What is Shared Ownership?
Shared ownership schemes enable first-time buyers and people on low incomes to buy a share of a property while paying rent on the rest. Buyers can purchase more, or all, of the property later down the line.
Shared ownership can enable people struggling to save a deposit to get on the property ladder but it also has its downsides. This includes still having to pay rent on the property after paying a deposit and additional fees like conveyancing.
This guide will cover everything you need to know about shared ownership, from the advantages and disadvantages to who is eligible to apply for the shared ownership scheme.
How Does Shared Ownership Work?
Shared ownership enables first time buyers or families on a low income to purchase a share of a property and pay rent on the remaining share. The share of the property you don’t own is usually owned by a housing association. The share you initially buy starts at a minimum of 25%, going up to a maximum of 75%.
You'll need to put down a deposit then take out a mortgage for the share you purchase. Deposit requirements are low – normally 5% of the property value.
Who is Eligible for Shared Ownership
To be eligible for the shared ownership scheme, you must have a household income of less than £80,000 if living outside London or £90,000 if you live in London.
You can be either a first-time buyer or someone who used to own a home but can’t afford to buy one now.
There is a separate shared ownership scheme for people aged 55 and over. The main difference with this scheme is that once you’ve purchased a 75% share of your property you won’t have to pay rent on the remaining 25%.
Shared Ownership Pros and Cons
Benefits of Shared Ownership
- It’s a more affordable way to own your own home as you’re only required to pay a 5% deposit instead of 10 to 20%.
- If you start by owning a 25% share of the property, you’ll have a chance to increase your share later by ‘staircasing’ and potentially owning 100%.
- Going through the shared ownership scheme can make it easier to get approved for a mortgage, even if you have a low income.
- Although you’ll be paying rent on the remainder of the share, shared ownership offers more security on the house than if you were renting from a landlord.
Disadvantages of Shared Ownership
- Shared ownership properties are often leasehold, meaning you will have to pay a service charge on top of rent.
- Your lease may ban you from doing certain things – for example, you might not be able to keep a pet or sublet your property.
- If you decide to increase your share later, it can get expensive with the addition of conveyancing fees, mortgage fees and other added moving house costs.
- When it comes to selling your shared ownership home, it may be more difficult than selling a home you fully own.
- Not all mortgage lenders will offer a mortgage for a shared ownership property.
- Mortgage and rent can often add up to a substantial monthly outgoing.
Stamp Duty on Shared Ownership Homes
If you're not a first-time buyer, you will have to pay Stamp Duty on your shared ownership property. You can either pay your stamp duty upfront on the initial share of the property, or you can pay stamp duty for the full amount of the property. Use our Stamp Duty calculator so you know what to expect.
If you are a first-time buyer, you may be eligible for first-time buyer relief where you will not have to pay stamp duty on properties worth up to £300,000.
What is Shared Equity?
The Help to Buy: Shared Equity scheme is similar to shared ownership but has a few main differences. Like shared ownership, shared equity is aimed at people with lower incomes who are struggling to get on the property ladder.
To be eligible for shared equity, you don’t have to be a first time buyer and there is no maximum limit on your household income. This means that the scheme is open to anyone. It’s essentially aimed at people struggling to get together a 20% or higher deposit.
You'll have to collect a 5% deposit and the government will lend you up to 20% (40% if you’re in London) for the rest of your deposit, taking out a mortgage for the remainder of the purchase. The government loan will be interest free for the first 5 years, then you will start to pay interest on the original loan.
If you're still debating between shared equity or shared ownership, don't forget to research both thoroughly and to weigh up the pros and cons, ensuring you make an informed decision.
Shared Equity vs Shared Ownership
Whilst both shared equity and shared ownership are similar schemes, aiming to help people make the first step on the property ladder, they do also differ.
Shared equity is open to anyone looking to buy a house with the only restriction being the house price. The property must be new build and not cost more than £600,000 or £300,000 in Wales. The main aim is to help people gather a deposit to put down on the house.
Shared ownership is open to first time buyers and people with lower incomes to eventually lower their total mortgage cost.
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We hope this guide has helped to make the shared ownership scheme clear to you. When you’re ready to move house, don’t forget to use our quick form to be provided with up to 5 licensed conveyancers or conveyancing solicitors.