Shared Ownership schemes are an alternative home ownership scheme that gives first-time buyers, and those that do not own a home, the opportunity to purchase a percentage share in a new build or resale property.
Also referred to as the Shared Equity Scheme, Shared Ownership allows buyers to procure a share of a home, which is usually between 25% and 75%. The buyer will then pay a mortgage on the share that they own, a below-market-value rent on the remainder to the housing associations, and any service charge and ground rent.
Is shared ownership a good idea?
Shared ownership schemes are run by housing associations, and aimed to support first-time buyers who cannot afford to buy at full market rate - a big problem in cities like London. Shared Ownership offers a great alternative route to homeownership for buyers who are otherwise unable to buy.
It is, however, always important for buyers to look at how the Shared Ownership scheme works and ascertain whether it’s the best option for them. There are pros and cons of shared ownership, take a look and see if Shared Ownership is the right scheme for you.
Pros and cons of shared ownership
So, is shared ownership worth it? The main advantage of shared ownership is the smaller deposit requirement. A smaller mortgage means the necessary deposit will also be smaller. Shared ownership is also preferable to renting, as the portion of the home that you own will grow in value if the price of the property goes up. If this happens, you’ll have some equity that will help you take your next step on the property ladder, but let's take a look at the main advantages.
Advantages of Shared Ownership Scheme
- Become an owner - Shared Ownership allows you to get on the property ladder as an owner-occupier, offering long-term stability without overstretching yourself.
- Deposits - As mortgages will be smaller than buying on the open market, so will the amount required as a deposit.
- Mortgages - Shared Ownership makes mortgages more accessible, even if you’re on a lower wage, as the amount borrowed is lower. The monthly payments are also generally lower than if you were to rent privately.
- Own more - You have the option to buy more shares of your home in the future via a process known as ‘staircasing’. In most cases, purchasers can staircase all the way to 100%, in which case they are no longer required to pay any rent, just their mortgage along with any relevant service charges and ground rent.
- Sell - You can sell the shares you own at any time.
- Stamp Duty - It is not normally necessary to pay Stamp Duty land tax on initial purchase.
- Security - Unlike when being a private renter, you have the security of tenure. As long as the rent is paid and mortgage repayments are made, you can live in the property for the duration of your lease – this is usually 99 or 125 years.
Disadvantages of Shared Ownership schemes
As the name suggests, shared ownership doesn’t grant you all the benefits of complete ownership. Initially, you are still paying rent on a portion of the property, so will remain a tenant of your landlord - the housing association - for the share of the property you do not own.
Let’s look at the rest of the cons that need to be considered.
- You are still a tenant - As you are still paying rent on the portion of the property you do not own and as such, remain a tenant of your landlord.
- Stamp duty - You may not qualify for the first-time buyer exemption, which usually means not paying stamp duty, this exemption doesn’t always apply with shared ownership purchases. You will have to pay Stamp Duty on the whole value of the property when your owned share equals or exceeds 80%.
- Service charge - You’ll have to pay a service charge to cover the maintenance of communal parts of the building.
- The lease - Shared Ownership properties are sold on a leasehold basis; leasehold ownership is like a long tenancy where your lease will give you the right to occupy and use the home for a longer period (usually 99 or 125 years). The term of the lease will be fixed at the very beginning, decreasing in length each year, and the home can be bought or sold during that time.
- Sub-letting - You are not allowed to sub-let a shared ownership property (unless you have staircased to 100 per cent ownership). You are allowed to let out one or more rooms to lodgers/flatmates, but you must be living in the property permanently yourself.
- Mortgages - Not all lenders offer mortgages for Shared Ownership, however the majority will.
- Home Improvements - While you’re free to decorate internally, there may be restrictions on what home improvements you can do. You may need to obtain permission from the relevant housing provider before you make any structural alterations to your home.
Is shared ownership worth it?
Shared Ownership is a great way to get onto the property ladder and it’s a scheme that gives thousands of people the opportunity to own their own home, build equity and through Staircasing, gradually increase the amount of the property you own.
As with any kind of large purchase, purchasing a home is not to be embarked on lightly - always do your research and find the solution that best fits your situation and budget. But overall, Shared Ownership advantages are offering people the opportunity to buy new attractive homes in places they want to live - surely a good thing?
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