Shared ownership is a government home ownership scheme that was introduced in order to help more people get on the property ladder and own a home.
The scheme is specifically aimed at first-time buyers and lower-income households and offer them an opportunity to buy a share in a property – typically between 25% and 75% of the property value- while paying rent on the remaining amount.
While you may start off owning only a fraction of the property, after residing in the premises for a particular time (as outlined in the lease) you will then be able to buy a greater share percentage of the property – this process is known as ‘staircasing’.
Staircasing can allow you to get a 100% share of your property, but it is important to check with the housing provider prior to purchase as not all Shared Ownership properties are able to be fully ‘staircased.’
Shared Ownership Eligibility
There are certain criteria you have to meet in order to be eligible for the scheme:
- You have to be 18 years old or older.
- Your annual household income must not exceed £80,000 (£90,000 in London).
- You are a first-time homebuyer or you used to own a home but can no longer afford to buy.
- You can prove your legal right to remain and live in the UK.
- You have good credit history to demonstrate you will be able to pay your mortgage and rent.
- You must not sublet your Shared Ownership property.
Shared Ownership Mortgage
You can choose to pay for the proportion of the home you buy either outright or by taking out a mortgage. While lenders usually require a deposit of 10% (90% LTV) for traditional property purchase, Shared Ownership mortgage lenders often accept a 5% deposit (95% LTV) which allows for a greatly reduced upfront cost when buying a property.
For example, to purchase a Shared Ownership property of £150,000, you would only need a deposit of £1,875.
Shared ownership property value = £150,000
25% share of the property = £150,000 x 25% = £37,500
5% of the share value = £37,500 x 5% = £1,875
If you are purchasing a non-Shared Ownership property of the same value, you would be required to put down £15,000 for a deposit (10%).
Although most major lenders offer Shared Ownership mortgages including Halifax, Nationwide, HSBC, Leeds Building Society and Barclays, your choice will be more limited compared to those offering standard mortgages.
Stamp Duty on Shared Ownership
In most cases, Stamp Duty Land Tax (SDLT) is deferred on Shared Ownership properties until the owned share reached the 30% mark. Should you decide to purchase a 30% or more share of a property, you will then have two ways of paying for the SDLT.
The first way to pay is known as a ‘market value election’ and is via a one-off payment based on the total market value of the property. Meanwhile, the second way to pay is in stages. What this means is that you will pay a smaller percentage of the SDLT upfront, but won’t have to make any additional payments until you own more than 80% share of the property.
To learn more information on Market Value Election and paying SDLT in stages, please see here.
Is Shared Ownership a good idea?
There are several advantages and disadvantages to Shared Ownership that you should thoroughly consider before deciding whether this method is the one that is right for you.
The biggest and most obvious advantage of Shared Ownership is that by far, it is the easiest way to get on the property ladder.
Under the Shared Ownership scheme, buyers are able to purchase a home with as little as a 25% share in a property, with 5% of that share going towards the deposit.
For example, under Shared Ownership, a £200,000 property would only require a deposit of £2,500 as opposed to the standard £10,000 that would be required outside of this scheme.
In addition to the lower entry price, the rent charged on the remainder of the property quite often falls below market value, so unlike traditional renting where your monthly payments are contributing to someone else’s mortgage, Shared Ownership schemes mean that you own the property and the saving in rent can allow you to buy a bigger stake in the property later on.
While Shared Ownership is often seen as a lower-cost method to get on the property ladder, there are some drawbacks to the scheme which might prove too much of a barrier to entry for some.
One of the most egregious aspects of Shared Ownership is the fact that properties under Shared Ownership schemes are not technically owned by the buyer until they own a 100% share of the property. In addition to this, Shared Ownership properties are exclusively leasehold premises, meaning that you’re ultimately bound to the freeholder, even with 100% share ownership.
As highlighted above, there are a series of rules and regulations you must adhere to when buying and living in a Shared Ownership property, and these can often mean seeking approval from the freeholder or housing association before undertaking any renovations or improvements.
Besides not being the outright owner of the property, one of the most significant disadvantages of Shared Ownership is that you’re not able to sublet your property.
Having the ability to rent your property to others in order to cover your mortgage is perhaps one of the most significant benefits of owning your home; as such, being denied this can make Shared Ownership not a viable option for many who wish to use the property as a form of income.
In addition to the restriction on subletting, some Shared Ownership properties will employ tactics similar to rental properties, whereby you will be restricted from having pets on the premises.
How do I Apply for Shared Ownership?
Shared ownership is operated under the government’s ‘Help to Buy‘ scheme.
To start your search for Shared Ownership and learn more about the aforementioned eligibility and affordability criteria; please search for your local Help to Buy agent here.