Mortgage / 12th December 2020

Shared ownership

Pros and Cons

Find out more about shared ownership – the pros and cons.

Shared ownership

Shared ownership (called co-ownership in Northern Ireland) involves buying a share in a property and renting the rest. You can normally buy between 25% and 75% of the property, and you’re generally given the option of buying more (which is called ‘staircasing’) as you can afford it.

SAVVY TIP: In Northern Ireland, you have to buy between 50% and 90% of the property.

In England and Wales, it’s generally new build properties that are sold on a shared ownership basis or properties that are owned by housing associations that are being resold.
In Scotland, you buy a shared ownership property through a housing association.
In Northern Ireland, you can buy any property as long as it’s not worth more than £150,000 (in 2017 – 18). This threshold is reviewed every year and any changes take effect from April 1st.

SAVVY TIP: Shared ownership is still relatively niche with only around 50,000 properties being sold on a shared ownership basis in the last ten years (that’s about 0.4% of the housing market).

Who can buy a shared ownership property?

Not everyone qualifies for a shared ownership property. The rules vary around the UK.

In England:

You must be a first-time buyer or someone who used to own a home but can’t afford one now.
Your combined household income must be less than £80,000 (or in London, it’s less than £90,000).
You must have the right to live permanently in the UK.

SAVVY TIP: Scotland, Northern Ireland and Wales have slightly different criteria. In all parts of the UK, military personnel and people who’ve left the armed forces in the last two years, as well as widows or widowers of those who were killed in service in the last two years, may have priority. Local authorities may also set their own priority groups.

Older people’s shared ownership

There are specialist shared ownership schemes for people aged over 55 (called the older people’s shared ownership scheme or OPSO). With this scheme, once you own 75% of the property, you won’t pay rent on the rest.

There’s a separate scheme for people with long-term disabilities, which is designed for people who may need a specific type of property, such as a ground floor flat, so they have easier access. This scheme is called home ownership for people with long-term disabilities (HOLD) and you can buy up to 25% of the property using this scheme. The rules on these schemes may vary in Scotland and Northern Ireland.

Buying a shared ownership property

If you want to buy a shared ownership property in England, your first step is to contact the Help to Buy agent in the area you want to buy in. You can do this via the government’s Help to Buy website. If you’re in Wales, you should contact your local authority. In Scotland, you should contact the housing association and in Northern Ireland you should contact the Co-ownership Housing, which is a not for profit organisation.

Getting a mortgage

You can get a mortgage for the part of the house or flat that you’re buying under shared ownership. Not all mortgage lenders offer shared ownership mortgages.

SAVVY TIP: If you have a Help to Buy ISA, you can use that towards your deposit for a shared ownership property. However, you can only use it if the total cost of the property (and not just the share you’re buying) isn’t above the Help to Buy ISA limits (up to £250,000 in England and Wales or £450,000 in London – per person).

The costs of shared ownership

The mortgage will only be part of the costs of living in your shared ownership property. These are the regular costs you’ll have to pay:

Monthly mortgage payments
Rent for the part of the property you don’t own (in Scotland, this is called an occupancy charge). This is normally less than the rent you’d pay on the open market, but there’s no guarantee that it won’t increase.

SAVVY TIP: While you’re renting part of the property, the housing association (or whoever owns the building) can evict you if you get behind with your rent. This could mean that, not only do you lose your home, but the money you’ve already paid to buy a percentage of it.

Service or maintenance charge. This covers the cost of things like the upkeep of any communal areas, buildings insurance.

SAVVY TIP: Watch out because you’re normally expected to pay the service charge for 100% of the property, even if you only own 25%. The service charge can increase from year to year so it’s a good idea to ask for the last few years’ service charge demands so you can see how costs have risen.

Council tax to your local authority.

Check the restrictions of shared ownership

Shared ownership properties in England and Wales are always leasehold. You should always check the lease, which is the legal agreement between you and the housing association – or whoever owns the building. Your conveyancing solicitor, who sort out the legalities of buying the property, should point out any clauses that are particularly restrictive. But it’s standard for the lease to contain a clause that says you can’t sublet your shared ownership property. That means you couldn’t rent out a spare bedroom, for example.

Staircasing – increasing the share you own

If you want to buy a bigger share in the property, you should contact the housing association or the organisation you bought the property from. You will need to get your property valued. You’ll probably find that your housing association has a list of chartered surveyors you can contact.

SAVVY TIP: The valuation may have to be carried out by a chartered surveyor or it won’t count. Chartered surveyors are members of the Royal Institution of Chartered Surveyors (RICS). You can find a chartered surveyor via the RICS website.

You’ll then have to work out how you’ll pay for it. You have three options:

Savings – if you have savings you can use these.
Adding to your existing mortgage – your mortgage lender may let you borrow more.
Remortgaging – either to get a better deal or if your existing lender won’t let you borrow more.

SAVVY TIP: On average, 3 – 4% of those who own shared ownership property staircase every year. However, for many others, the costs of doing so may be prohibitive.

The additional amount you’re able to buy may have a minimum limit (for example, 10% or 20%). There may be limits on the number of times you can staircase (for example, it could be limited to three times).

SAVVY TIP: Some housing associations may offer specialist products to help you to staircase. One housing association I know lets people buy an extra 1% of the property a year.

Selling your shared ownership home

If you want to sell your shared ownership home, you should contact the housing association or organisation you bought from. The housing association may have the right to nominate the buyer (they may well have a waiting list for shared ownership properties) or they may have the right to sell it for you for up to eight weeks. If they can’t sell it in that time, you’re then free to sell it on the open market.

As with selling any other property, you’d have to get it valued. Once you’ve found a buyer, the housing association will want to check that they meet the criteria for shared ownership.

SAVVY TIP: If you don’t own 100% of the property at the time you sell, it may be possible to sell the housing association’s share as well. This is called ‘back to back staircasing’ and it means that your buyer purchases your share of the property and the share you don’t yet own. Not all housing associations offer this.

Pros and cons

The main benefit of buying a property via shared ownership is the cost. It means you can own a share in a flat or house without coming up with such a large deposit as you’d need to buy the property outright. The rent is normally less than you’d pay in the open market as well. You also get security of tenure, which you don’t necessarily get in the private rented sector (as long as you keep up your rent payments).

The main disadvantages are that you normally have to pay a maintenance or service charges on the whole value of the property and buying a larger share can be expensive. Also, until you own 100% of the property, you’re treated as a tenant in law, which could mean you lose your property if you don’t keep up the rental payments.

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