What is shared ownership?

If you’re a struggling first-time buyer or you can’t afford to buy a house, shared ownership is one way to get on the property ladder.

So what exactly is shared ownership and how does it work? Let’s find out.

If you’re a struggling first-time buyer or you can’t afford to buy a house, shared ownership is one way to get on the property ladder.

So what exactly is shared ownership and how does it work? Let’s find out.

Tobi Owens
From the Mortgages team
4
minute read
Do you know someone who could benefit from this article?
Posted 24 DECEMBER 2020

What is shared ownership?

Shared ownership comes under the government’s Help to Buy housing scheme.

It allows you to buy a share (of between 25% and 75%) in a new build or resale home from a housing association programme. You can get a mortgage for your share of the property, then pay rent to the housing association on the rest.

Over time, when you can afford to, you could choose to buy a bigger share of your home and eventually arrive at 100% full ownership (depending on the rules of your scheme).

Who is shared ownership for?

The Shared Ownership scheme is specifically for people who want to buy their own home but can’t afford one on the open market.

It’s mainly aimed at first time buyers and former homeowners who are struggling to get back on the property ladder.

Am I eligible for shared ownership?

Unlike some other housing schemes, you don’t have to be a key worker like a nurse, firefighter or teacher to qualify for shared ownership.

However, there are some general rules you’ll need to meet. To be eligible, you must:

  • be over 18 years old
  • have an annual household income of £80,000 or less if you live outside London
  • have an annual household income of £90,000 or less if you live in London
  • not own another home. If you do, you must be in the process of selling it
  • not be in mortgage or rent arrears
  • have a good credit history with no bad debts or county court judgments (CCJs)
  • have access to at least £4,000 to cover the costs of buying a home (amount may vary)
  • be able to afford regular repayments and costs involved with buying a home

It’s also important to check your eligibility with the housing association you’re buying from, as they might have different requirements.

How does shared ownership work?

When you buy a shared ownership property, the housing association will decide what share is offered to you. Your financial situation, including your income and savings, is used to determine what size share you’ll be able to afford.

Shared ownership shares range from 25% to 75%, although this can vary between housing associations.

Staircasing
In most cases, after you’ve been living in your shared ownership home for a while, you’ll have the option of buying more shares when you can afford to. This is called ‘staircasing’.

The price you pay for each share will be the value of the share portion in relation to the current full market value of your home – not the purchase price.

For example: if your home is valued at £300,000 and you want to buy an additional 20%, the price of the extra share will be £60,000 (20% of the property value).

If your scheme allows you to staircase up to 100%, you’ll own the property outright and will no longer need to pay rent.

If you need to borrow more to pay for the additional share, you can either remortgage with your existing lender or get an additional loan for the increased share. But remember, if you can’t keep up the repayments your home could be repossessed.

Will my shared ownership property be freehold or leasehold?

When you buy a house or flat through the Shared Ownership scheme, it will be leasehold. Basically, a leasehold is a long tenancy. The share you pay rent on is still owned by your landlord (the housing association).

There are generally a few conditions with leasehold properties:

  • You’ll be responsible for the repairs to and maintenance of your home. If you buy a flat, the housing provider is usually responsible for the upkeep of communal areas, for which you’ll pay an annual service charge.
  • You can decorate your home as you like, at your own expense. You’ll need to check the lease if you want to carry out any major alterations, such as an extension or new flooring, as these might need to be authorised by your landlord.
  • You won’t be able to sublet your home.
  • You may be able to take in a lodger, but you should check with your landlord first.

What are the benefits of buying a shared ownership home?

The main benefit of buying a shared ownership home is that it’s a more affordable way of getting on the property ladder. The costs involved can be much lower than other housing options:

  • Deposit This is based on 5-10% of your share, not the full market value of the property.
  • Share You can start out with as little as 25%, then buy a bigger share when you can afford to.
  • Rent This is usually charged at 2.75% of the property value per year and tends to be lower than rental rates on the open market.
  • Stamp duty If the property value is over the stamp duty (SDLT) threshold, payment could be deferred until your share reaches 80%.
  • Area A certain number of shared ownership homes are included as part of the planning permission requirements for many private developments. This could give you the chance to buy in a sought-after area you might otherwise be unable to afford.

How do I buy a shared ownership home?

  1. Check your eligibility
    First of all, check whether you’re eligible for shared ownership. Contact your local housing association to see if the scheme is available in your area and if you’re able to apply.
  2. Register
    Register with Share to Buy and create an account. From there, you’ll be able to search through suitable properties based on building type, number of bedrooms, search are and the amount of deposit required.

    Shared ownership is only available on specific, purpose-built properties that come under the scheme – not properties for sale on the open market.
  3. Pay a reservation fee
    Viewings are organised through the housing provider. Once you’ve found a property to buy, you can put down a reservation fee. This amount varies, but it’s usually around £200.
  4. Attend a financial assessment
    You’ll be asked to attend an interview to assess your financial situation and what share of the property you can afford to buy.
  5. Apply for a mortgage
    Once you know the share, you can start to compare mortgage options and begin the process of applying for a mortgage.

    The mortgage you can get will depend on your personal circumstances and the lender’s particular criteria. Your home may be repossessed if you don’t keep up your mortgage payments.
  6. Get a solicitor
    You’ll need to hire a conveyancing solicitor to take care of the legal side of buying a property. You can choose your own solicitor or select one from the Share to Buy panel of specialist shared ownership solicitors and conveyancers.
  7. Memorandum of Sale
    Your housing provider will issue your solicitor with a Memorandum of Sale. This includes details of the sale and may be required by your mortgage lender.
  8. Exchange
    Once you exchange contracts, you’ll be legally bound to go ahead with the shared ownership purchase. On the completion date, your mortgage lender will give your solicitor the money to buy your home. This will be passed on to the housing association’s solicitor.

    Your housing provider will give you the keys to your new home and you can start to make it your own.

Congratulations, you’re officially a homeowner!

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