Shared-Ownership: The comprehensive guide

For many people, saving for a deposit on a home can take years. Especially with the current average house price on the market around £365k (RightMove) and the average salary sitting at £33k. It can feel like an impossible task, but there are some options to help you. One of those is shared ownership. 

In this insight, we'll guide you through how shared-ownership works and how it can help you get onto the property ladder, even with a smaller deposit or income. 

Key Takeaways

• Shared Ownership allows you to purchase a portion of a property and pay rent on the rest.
• You can gradually increase your ownership through "staircasing."
• To be eligible, your household must earn £80,000 or less outside London, or £90,000 or less in London.
• When you sell a shared-ownership property, the amount of money you get is based on the percentage you own.

What is shared ownership?

Shared-ownership is a scheme where you buy a % of a property from a housing association or developer, starting at 10%. You pay a mortgage on the share you own and rent on the remaining share. You can increase your ownership through "staircasing." It's an affordable way to get on the property ladder.

Shared Ownership is a way to purchase a home that might be unaffordable otherwise. Instead of buying the entire property, you purchase a portion of it, typically ranging from 10% to 75% of its value, and pay rent on the remaining portion to the housing provider. 

You can gradually increase your ownership over time through a process called "staircasing." This allows you to buy more shares in the property when you have the funds, and as you own more of the property, your rent payments will decrease.

The government has recently introduced a new model of Shared Ownership, making it even more accessible. With the new model, you can now buy a minimum share of just 10%, instead of the previous 25%. You can also purchase an additional 1% of your home every year! Also, for the first 10 years of owning your home, your housing provider is required to help you with maintenance and repairs.

It's important to note that both the old and new models of Shared Ownership are still available, so it's crucial to know which one you're applying for. However, with new model Shared Ownership homes already on the market and more coming, it's an affordable option worth considering if you're looking to get onto the property ladder.

How does Shared-ownership work?

To take part in a shared-ownership scheme, you must look for housing developments that are part of the program. You cannot apply the shared-ownership scheme to any property; it must be one that is onboarded. This typically limits your choices to newly built and resale properties. Once you have identified a suitable property, you can determine the available shares for purchase and begin calculating the deposit and income required to buy it.

Let's say you want to buy a new flat that costs £300,000. With Shared Ownership, you can buy 50% of the flat, which is worth £150,000. If you have a 5% deposit, you'll need to pay £7,500 upfront, and get a mortgage for the rest (£142,500).
You'll then pay rent on the remaining 50% of the flat that you don't own. This rent is lower than market rate and paid to the housing provider who owns the rest of the property. Your monthly housing costs will include this rent and your mortgage payments.

Many people ask, can you make a profit on shared ownership? Yes, you can. As the property value increases, so does the value of your share. When you sell your share, your profit is the difference between what you paid for it and what it has sold for. This is your equity.

Buying a shared ownership property without a mortgage is also possible, so you wouldn't have to borrow money to be eligible.

What are the eligibility requirements for shared-ownership?

You can use shared ownership to purchase a home in England if your household earns £80,000 or less outside London, or £90,000 or less in London. You can participate if you are a first-time buyer, a former homeowner who cannot afford to buy a home now, or an existing shared owner seeking to move. Housing associations provide both newly built and existing homes through resale programs, and you will need to obtain a mortgage or use your savings to pay for your share of the home's purchase price. 

Mortgages for shared ownership can be obtained from a variety of lenders, including high street banks, building societies, and specialist shared ownership mortgage providers. It's important to shop around and compare rates to find the best deal for you. Some lenders may have restrictions on the minimum share you can buy or the maximum loan-to-value ratio they are willing to lend, so make sure to check their criteria before applying.

How do you sell your shared-ownership property?

You will need to notify the housing association or provider that you want to sell your share of the property. They will then have a fixed period, usually 8 weeks, to find a buyer for your share. If they are unable to find a buyer, you can then find a buyer independently. The buyer will also need to be eligible for the shared-ownership scheme, and the housing association will need to approve the sale. Once a buyer is found, a valuation of the property will be carried out, and the price of your share will be calculated based on the current market value. You will receive the sale proceeds minus any outstanding mortgage, rent or other fees.

When you sell a shared-ownership property, the amount of money you get is based on the percentage you own. If the property goes up in value, you only get a percentage of that increase. For example, if you own 50% of a property that goes up by £20,000, you only get £10,000 of the increase when you sell. If the property goes down in value, you're only responsible for your percentage of that decrease. So, if you own 50% of a property that goes down by £20,000, you're only responsible for £10,000 of the decrease when you sell.

Pros of shared-ownership:

• Smaller deposit and mortgage means you could buy sooner
• Affordable for those with a lower income
• You can increase your share in the property gradually
• Available for new-build and existing properties
• You can spread shared ownership stamp duty across different stages of your mortgage lifecycle as you staircase

Cons of Shared-ownership:

• You are still responsible for maintenance and repair costs, even if you only own a portion of the property.
• You may be limited in your ability to make changes or improvements to the property, as these may require the agreement of the housing association that owns the remaining share.
• There may be restrictions on subletting or renting out the property, which could limit your options if you need to move or want to generate additional income.
• When you sell, you may not receive the full market value of the property if it has not increased in value since you bought it.
• Shared ownership properties are usually leasehold, which means you may need to pay ground rent and service charges on top of your mortgage and other expenses.

Finding a shared-ownership home

There are several ways you can find a shared-ownership home. The government has setup a search page to find your local developers supporting shared ownership.

Search here for Shared-Ownership schemes.

Getting the right advice on shared-ownership

If you're considering a shared-ownership mortgage, it's important to seek advice from a qualified mortgage adviser or financial adviser. They can help you understand the different options available, calculate the costs, and determine whether it's the right choice for your individual circumstances. Additionally, they can guide you through the process of finding and applying for a shared-ownership mortgage, and help you avoid any potential pitfalls or mistakes.

You can apply via the government website 

If you're unsure where to start with seeking advice, complete the Sunny Fact Find for Mortgage advice. The answers you provide help us to find the best-suited adviser for your needs. Your adviser contacts you for a no-obligation conversation on how they can help. You decide how to proceed.