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Shared Ownership FAQs

Posted 26 September 2018 by Helen Christie

We answer some of the most common questions about the Shared Ownership scheme...

Shared Ownership is a government-backed scheme where people buying their first home, or are returning to the property market, 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.

We’ve written a comprehensive guide to Shared Ownership, and here we answer some of the most important questions about Shared Ownership...

 

How does Shared Ownership help first-time buyers?

The aim of the scheme is to make buying a home affordable for those on a modest income, and it does this by reducing some of the money required to buy a home on the open market. This includes the initial deposit and the monthly rents once you’ve purchased.

Under Shared Ownership, you initially buy a stake of between 25% and 75% of the full market value of the property by putting down a deposit and using a Shared Ownership mortgage. You then pay a subsidised rent on the remaining share which is owned by a local housing association.

 

Is Shared Ownership the same as shared equity?

No, the two schemes are quite different.

Shared equity schemes mean the buyer owns 100% of the property from the start – they are assisted by an equity loan, often interest-free for a substantial time, that will need paying back when the property is sold. There’s no rent to pay and no part of the property is owned by a separate organisation.

The government’s Help to Buy scheme is the most popular shared equity scheme currently available. We’ve covered the specific differences between Help to Buy and Shared Ownership here.

 

Shared Ownership versus shared equity

There are pros and cons to both these schemes:

Advantages of Shared Ownership over shared equity

  • Smaller deposit required than shared equity
  • Potential to pay less stamp duty initially

Advantages of shared equity over Shared Ownership

  • You own 100% of the property from the start
  • Less complicated to sell

 

How much deposit do I need for Shared Ownership?

You will usually have to find 5% of the sum you’re purchasing as a deposit for your mortgage.

So if the property has a market value of £200,000 and you’re buying 35% to start with, your proportion will be £70,000. For this, you’ll need a deposit of £3,500, alongside a mortgage of £66,500.

 

Does Stamp Duty apply to Shared Ownership?

There are two ways of paying stamp duty (more formally known as Stamp Duty land tax or SDLT) on a Shared Ownership home. It’s a potentially complicated calculation that the government site explains in great detail but here’s a summary of the two options.

 

Market value election

Market value election is the name given to one option, where you pay Stamp Duty on the 100% value of your home at the very start. Even if you buy further shares to your home later, you won’t have to pay any more Stamp Duty on those later purchases.

For example, on a property with a full market price of £140,000, where you initially purchase a 50% share for £70,000, if you take the market value election, you’ll currently pay Stamp Duty at 0% of the first £125,000 then at 2% for the remaining £15,000. So the total Stamp Duty payable is £300.

 

Paying Stamp Duty in stages

The second option you have is to only pay the Stamp Duty on the proportion of the property you own, with further stamp duty to pay as you increase your share through staircasing.

On the example shown above, on a property with a full market price of £140,000 where you initially purchase a 50% share for £70,000, you’ll pay no stamp duty, as the current threshold is 0% on prices up to £125,000.

As you use staircasing to increase your share of the property, you’ll pay no more Stamp Duty until your proportion exceeds 80%. If it goes over 80%, you pay stamp duty on the transaction that takes you over that proportion and any further transactions after that.

 

Where can you get a Shared Ownership mortgage?

Not every mortgage lender offers Shared Ownership mortgages. Around 20 providers currently offer these products, and they range from major High Street names to smaller local building societies.

Smaller building societies, including Melton Mowbray, Cumberland, Newbury and Penrith, often lend to local buyers. If you live in an area with a local society it may be an advantage to speak to them as well as bigger banks such as TSB or Halifax.

Those lenders who offer Shared Ownership mortgages will generally let you choose from their full product range - this is true of Nationwide and Santander - although some may have products specifically for Shared Ownership borrowers.

Bear in mind that when staircasing, you’ll need to consider what extra mortgage you might need and how you’ll finance it.

Does bedroom tax apply to Shared Ownership?

No, it does not – you are exempt from the under-occupation penalty or ‘bedroom tax’ on Shared Ownership homes.

 

Useful links

All you need to know about Shared Ownership

Busting the myths of Shared Ownership

The difference between Help to Buy and Shared Ownership

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