What is Shared Ownership?
Written by Martha Lott
4th Feb 2019 (Last updated on 2nd Apr 2020) 5 minute read
Shared ownership is a scheme backed by the government that gives first time buyers and people on lower incomes the opportunity to buy part of a house whilst paying rent on the rest. By going through the shared ownership scheme, you have the chance to purchase more or all the property later down the line.
Shared ownership has its obvious benefits like being a part owner of your home. But in this guide we’re also going to explore the downsides of the scheme such as 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 works by allowing first time buyers or families on a low income to purchase a share of the house whilst paying rent on the remaining amount. The share you buy starts at a minimum of 25%, with 75% being the maximum.
You'll have to take out a mortgage on the share that you purchase and pay the remainder in rent. By doing this, the deposit you pay will be a smaller amount than usual. Instead of paying the typical 10-20% deposit, shared ownership allows you to pay as little as 5% with a reduced rate on the remaining rent you pay. You also have the option to buy a bigger share later down the line if you decide to start with just a 25% share.
Who is Eligible for Shared Ownership
To be eligible for the shared ownership scheme, you must be either; a first time buyer struggling to get on the property ladder, have a household income of less than £80,000 if living outside London (£90,000 if you live in London), or you have previously owned a house but can no longer afford to purchase one.
There is also a shared ownership scheme for people aged 55 and over which works the same way as the traditional scheme. However, once you’ve purchased a 75% share of your house you won’t have to pay rent on the remaining 25%.
Shared Ownership Pros and Cons
Shared ownership is a great step to owning your own home. Whilst there are many benefits that come with the scheme, you still have to pay rent on the remainder of the share. We’ve weighed up the pros and cons of shared ownership.
Benefits of Shared Ownership
There are many advantages of the shared ownership scheme, check them out below.
- It’s a quick, easy and cheap way to own your own home as you’re only required to pay a 5% deposit instead of 10-20%.
- 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 makes it easier to get approved of 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
Here are the downsides of the scheme.
- Shared ownership properties are often leasehold, meaning you will have to pay a service charge on top of rent.
- 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 become difficult and confusing.
- Not all mortgage lenders will offer a mortgage for a shared ownership property.
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.
Shared Ownership London
Shared Ownership London works the same way as the traditional scheme with the difference being your household income. You must have a household income of below £90,000 if you want to apply for shared ownership in London, and not £80,000 like the rest of the UK.
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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