Shared ownership: An alternative route onto the property ladder.

For a lot of people looking to purchase their first home, it may sometimes feel like there’s more chance of buying a house on the moon than one in the UK right now, especially if they have credit impairment or are self-employed.

But, getting on the property ladder doesn’t always require a ‘giant leap’. In this blog, we take a look at the pros and cons of the shared ownership model and how it might be able to provide that first ‘small step’ for home buyers looking for an alternative route onto the property ladder.

What is shared ownership?

Shared ownership, also known as equity sharing, has been around since the 1980s and was introduced as way of making homeownership more affordable. In 2021, as part of the English Housing Survey, it was estimated that around 202,000 households in the UK were living in shared ownership properties.

Definition:

Shared ownership (/ˌʃeəd ˈəʊ.nə.ʃɪp/) A government scheme where a first time buyer or someone that doesn’t currently own a home can purchase a percentage, or share, in a property. They would then typically pay back a mortgage on the percentage they own, and pay rent on the percentage that they don’t own to a ‘landlord’ – a housing authority, local council or other organisation.

• On properties offered on the shared ownership scheme, you can buy a share of between 10% and 75% of the properties full market value, although some schemes will start from a minimum of 25%. You can then buy additional shares in your property over time – a process known as ‘staircasing’ – up to 100% ownership of the property (where the provider allows).


• Shared ownership homes include new builds allocated as part of the scheme, existing properties through a shared ownership resale scheme, or a home that meets any long-term disability needs.

As the scheme is designed to help those that can’t get on the housing ladder, there are restrictions on who can apply. Make sure that you check out the government’s page on shared ownership for all the current information and advice, and use their calculator to see if you’re eligible.

But, typically, you’ll qualify if:

• You’re over 18 years old.
• Your household income is less than £80,000 per year (or £90,000 in London).
• You’re a first-time buyer, or you can no longer afford to own your home.

What are the positives of shared ownership?

There are several benefits to buying a home using a shared ownership scheme. Here are a few of the most common ones:

1. You can move into a higher value or larger property than you would otherwise be able to afford. Many new builds also offer properties with the latest technology and energy saving features.


2. It requires a smaller deposit so it should make it easier to secure a mortgage. Some lenders (like Together) let you borrow 100% of the purchase price of your share so you may not need to save for a deposit. But, not every lender will offer shared ownership mortgages.


3. You have the opportunity to buy more shares as you go. You can typically increase your percentage by 5%, 10% or more at a time, although some schemes may allow you to buy smaller shares. Many shared ownership schemes allow you to eventually buy and own 100% of your property, but others don’t.


4. Like any homeowner, you can sell a shared ownership property at any time as you’re not tied in. And if you make a profit when you sell, you’ll get to keep a share of it. Typically, you would sell your share back to the provider (the ‘landlord’), or they might be able to help you find a buyer. Either way, there will usually be a clause in your contract that they get first refusal if you choose to sell.


5. Buying through shared ownership also means that stamp duty is deferred (until your share reaches 80%). In areas where property prices are particularly high, this can mean a significant saving.

What are the negative aspects or areas of consideration for shared ownership?

As well as the benefits of the scheme, there are some aspects that are less positive, or you should make sure you fully understand before committing to. These include:

1. You’ll still need to pay rent on the percentage of your home that you don’t own and it can increase. The government has set limitations on how much a landlord can charge in rent for shared ownership properties (which you can review here).


2. You’ll need to pay for repairs and maintenance. Maintenance of shared areas such communal gardens, and external windows and guttering in flat blocks, should be included in your monthly service charge. You can decorate and make home improvements, such as refurbishing a bathroom or kitchen. But, if you want to make structural changes, you will need to get written permission from your landlord.


3. You’ll benefit from inflation if house prices increase, but only on the percentage of the share you own. If the market value of your property increases and you want to buy additional shares, they will cost you more than they would have initially. If the market value of your property goes down, you may be in negative equity if you decide to sell (where your property, or the share you own, is worth less than the amount you have left to pay on your mortgage).


4. You’ll need to undertake an affordability assessment for the housing association before you buy, in addition to one for your lender. As both assessments are independent of each other, they may have different criteria and being accepted by one doesn’t automatically mean you’ll be accepted for both.


5. All shared ownership properties are classed as ‘leasehold’. If you plan on selling your share of the property, having a short lease (typically under 80 years) can make it harder to sell.


6. If you fall into arrears on your rent, mortgage payments and / or service charges, you will be at risk of eviction. As your mortgage will be secured on your share of the property, mortgage arrears could also lead to your home being repossessed. Although eviction and repossession aren’t specific to the shared ownership scheme, you may be at greater risk of falling into arrears as you need to make two separate payments each month. Failing to keep up with your payments to either your landlord or lender could result in you losing your home.

Is shared ownership right for you?

Hopefully we’ve been able to answer some of your questions and highlight some of the pros and cons involved with shared ownership homes. But, as with any property purchase, whether it’s right for you depends on your personal circumstances so we’d encourage you to do as much research as possible before committing to a purchase.

At Together, we’ve helped all kinds of people get on the property ladder using a shared ownership mortgage. From first time buyers and the self-employed, to former home owners that have divorced or separated and are looking to afford a new home of their own.

Ready to get started? Find out if we can help you get on the property ladder with our Shared ownership mortgages.