Shared Ownership explained
Shared Ownership is growing in popularity in the UK, but what is it and how does it work?
To put it simply, prospective home seekers are no longer limited to just buying or renting a property. A third option has emerged in recent years in the guise of Shared Ownership.
This offers an affordable route for people who want to buy a home but who might not yet be in a position to afford a mortgage or put together a significant deposit for a house.
How does it work?
The Shared Ownership scheme allows you to buy a share in a property and then pay a subsidised amount of rent on the remaining share to a Housing Association or a private developer. This share could be between 25-75% of the full value of the home initially but you can purchase further shares later in order to buy the home outright. This makes a home more affordable to obtain as you cut down on the initial costs of home ownership such as stamp duty and mortgage deposits.
Usually the third party who owns the rest of the house is a Housing Association or a private developer, and you would pay your portion of the rent to them. The finer details vary but usually rent is capped at 3% of the value of the share that is owned by the Housing Association or private developer.
To make headway in terms of owning their property, often people will do what is called ‘staircasing’. By purchasing further shares when they can afford to do so, they eventually end up owning the entire property and reducing their monthly rental costs along the way.
However, it is important to note that ‘staircasing’ isn’t as straight forward as simply purchasing more shares. You may be required to pay valuation fees, legal expenses and mortgage fees if you decide to change lenders along the way.
Another downside to Shared Ownership is that your selection of properties is often limited. This means you may only have a few options to choose from in your preferred area, unlike in the open market where choice is generally plentiful.
Shared Ownership schemes also have specific eligibility criteria and you may find that you have to join a waiting list in order to be considered. Often priority is given to public sector workers such as nurses, teachers and police offers. So you could be waiting some time before you find a property.
Another scheme which may be interest to those looking for affordable housing options is the ‘Rent to Buy’ scheme. It allows you to rent a property for less than normal, so that you can save for a deposit. However, in order to live there you must plan on eventually purchasing the house that you are renting for a convenient discount.
For more information on buying a house for the first time take a look at our in depth first time buyer’s guide.