With the affordability of new homes a problem for many people, especially in London and the South East, the opportunity to get on the property ownership ladder through a Shared Ownership arrangement may be tempting and, in fact, the only way to do so.
With many misunderstandings about what Shared Ownership involves, we have put together a comprehensive guide to what it is (and isn’t), how the scheme works, and points to consider before committing to it. We've also answered some of the most commonly asked questions about the Shared Ownership scheme.
Lynda Clark, of First Time Buyer magazine, says: “Many people believe that Shared Ownership means you have to share a property with a stranger or that it’s only for people on very low incomes. This simply isn’t the case and these schemes have evolved and moved with the times and now can help the majority of the homebuying population that require a little helping hand.”
What is Shared Ownership?
Shared Ownership is a government-backed scheme where people buying their first home (or are returning to the property market, buying again after the breakdown of a relationship), who are unable to afford a suitable home at the full market price, can purchase a share of the property and pay a subsidised rent on the remainder.
This is sometimes referred to as ‘part-buy/part-rent’.
How does Shared Ownership work?
Many new homes developments are legally obliged to include a proportion of Shared Ownership properties, constructed by the housebuilder but allocated to a housing association to sell. Shared Ownership is not open to everyone – though rules have been eased in recent years, there are still criteria that potential buyers must meet before being accepted into the scheme.
The main features of Shared Ownership are:
- You initially purchase between 25% and 75% of the market value of the home, with a deposit and mortgage. The eligibility process will also determine how much will be required to pay at this stage, though don’t forget there will be legal fees and other charges to budget for in addition to your deposit.
- You pay a subsidised rent on the remainder, calculated at 3% per annum of the value of the rented proportion of your property – this equates to around 80% of the open market rate.
- You can buy an increased share of you home at a later date (a process known as ‘staircasing’), up to 100% if you wish.
- When you sell your home, you’ll receive the percentage of the sale price that you own.
- If there are service charges and ground rent to pay, you’ll be responsible for 100% of those no matter what percentage of the property you own.
Find out more about buying more shares in your Shared Ownership home.
Eligibility for Shared Ownership
Bernie Conroy, director and senior housing consultant at Bernie Conroy Consulting Limited, talks us through the eligibility for Shared Ownership:
Firstly, you need to know if you are eligible to buy a Shared Ownership home. Shared Ownership homes are subsidised by the government and while eligibility may vary from one development to another there are some standard criteria everyone must meet. In the main:
- You must be aged 18 or older.
- Your annual household income if buying outside of London must be less than £80,000.
- Your annual household income if buying in London must be less than £90,000.
- You will normally be a first-time buyer or be in the process of selling your home. You must not own any other property at the time you buy your new home.
- You should not be able to afford to buy a home on the open market which is suitable for your housing needs.
- You must be able to show you are not in rent or mortgage arrears.
- You must be able to evidence you can afford the initial and ongoing costs of buying your own home. You will also need to evidence a good credit history.
Once these criteria are met you can register on local Help to Buy agents’ websites and/or with individual housing providers selling Shared Ownership homes. There is no right or wrong way about whether to find out what you can afford or to start looking for a home you like first. Quite quickly you should establish the ball park figure of what you can afford to buy, what your budget is and how you go about finding out what is available to buy that matches these estimates. Once a home has been identified to buy, it is critical you know exactly what it will cost you in terms of the access one-off costs and then the regular ongoing monthly costs.
Selling your Shared Ownership property
Selling your Shared Ownership property, whether you own all of it or only part of the home, is slightly more complicated than selling a property on the open market.
The first step is to contact your housing provider and inform them in writing of your intention to sell – they have the first option to purchase the home. Then choose a surveyor to value the home and get an energy performance certificate (EPC) for the home within four weeks.
Sales details will be put on the housing provider's website and interested potential buyers will be prioritised and nominated by your housing provider and put through a compulsory financial interview with an independent financial advisor.
On approval, and with the sale agreed, the provider will send confirmation and get their solicitor to contact yours to complete the sale, with the two parties agreeing a completion and exchange date. The buyer normally has 12 weeks to complete the purchase. Find more details here.
Shared Ownership for older people
The government has established a Shared Ownership scheme especially for buyers over 55-years-old, known as the Older Persons’ Shared Ownership Scheme, with different rules and criteria to qualify for it.
Comments from the experts
Nick Lieb, head of operations for Share to Buy, the UK’s leading portal for Shared Ownership properties, comments: “In an age when many are entirely reliant on the ‘Bank of Mum and Dad’ to get onto the housing ladder, Shared Ownership allows eligible first time buyers to purchase a percentage share in a property (usually between 25% and 75%), while renting the portion they don’t own. The scheme acts as a stepping stone, with buyers able to purchase more of the property when they can afford it, through a process called staircasing.
“One of the major benefits of the scheme is, as you are only buying a percentage of a property, you are only required to pay a deposit on the share you are purchasing. This usually means you don’t require the sometimes frightening deposit you may need to buy outright. Often, monthly costs are less than renting a similar home in the same area - meaning you’ve got more cash to splash on doing the things you love!
“Eligibility criteria applies - in London, you must have a household income of under £90,000 (if you are buying with a friend or partner, that’s your combined income), or under £80,000 outside the capital. Priority is usually given to those who currently already live or work in the borough.”
Bernie Conroy, director and senior housing consultant at Bernie Conroy Consulting Limited says: “The benefits of Shared Ownership are that you can own the property outright (buy in up to three stages if you choose) and then pay no rent. Equally you are not forced to buy more shares.
“If you are selling your home as a shared owner you will have access to a pool of interested buyers who, like you initially, need help onto the property ladder. Your landlord will have up to eight weeks to nominate people who will be eligible to buy.
“There is also the potential with some landlords to do reverse staircasing if you get into financial difficulty through a process known as flexible tenure. Here the landlord maybe able to buy some or all of you share back. Conditions vary as does landlord participation in this scheme. Monthly costs can be cheaper than private renting (subject to local values and private market pricing).”
Reggie Yates, broadcaster, director and writer, is an ambassador of Shared Ownership Week 2018. Reggie says: “Shared Ownership makes taking a step onto the property ladder possible for so many. If you’re thinking of taking the plunge and becoming a home owner, but you don’t have the help of the bank of Mum and Dad, then the support and information that this event offers is incredibly important.”
Olivia Moss, L&Q’s marketing and brand director comments: “Shared Ownership continues to be a popular choice for first time buyers priced out of the property market. Both demand and awareness of the scheme have increased exponentially in the last 5 years – between 2016 and 2017 L&Q sold 468 Shared Ownership properties.
However, we know that buying a Shared Ownership home can feel quite daunting for first time buyers, which is why initiatives such as L&Q’s award-winning educational campaign, PricedIn with L&Q, and initiatives such as Shared Ownership Week and London Home Show are so essential. Users on L&Q PricedIn, our dedicated Shared Ownership website, have increased 63% in the past year, last month alone we processed 1395 Shared Ownership application forms. At L&Q, we’ve dramatically increased our development programme and have pledged to deliver 100,000 new homes across the UK – a significant proportion of which will be for Shared Ownership - including outside of London and the Southeast, with schemes launching next year in Warwickshire and Buckinghamshire.”
Useful links