December 14, 2023
In the simplest of terms, shared ownership is a living arrangement where:
“You buy a share of the property and pay rent to a landlord on the rest.”
Sometimes this is referred to as “part buy, part rent”, though this isn’t the most accurate description.
Essentially, shared ownership is a model of property ownership which enables people who otherwise wouldn’t be able to afford the deposit or mortgage on a property to own their home, by:
- Purchasing a share of the property — anywhere between 10% and 75%
- Paying rent to a landlord on the share of the property that they do not own — limited to 3% of the value of the share the landlord owns
- Paying monthly ground rent and service charges.
With the soaring cost of house prices, shared ownership offers a way for people and families on lower incomes to get onto the property ladder.
Eligibility and Financial Model
Eligibility criteria for shared ownership
There are certain eligibility criteria that buyers need to meet, to qualify for the shared ownership scheme.
You must:
- Have a household income of £80,000 a year or less (£90,000 a year or less in London); AND
- Be unable to afford all of the deposit and mortgage payments for a home that meets your needs; AND
- Meet one of the following criteria:
- First-time buyer
- Used to own a home but cannot afford to buy one now
- Forming a new household
- Existing shared owners who want to move
- Homeowners who want to move but cannot afford a new home that meets their needs.
Additionally, in some locations, you may need to show that you have a connection to the area where you want to buy the home — for example, that you already live or work there.
Shared ownership for older people
Through the Older Persons Shared Ownership (OPSO) scheme, people aged 55 or over when they purchase 75% or more of the shared ownership home do not need to pay rent on the remaining 25%.
Shared ownership for people with disabilities
Through the Home Ownership for People with a Long-term Disability (HOLD) scheme, disabled people can apply for shared ownership of properties outside the scheme, if other scheme properties in the area do not meet their access needs.
Types of homes eligible for shared ownership
Through shared ownership, you can purchase new-build homes, or existing homes that are already part of the shared ownership scheme, via shared ownership resale. Other properties may be available through the HOLD scheme, for people with disabilities.
Shared ownership homes are offered through housing associations, local councils, and other providers or landlords.
The financial structure of shared ownership
Shares
With shared ownership, you own a share of the property. This is normally between 25% and 75% of the property, though you can own as little as 10% of some properties.
EXAMPLE If the shared ownership property is worth £200,000, and you were going to own a 25% share in it, you would pay £50,000 for your shares in the property.
Deposit
You will need to pay a deposit on the share of the property you are buying — usually between 5% and 10% of your share.
EXAMPLE If you are paying £50,000 for your shares in the property, and you agree to pay a 10% deposit, your deposit would be £5,000.
Paying for your share
You will then need to pay the rest of your share. You can take out a mortgage to buy your share or pay for it with savings.
EXAMPLE: If you are paying £50,000 for your shares in the property, and you have paid a 10% deposit of £5,000, you would still owe £45,000, which you may be able to borrow and pay back over time, via a mortgage.
Rent
In addition to paying off the mortgage for your share of the property, you will need to pay rent to the landlord for their share of the property. For new-builds, this is limited to 3% of the value of the share the landlord owns, though most landlords charge 2.75%.
EXAMPLE: If the shared ownership property is worth £200,000, you own a 25% share in your property, and your landlord owns a 75% share, the value of your landlord’s share is £150,000. 2.75% of this is £5,500. This is the total you would likely be charged in rent for the first year. In this example, monthly rent payments would be £458.30.
For non-new-build properties (ie. resale properties), the starting rent will be based on the amount the previous shared owner paid.
Rent payments will likely be reviewed (and raised) annually.
Purchasing Additional shares
You can purchase additional shares in your home in the future — a practice known as Staircasing.
Staircasing will reduce the amount of rent you pay to the landlord. In other words: your rent goes down as your share in the property goes up.
Other costs of shared ownership
There are several potential costs you may run into with shared ownership. Many of these would also apply to traditional home ownership.
Additional costs of shared ownership may include:
- Reservation fee
- Ground rent
- Service charge
- Solicitors fees
- Stamp duty
Advantages of Shared Ownership
There are two main advantages to shared ownership.
Lower initial costs
First, the upfront costs to purchase a property under the shared ownership scheme are lower than they would be to purchase a similar property outright, as you pay a much smaller deposit.
This means that people with lower incomes and people just starting out are more easily able to afford to get onto the property ladder.
Gradual homeownership
Additionally, as you use Staircasing to own more and more of the property, you can build equity in your home. Eventually, you may be able to own 100% shares in the property, at which point you may be able to release some of that equity by selling or remortgaging at full market value.
Step-by-Step Guide
The process of acquiring a shared ownership property.
1.Find a home on the scheme
Once you know you are eligible, you can contact an organisation selling shared-ownership homes in your area, or speak with your local estate agent to find out which properties they have listed under the shared ownership scheme.
2.Viewings
Arrange viewings through the estate agent, housing association or local council to find a suitable property.
3.Reservation
You will usually need to pay a fee of up to £500 to the landlord to reserve the property while you secure a mortgage and complete the purchase, which will be taken from the final amount owed on completion.
4.Mortgage advisor
At this stage, the landlord will usually pass you on to a mortgage adviser to assess your income and outgoings and ensure you can afford the mortgage repayments.
5.Find a legal professional
You will need to use a solicitor or a licensed conveyancer to do the legal work (‘conveyancing’) involved in transferring ownership from the property seller to you.
6.Complete on your property
This is the exciting part! The day you complete, you get the keys and the property officially becomes your home.
Is shared ownership better than renting?
While there are some short-term benefits to renting — such as lower upfront costs, and no financial responsibility for repairs and maintenance, in the longer term shared ownership is preferable to many people.
While you still pay some rent under shared ownership, and you have to pay stamp duty and other home ownership fees, it can give you a chance to get on the property ladder. You are also building equity in your home, and you have the opportunity to use Staircasing to purchase additional shares in your home — reducing your rent and increasing your equity.
Overall, shared ownership usually makes more financial sense than renting, if you can afford the upfront costs and qualify for a mortgage.
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Shared ownership is an achievable way for people who might not otherwise be able to afford it, to get a foot on the property ladder. Shared ownership has lower upfront costs than traditional property ownership and better long-term financial outcomes than renting. Get in touch today to see if you can buy a shared ownership property in Yorkshire.