The Ultimate Shared Ownership FAQS (Yes, You Still Need A Deposit)
Are you thinking of buying a house under the shared ownership scheme? Thousands of individual buyers and families benefit from the scheme every year, but is it right for you? What are the advantages, are there any downsides, and what do you need to know? We have the answers.
What is shared ownership?
Let's start with the basics. When you buy a house on a shared ownership scheme, you partly buy it and partly rent it. Typically, you buy between 25 and 75 percent of the property and rent the remainder at a reduced rate. You then have the option of purchasing the remaining share (the part you start off renting) at a later date.
Who provides shared ownership schemes?
Shared ownership schemes are provided by private developers and housing associations.
What is “staircasing”?
This is the term used to describe buying an additional share in your property in the future. You are normally able to buy this additional share in increments. The cost of increasing your share will depend on how much the property is worth at the time.
What are the benefits of shared ownership?
- Gives you an option to purchase a home when you cannot afford to buy one using the traditional method
- Helps you get on the property ladder quickly
- The deposit you have to pay is lower
- Your monthly mortgage and rent payment together should be lower than if you buy the full property
- The cost of the mortgage and rent might also be lower than the rent you currently pay
- You can buy additional shares in the property to increase your level of ownership
- You can also sell shares in the property – if it has risen in value, you will benefit from the increase
What are the downsides of shared ownership?
- You may have to pay a service charge and, as it is not fixed, this can be put up in the future
- You may also have to make a contribution for major maintenance works
- Sub-letting is generally not permitted
- If you decide to increase the share you own, you are likely to incur additional fees such as stamp duty, legal expenses, a valuation fee, and mortgage fees
- There may be restrictions on when you can buy additional shares in the property
- Sometimes there are also limits on the total share of the property you can ultimately own, i.e. you may not be able to own 100 percent
- You often have to get permission to make changes to your home, particularly structural changes
- There may be restrictions on how you can sell the property in the future - for example, the shared ownership provider might have first refusal on the property
Who is shared ownership best suited for?
Shared ownership is ideal for first-time buyers, particularly if you can't afford to purchase a property in your desired area. It is popular with a wide section of people but is especially popular with younger people at the early stages of a career or marriage.
What types of property can you buy?
The vast majority of homes available in shared ownership schemes are newly built properties. If you are in England, most shared ownership homes are leasehold so you will have a monthly service charge to pay. You may also have to make additional payments to contribute to maintenance works.
How does the rental part of the agreement work?
The rental element of your agreement will depend on the provider and where you are. In general, however, the rent will not be more than three percent of the provider’s share of the property.
For example, if you own 60 percent of a property worth £150,000, you own £90,000 and the provider owns £60,000. If the provider charges you three percent rent, you would pay £1,800 a year or £150 per month.
Are the rules the same across the UK?
The devolved governments in Scotland, Wales, and Northern Ireland run their own schemes. They are similar to the shared ownership scheme in England, but you should check the websites of the local organisations for more details:
Am I eligible for the shared ownership scheme?
Eligibility depends on where you are and your personal circumstances. In England, shared ownership is usually available if:
- You are a first-time buyer
- You are someone who has previously owned a home but can't afford to now
- You have a combined income that is less than £90,000 if you are in London and less than £80,000 elsewhere
In many situations, you must also currently rent a housing association or council-owned property.
There are some other things you should know about eligibility:
- If you are in the military, you will be given priority over other applicants
- If you are over 55 there is a specialist scheme - Older People's Shared Ownership
- There is also a specialist scheme if you have a long-term disability - Home Ownership for People with Long-Term Disabilities
What are the steps you should take to buy a home under the shared ownership scheme?
Start by speaking to the Housing Team in the local council where you want to buy. They will tell you if shared ownership is available for you. You will then have to find out if you can get a mortgage. Part of this process includes making sure you can afford the cost of the home. This includes costs associated with purchasing the property as well as the costs of owning it.
Do you need a deposit?
Yes, you will need at least five percent of the value of your share in the property. For example, if your share of a £150,000 house is £90,000, you will need a deposit of £4,500. Some lenders will require higher deposits.
What other costs will I have to pay when purchasing a house via shared ownership?
You may have to pay mortgage fees as well as solicitor's fees. Stamp duty is another cost you may have to pay, plus there will be costs associated with moving. This includes everything from the cost of removal companies to getting home insurance to buying furniture.
Do you have to pay stamp duty on the total purchase price?
Usually, you have the option of paying stamp duty on the total purchase price or paying stamp duty on your share of the property. In the latter option, you will have to pay stamp duty on your annual rent as well.
There are advantages and disadvantages of both options. Only paying stamp duty on the portion you purchase will lower the cost and, if the value is lower than £125,000, may mean you don’t have to pay stamp duty at all. On the other hand, paying stamp duty on the full purchase price can reduce your costs in the long-run if the value of the house goes up and you decide to purchase an additional share.
Making a decision
In general, you will face more restrictions when buying a home through shared ownership, but the cost savings are significant. In fact, shared ownership can mean the difference between owning your home or not. It is worthwhile exploring further if you think it might be right for you.