Is it a good idea to buy shared ownership?

What is the shared ownership scheme? 

The Shared Ownership scheme is a government-backed initiative designed to help people in the UK get onto the property ladder. 

It allows eligible first-time buyers, as well as those who used to own a home but can no longer afford to buy one, to purchase a share of a property – usually between 25% and 75% – and pay rent on the remaining share. 

The scheme is available for new builds or existing properties and aims to make homeownership more affordable by reducing the initial deposit and mortgage required.

How does shared ownership work?

Shared ownership works by allowing a buyer to purchase a share of a property, usually between 25% and 75%, and pay rent on the remaining share owned by a housing association. 

The buyer will need to take out a mortgage to pay for their share of the property and will need to meet the eligibility criteria set out by the scheme.

Once the buyer has purchased their share, they can then live in the property as if they owned it outright, but they will be required to pay rent on the remaining share owned by the housing association. 

How is rent calculated with the shared ownership scheme?

Rent in the Shared Ownership scheme is calculated based on the percentage of the property that is owned by the housing association, as well as the current market value of the property. 

The rent is usually set at a fixed rate, typically 2.75% of the value of the housing association’s share of the property per year, although this may vary slightly depending on the terms of the specific scheme.

For example, if the buyer purchases a 50% share of a property that is valued at £200,000 and the housing association owns the remaining 50%, the rent would be calculated as follows:

• Value of housing association’s share: £100,000 (50% of £200,000)
• Annual rent: £100,000 x 2.75% = £2,750

In this example, the buyer would pay £2,750 per year in rent to the housing association. It’s important to note that the rent will increase over time in line with inflation, although the rate of increase may be capped depending on the specific scheme.

How does ‘staircasing’ work?

Staircasing in shared ownership allows the buyer to increase their ownership share in the property over time. This means that they can buy additional shares in the property, usually in increments of 10% or more, until they own the property outright.

To staircase, the buyer will need to contact their housing association and let them know that they want to buy additional shares in the property. 

The housing association will arrange for a valuation of the property to be carried out, which will determine the current market value of the home. Based on this valuation, the buyer will then be able to purchase the additional shares in the property at the current market value.

The cost of purchasing additional shares can be funded in several ways. The buyer can choose to pay for the additional shares in cash, by taking out a new mortgage, or by using a combination of both. If the buyer decides to take out a new mortgage, they will need to meet the eligibility criteria set out by the lender.

As the buyer purchases additional shares in the property, the amount of rent they pay to the housing association will decrease, as the housing association’s share of the property will also decrease. Once the buyer owns 100% of the property, they will no longer be required to pay rent to the housing association.

Who is eligible for shared ownership?

Eligibility criteria for shared ownership varies depending on the specific scheme, but there are some general guidelines that apply across most schemes. 

To be eligible for shared ownership, the buyer typically needs to meet the following criteria:

• First-time buyers: Most shared ownership schemes are designed for first-time buyers who have not previously owned a property. However, some schemes may also be open to those who have owned a property before but can no longer afford to buy one.

• Household income: The buyer’s household income should be below a certain threshold, which is typically around £80,000 per year in England and £90,000 per year in London. However, the income limit can vary depending on the location of the property.

• Affordability: The buyer must be able to demonstrate that they can afford the monthly mortgage repayments and other associated costs, such as rent, service charges, and utility bills.

• Residency: The buyer must have the right to live in the UK and in some cases, must have lived in the local area for a certain amount of time.

It’s worth noting that there may be additional eligibility criteria depending on the specific scheme, such as the type of property being purchased or the location of the property. 

How to apply for shared ownership?

To apply for shared ownership, you can contact a housing association or developer that offers shared ownership properties. 

They will be able to provide you with information about the available properties and the application process. You will need to complete an application form and provide proof of your eligibility, such as evidence of your income and savings. 

How to find a shared ownership mortgage provider?

To find a shared ownership provider, you can follow these steps:

• Check government websites: In the UK, there are several government websites that list shared ownership properties and providers. These include the Help to Buy website, the Share to Buy website, and the Homes England website. These websites can provide you with a list of shared ownership providers in your area.
• Search property portals: There are several property portals that list shared ownership properties, such as Zoopla, Rightmove, and OnTheMarket. These portals allow you to search for properties by location, price, and other criteria and often provide contact details for the housing associations or developers offering the properties.
• Contact housing associations and developers: Many housing associations and developers offer shared ownership schemes, so you can contact them directly to find out what properties they have available in your area. You can find contact details for housing associations and developers online or in local property publications.

Is shared ownership right from me?

Whether shared ownership is right for you depends on several factors. If you cannot afford to buy a home outright, shared ownership may be a good option to get onto the property ladder. 

However, it’s important to ensure that you can afford both the mortgage and rent payments and to consider your future plans and the level of flexibility you need. 

Shared ownership may not be the best option if you plan to live in the property for the long term or require a lot of flexibility. 

You will also need to meet certain eligibility criteria and consider the location and associated costs before deciding if shared ownership is right for you.

What costs are associated with buying a shared ownership home?

There are several costs associated with shared ownership, including:

• Mortgage payments: You will need to make mortgage payments on the share of the property that you own.
• Rent payments: You will also need to pay rent on the remaining share of the property that is owned by the housing association or developer.
• Service charges: You may be required to pay service charges for the upkeep and maintenance of communal areas and shared facilities.
• Legal fees: You will need to pay for legal services to complete the purchase of your share of the property.
• Valuation fees: You may need to pay for a valuation of the property before obtaining a mortgage
• Stamp duty land tax: You may need to pay stamp duty land tax on the share of the property that you are buying.

It’s important to consider all these costs when deciding if shared ownership is affordable for you. Get in touch with our specialist mortgage advisors today.

For more info on shared ownership mortgages, please contact a member of the Strive team, by emailing info@strivemortgages.co.uk or call us on 01273 002697.