Pros and Cons of Shared Ownership

The Shared Ownership scheme is a popular way to buy a home. However, there are things to think about before you commit.

The Pros of Shared Ownership

Lower upfront costs

• The deposit you require depends on your share.
• More affordable mortgages. You borrow less, so your monthly payment will be less compared to buying a home outright.
• You only need a mortgage for your portion of the property.
• You do not need a perfect credit score to qualify.

Get on the property ladder soon

• Shared ownership helps many first time buyers onto the property ladder.
• Lower deposits = less time needed to save.
• Your monthly payments are usually lower than renting privately.
• Shared ownership is open to first-time buyers and former homeowners who cannot afford to buy now. Key workers and those with disabilities are also eligible for Shared ownership properties.

Own more over time with 'Staircasing'

• You can gradually acquire more shares in the property as and when you can afford.
• And sell the shares you own at any time.
• Some houses can become freehold once you staircase to 100%.
• If the property value increases, so will the value of your shares.

Rules and regulations

• As long as you meet your obligations, Shared ownership is a more stable option than private renting.
• Since 2021, leaseholds will be 990 years as standard. This prevents costly lease extensions fees.
• Housing providers must register with the Regulator of Social Housing (RSH). The RSH helps ensure home providers are financially sound, well-managed and acting fairly towards tenants.
• As shared ownership homeowners, you enjoy protection from both homeowner and tenant protections. You have the right to receive a copy of your lease, a breakdown of service charges, and to participate in consultations on major works. For the rent portion, you as a tenant have the right to raise complaints with the Housing Ombudsman, a free independent body.

Access to new build properties

• Shared ownership properties are primarily new build homes. Homeowners can save money with energy-efficient appliances and modern finishes. They will need fewer repairs right away. There is also a 10-year NHBC warranty, if applicable.



 


The Cons of Shared Ownership

Rent and shares

• Whilst you require a mortgage for your share, let's say 25%, you will be paying rent on the remaining 75%. The rent money goes to the housing association/landlord.
• Rent fees can increase annually. Your lease will highlight this. Rent payments will never decrease during reviews.
• You may lose your home and the money you put into it if you do not pay your rent or you break the terms of your lease.
• Every time you want to buy shares, there are extra costs. These include solicitor's fees, RICs valuation, and sometimes stamp duty fees. The housing association may charge you administrative fees too.
• You will pay Stamp Duty on the whole property when you own share of 80% or more.

Service charges - These fees are for upkeep of shared areas, general maintenance and insurance.

• You have to pay 100% of the service charge and ground rent, regardless of your property share.
• Depending on the property and location, service charges can be anywhere between £150 to £300 each month.
• Service charges have no cap on how much they can rise each year.
• All properties sold through Shared ownership are leasehold.

Housing Association Rules including repairs

• For structural changes and significant modifications like installing a new kitchen, permission from the housing provider is required. You will require permission from the housing provider.
• You are responsible for all repairs and maintenance costs. This includes boiler breakdowns, roof leaks etc.
• Many new Shared ownership properties come with a 1 year repair cost support but this is limited.
• Housing Associations may apply rules on the property including restrictions on pets.
• You cannot sublet your Shared ownership property.

Mortgages

• Not all lenders offer mortgages for Shared ownership properties.
• Fewer choices mean less competitive rates.
• Remortgaging or switching providers can be a tricky process.
• Mortgage companies may require additional documentation when applying.

Re-selling

• The housing association gets first dibs if you are looking to sell. Called a nomination period, often 8 weeks.
• If the housing provider does not find a buyer within those 8 weeks, you can then sell on the open market. You can only sell your property to another Shared ownership eligible buyer.
• Even if you have staircased to 100%, you still need to inform the housing association that you want to sell. You can sell on the open market right away. However, in some cases, your housing association may have the first right to buy.