Shared Ownership: The pros, cons and everything else you need to know
Shared Ownership is a government scheme that can help first-time buyers purchase their first home.
If you’re thinking about getting a shared ownership property, or you just want more information about the scheme so you can weigh up your options and make a more informed decision then this guide will help you.
Determining whether shared ownership is the right decision for you or not depends on numerous factors, including whether you’d be eligible in the first place and whether you want to own your own home right from the start, or if you’re happy to get shared ownership to begin with and then gradually increase your shares over time.
In our guide about shared ownership schemes, we take you through everything you need to know about what shared ownership means, is it a good idea and whether there are any downsides to shared ownership, plus how it all works.
What is shared ownership and how does shared ownership work?
Shared ownership schemes offer buyers an easier and alternative way of purchasing a house. Unlike obtaining a regular mortgage and eventually owning the property outright, with shared ownership, you only own a percentage of the property; usually between 25% and 75%. A housing association will then own the remaining percentage of the property.
The scheme enables first-time buyers to put down a deposit of between 5% and 10% to purchase up to 75% of a property, so unlike more traditional mortgages where you often need to have a 20%-25% deposit, shared ownership “mortgages” are much more affordable for first-time buyers.
Furthermore, if you only purchase a 25% share at first, you can gradually increase your share over time via a method called "staircasing", which involves buying at least another 10% in one go.
How to qualify for shared ownership
Each housing association will likely have slightly different criteria when it comes to applying for shared ownership, but you will usually have to meet the following criteria in order to qualify:
- You must be aged at least 18 years or older.
- You must not already own a house.
- Your household must earn less than £80,000 per year (less than £90,000 if you live in London).
- You must be unable to afford a suitable house on the market.
- You must not be in mortgage or rent arrears.
- You must have a relatively good credit score and prove that you will be able to make the monthly repayments.
The advantages and disadvantages of shared ownership
Before deciding whether co-ownership of a house might be right for you, it’s important to consider the pros and cons of a shared ownership.
Pros of shared ownership
- You can put down a much smaller deposit, so you don’t need to save a lot of money to put down a deposit in the first place. Raising finance to afford a deposit for a house is one of the main things that people struggle with when it comes to buying a house, so shared ownership can be a great help.
- You can gradually purchase more shares through “staircasing”, so if you can only afford a 25% shared ownership to begin with, you can gradually increase that over time.
- It’s thought that there’s generally more security involved with shared ownership than with traditional leasing as you’re not liable to a landlord raising rent prices or suddenly selling your home.
- If you’re on a low income, it can help you to get on the property ladder earlier as there are fewer barriers to entry in terms of needing a deposit.
- Local buyers are often given priority on shared ownership properties if they already live in the local area.
Cons of shared ownership
- If you do decide to “staircase”, you’ll have to pay conveyancing and solicitor fees each time the property is valued when you want to increase your ownership.
- As shared properties are always leasehold, you may be subject to paying ground rent, which can often be quite expensive.
- There are often limitations on selling a shared ownership property as if you don’t own 100% of the house, you may have to sell it back to the housing association.
- You will need to pay stamp duty on shared ownership for any additional shares you buy.
- You might need to pay service fees for the upkeep of common areas of the property.
- You can’t decide to let out the property without obtaining permission from the housing association first.
Can you make a profit on shared ownership?
As purchasing a shared ownership property is an investment just like any other, it is possible to make a profit on shared ownership as if the value of the property goes up, so will the value of your share.
However, it is also possible for you to lose money; if the value goes down, your share value will also go down.
Can I buy another property if I’m already in a shared ownership agreement?
Shared ownership is designed for buyers who are unable to purchase their first home in “traditional” ways such as getting a mortgage, and as they’re reserved for this instance, it means that you’re not able to buy another property if you own a shared ownership property.
In most cases, you will be able to buy the rest of the property if you only currently own between 25% and 75% of the shares in the house, but you cannot buy another property on top and you can’t get shared ownership if you currently own another house.
What to know about selling a shared ownership property
Selling a shared ownership property doesn’t differ too much from selling a regular property. The only major difference is that before you put your property for sale on the housing market, you must offer the housing association that you initially bought the property from the first refusal before you put it on the open market.
This is because shared ownership schemes are designed for first-time buyers and so many housing associations will likely want the house to stay within the scheme.