ownership scheme, with the main difference being that the maximum share you can acquire is capped at 75% of the property. Once you have reached 75% ownership, you won't have to pay rent on the remaining 25%.

What are the advantages of Shared Ownership?

• It allows you to buy a property when you can't afford to do so on the open market
• You will benefit from building up equity in the part of the property you own if house prices go up
• As the rules have changed, you won't have to foot the bill for repairs and maintenance for the first 10 years

What are the disadvantages of Shared Ownership?

• When you buy more of the property in the future, you have to pay mortgage and legal fees each time
• As the rent is calculated based on the overall property value, it will become more expensive if the property price goes up
• You can't sublet the property if your circumstances change
• You are limited to buying new-build or resale properties in specific areas rather than having wider choice
• Properties are bought as leasehold
• It could be difficult to find a buyer who wants to buy the same or higher level share in the property if you don't own the property outright when you want to sell

What are the alternatives to Shared Ownership?

A number of home purchase schemes offer ways to purchase a new build property. These include the rate reducer scheme offered by Own New through specific developers where you can attract a discounted rate for the initial mortgage deal term to make it more affordable initially. You can read more about this in our article, "Own New’s Rate Reducer Scheme review" - the article also describes the government's first homes scheme as well as the deposit drop and deposit incentive schemes that could make it easier to buy a home for first-time buyers.

You can also get on the property ladder using a no-deposit mortgage which means that you could own a property even if you are unable to save enough money to use for a deposit. You can read about these types of deals in our article, "No-deposit mortgages - myth or reality?".

Another option would be to see whether you can afford to secure a property independently by opting for a low-deposit mortgage. There is more information on this in our article "Which are the best 95% LTV mortgages - and should I get one?"

 

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