As house prices continue to rise, people are looking for alternative options in terms of ownership. One of the more affordable ways of getting onto the property ladder is through Shared Ownership, which a lot of people are opting for in this market.
In this article, we’ll cover what Shared Ownership is and break down how it works.
What is Shared Ownership and how does it work?
Shared Ownership is a scheme that aims to get more people onto the property ladder. It can also be considered a part buy/ part rent scheme, as it allows buyers to own a percentage of the property without purchasing the entire property at once.
Shared Ownership schemes are usually offered by housing associations, which take up the remainder of the ownership. With Shared Ownership, you as the buyer will own a percentage of the property, depending on how much is paid. However, the buyer must pay rent on the remaining amount owned by the housing association. So, to clarify, you’ll pay off your mortgage whilst also paying some rent.
What percentage can I own?
The percentage you own can vary depending on what you can afford and how much you want to put down. However, it must fall between 10% and 75% of the overall property value. The flexibility is one of the main appeals when it comes to Shared Ownership, as it caters for people with different budgets.
Later down the line, homeowners on the Shared Ownership scheme can purchase a bigger percentage of the property when they are able to do so. This isn’t a requirement but is a good option to have for homeowners. It should be noted that rent will be adjusted in line with how much of the home is owned by the housing association. So, the higher percentage you own, the lower amount of rent you’ll need to pay to the housing association.
What deposit is required?
This will entirely depend on the percentage of the home that is being purchased. Huge deposit requirements are often the main reason that people are unable to get onto the property ladder, but Shared Ownership offers an alternative opportunity for people with much lower required deposits.
It’s impossible to give an exact number as to what deposit is required, as there are so many variables that can affect the amount. The smaller percentage of the home you own, the lesser deposit that will be required.
Is a special type of mortgage required?
A special type of mortgage isn’t a requirement for Shared Ownership; however, some lenders have started to offer specific loans aimed to accommodate people wanting to go on the scheme. In most scenarios though, a regular mortgage is likely to be perfectly acceptable.
Example of how much rent will be paid
The exact amount will vary depending on how much of the home you own. The formula for figuring out how much rent you will need to pay is the following:
- Property value x percentage owned by the housing association / 100 x 3 / 12
For example, let’s say you the property you partially own is worth £200,000 and you own 60% of it, your rent can be worked out as the following:
- £120,000 owned by you, £80,000 owned by the housing association (£200,000 / 40% = £80,000)
- 80,000 / 100 x 3 = 2,400
- 2,400 / 12 = 200
Monthly rent required = £200
Of course, the rent you need to pay will be on top of mortgage repayments, so that’s worth taking into account when working out how affordable Shared Ownership may be.
What about stamp duty?
Usually, first-time buyers don’t have to pay stamp duty due to the tax relief scheme offered by the government. With Shared Ownership, however, the circumstances may be different.
The exemption only applies for homes up to the value of £300,000, and there may be other reasons you may not be exempt from stamp duty under Shared Ownership. It’s worth speaking to a financial expert and getting absolute clarity on whether you will need to pay stamp duty before making any decision.
Who is eligible for Shared Ownership?
In order to be eligible to apply for Shared Ownership, you’ll need to meet two main criteria:
- Your whole household earns £80,000 a year or less (£90,000 or less in London)
- You are a first-time buyer, you used to own a property but now can’t afford to, or you are an existing shared owner that is looking to move house.
Can I become the sole owner in the future?
In most cases, you’ll be able to become the sole owner of a shared property. However, there may be certain rules and conditions attached to doing so. For example, some schemes will require you to live in the property for a certain amount of time before you can buy the entire property outright. In some scenarios, you may only be able to ‘staircase’ (increase your percentage) a few times, so you’ll need to plan your steps carefully.
What if I want to sell my Shared Ownership property?
If you wish to sell your Shared Ownership, the process is usually similar to selling a property normally. You’ll likely need to inform the housing association instead of just going straight to an estate agent, and the housing association will try to find a suitable buyer. If they are unable to, the property is then usually listed on the open market.
Things to consider
There are several considerations when deciding whether to pursue a Shared Ownership scheme. Some of the most common concerns include the fact that you’ll still have a landlord, you may be restricted in what you can do with the property, and negative equity is a possibility.
However, whilst there are drawbacks, Shared Ownership schemes offer people a chance to get on the property ladder if they can’t afford a home outright.
