We take a look at the advantages and disadvantages of shared ownership and how you can get your feet on the property ladder.
Do you want to get a foot on the UK property ladder but are unsure how you are going to raise the necessary capital? Don’t despair because shared ownership schemes are a great way for first-time home buyers and low-income earners to get a foot in the door. However, there are a few things about shared ownership that you need to know before you buy any property. We look at what shared ownership is exactly, as well as some pros and cons.
What is shared ownership?
Shared ownership is when you buy a part or share of a house or flat from a housing association or financial institution and then “rent” the remaining share. Typically, shares are for anything between 25% and 75% of the property.
It’s important to remember that shared ownership schemes are different from shared equity and joint ownership.
- Shared ownership is when you own part of a house (with the option to increase your share).
- Shared equity is when you get a mortgage for 80% of the house’s purchase price and the government comes to the party with the remaining 20% of the loan.
- Joint ownership is when you and your partner (or friends or parents) combine your funds to buy a house.
There are different types of shared ownership schemes from different housing associations. The biggest shared ownership scheme in the UK is HomeBuy, which is a government scheme. According to Which.co.uk, HomeBuys offers buyers three different options.
- New Build, which is for new builds only.
- Social, which is for those in social housing who are eligible for Right to Buy but who still can’t afford to buy the property concerned.
- Rent to HomeBuy, which allows you to rent a home for up to five years while you save up enough money for a deposit. At the end of the agreed upon period, you can buy the house through the New Build scheme.
Pros of shared ownership schemes
- They’re an affordable way to enter the property market.
- The deposit required for shared ownership properties is usually quite low, about 5%.
- You have the option to increase your shares until you own the home outright – it’s called staircasing.
- Even with the mortgage and rent combined, it’s usually more affordable than just plain renting or paying a full mortgage.
- The housing association is responsible for maintenance and repairs – just as if you were a regular tenant.
- You can sell your share whenever you want to.
- There is no stamp duty, provided your share is lower than the stamp duty threshold.
- You can combine shared ownership with joint ownership to make the venture even more affordable.
Cons of shared ownership schemes
- Your selection is limited and there may not be properties available in the neighbourhood you fancy.
- There are additional fees and charges that drive up the cost, especially at the outset.
- If the property loses value, you lose.
- You may not be eligible for any shared ownership schemes, and if you do meet the eligibility criteria, you might still have to join a waiting list as some properties are given to preferred key workers, like nurses, teachers, police officers and social workers.
- Not all mortgage providers cater to shared ownership schemes, so you might need to ask your HomeBuy agent for advice.
- While you can sell your shared ownership at any time, there are certain provisos. For example, you may have to give the housing association from which you purchased your shared ownership the first option of buying back your house or flat. Even if you don’t have to give them the first option, you still have to notify them of your intentions before you approach an estate agent.
- You may have to ask permission before making any improvements or alterations – just as if you were a regular tenant.
As with all attempts to enter the property market, you need to apply some common sense and caution. But if you take the proper care, there is no reason why shared ownership can’t work wonderfully for you.