Explaining Shared Ownership
Shared ownership gives people who cannot afford to buy a property outright the chance to get on the property ladder. There is strict criteria to shared ownership, which is part of the government’s Help to Buy scheme. There were changes to the scheme in 2021, which we will highlight below.
How does shared ownership work?
The shared ownership scheme allows an individual to buy a share of between 10-75% of a property’s value, using a deposit and a mortgage, and then pay the rent on the remaining share to the landlord.
The types of properties eligible for shared ownership are usually new build, leasehold properties, which mean you will own the lease on them for a fixed period of time. The minimum leasehold term for a shared ownership property is now 990 years. You will have to pay service charges for the property, which is typically charged on a monthly basis.
Who qualifies for shared ownership schemes?
Anyone who cannot afford a mortgage to buy a property outright that serves their housing needs can apply for shared ownership. To be eligible, your annual household income has to be less than £80,000 if you live outside London and £90,000 if you live in London.
You have to be 18 years old, and not own another home. You do not have to be a first time buyer, but if you do own another home in the UK or abroad you must be in the process of selling it. You can be an existing shared owner looking to move
What are the pros and cons of shared ownership?
The shared ownership scheme has its pros and cons. The main advantages are:
- Applicants don’t need a higher deposit than if they were buying a property outright. They still only require 5% for a shared ownership mortgage
- You can buy more shares in the property over time – this is called ‘staircasing’. For the first 15 years of shared ownership this can be as little as 1% increments (it used to be 10%)
- New build properties should have lower running costs
- Housing associations and landlords selling shared ownership properties are responsible for ‘essential repairs’ up to a value of £500 per year for the first 10 years
Some of the disadvantages are:
- Shared owners will have to pay monthly service charges for ground rent and maintenance of their leasehold property
- The costs of ‘staircasing’ – every time you increase your share of the property you will incur costs like stamp duty, valuation fees and legal expenses
- It is not a straightforward process to sell shared ownership properties
- Rents can go up – if you are unable to pay you can still be evicted, despite having a share of the property
Can I apply to the Help to Buy scheme?
To apply for the Help to Buy scheme, you must do so by 31st October 2022 and have legally completed by 31st March 2023.
Frequently asked questions
Is it hard to sell a shared ownership property?
It is more complicated. If you don’t own a 100% share, you have to give your housing association or local authority the right to buy it or to find a buyer. If they cannot find a buyer, you can sell it, but you will need to find a buyer who meets the housing provider’s requirements for shared ownership.
Do you pay rent on shared ownership?
Yes. You pay rent to the landlord on the equity that you don’t own. Landlords can only charge a maximum of 3% of the value of the share the landlord owns.
Do you need a mortgage for shared ownership?
Yes, you will need to apply for a shared ownership mortgage, which are available from selected lenders (but not all).
Who pays for maintenance on a shared ownership?
Until the changes to the shared ownership scheme in 2021, shared owners had to pay the entire cost of service and maintenance charges on their property. However, now landlords and housing associations have to contribute to the cost of essential repairs, regardless of the size of their share. They have to pay up to £500 per year for the first 10 years of shared ownership.
Does shared ownership rent increase?
Yes, landlords can review the rent payable on shared properties annually, and put rents up, but they cannot increase the rent to more than 3% of the unowned share.
Contact your local haart branch to find out more about shared ownership opportunities
If you are thinking of buying under the shared ownership scheme, get in touch with haart today and we can discuss your options.