In this article we examine:
- the aims of the government-backed Shared Ownership scheme
- eligibility requirements
- how Shared Ownership works
- how to sell a Shared Ownership house
- downsides to the initiative
Objectives of the scheme
Shared Ownership is a government scheme designed to help people who cannot afford to buy get onto the housing ladder in the face of spiralling house prices. It operates on a part-rent, part-purchase basis: the shared owner owns a share of a house, paying rent on the remaining share and receiving an assured tenancy for the length of the lease.
Buying a home through Shared Ownership gives owners the option to buy some or all of the remaining share in the future, however, the price of this will vary according to the open market value. The shared owner pays rent to the landlord – which may be a housing association, local authority or private developer- on the share that is not owned; other costs include mortgage repayments, service charges and ground rent.
The homeowner is responsible for maintaining the whole property; with Shared Ownership properties purchased since April 2021, some of the repair costs for the first 10 years of ownership may be claimed from the landlord. Another change brought in since April 2021 reduced the minimum initial share available to purchase to 10%.
Shared Ownership properties are always leasehold, they are typically new-build or if they have been lived in before, are classed as `shared ownership resale’. While the government operates the Shared Ownership scheme in England, similar devolved schemes operate in Wales, Scotland and Northern Ireland.
Step on the ladder
While opting for a Shared Ownership property requires careful consideration, according to Tim Kampel, director of Box Property Solutions, it is a genuine way to get onto the property ladder. He commented:
“With house prices increasing, Shared Ownership can help a lot of people, especially younger would-be home owners and first-time buyers.”
“However, it is important to be aware of the pros and cons. In some cases, extortionate rents can be charged on a house that you do not own and high maintenance charges can be made – developers are keen to capitalise on the amount of money they can earn from a development, and can impose high fees for maintaining play areas or gardens that they build into schemes.
“However, Shared Ownership is here to stay as it helps young people to get their own home; I can only see it becoming less popular if house prices drop.”
There are three main costs involved:
- Deposit and mortgage repayments on the owned share
- Rent on the remainder of the share
- Monthly payments: these include a service charge, possibly a sinking fund to pay for the maintenance costs of common areas, ground rent and usually an annual fee to the freeholder: details will be found in the property deeds and potential purchasers should seek advice before proceeding.
Eligibility for the scheme
First-time buyers or those who have owned a home previously but are having difficulty getting back onto the housing ladder are eligible, along with existing shared owners moving from one shared ownership house to another. There is an income threshold: total household income must be under £80,000 (£90,000 in London) and a combined income cannot exceed these caps. A good credit history is also a requirement.
Starting the process
An interest in Shared Ownership buying must be registered with a regional Help to Buy agent. An affordability assessment will be carried out, then suitable properties can be identified on the Help to Buy website. An application will need to be made for a Shared Ownership mortgage: rates may be higher than with a regular mortgage; lenders are fewer as the risk is perceived as being greater.
This is based on the percentage share purchased, not the whole property price. The average deposit put down for Shared Ownership purchases is £12,800 (Money Saving Expert, 2021).
Shared Ownership offers homeowners the opportunity to buy more of a share in their house via a process known as staircasing. The option to increase the share annually by 1% was introduced in April 2021 and operates for the first 15 years of ownership. The cost of the share can go up or down according to the current open market value of the house.
It may be possible to buy more shares, potentially 5%, depending on the housing association or landlord concerned and rules vary on the number of times that staircasing is allowed. When staircasing, the shared owner will be charged valuation costs, surveying and legal fees. Stamp Duty Land Tax may be payable if the threshold is met, but homeowners can choose whether to pay it on just the owned share or on the whole property.
Selling a Shared Ownership house
Unless 100% ownership has been achieved, a shared owner wishing to sell must inform the housing provider which has first refusal, i.e., the right to try and sell the property. If they do not achieve a sale, the responsibility reverts to the shared owner. If the housing provider does sell the property, the shared owner is liable to pay the marketing, legal and valuation fees.
Downsides to Shared Ownership
- The initiative has been criticised for the short leases offered and the high costs often charged for extending leases. Other factors to consider include:
- Until 100% ownership is achieved, participants have an assured tenancy according to their lease
- High ongoing maintenance charges
- The value of a leasehold property goes down in proportion to the length of the lease
- All leases vary, but subletting is not normally allowed
- The housing provider can take action to repossess the property for rent arrears in the County Court. If a homeowner falls into arrears, the property can be repossessed by the housing provider without them necessarily buying back the share purchased from them
Older People’s Shared Ownership Scheme in England
This applies to the over 55’s who can buy 75% of a house and do not pay rent on the remainder. A share between 10% and 75% can be purchased and rent would be paid on the remaining share. Once 75% of the property is owned the owner does not have to pay rent on the remaining share. To be eligible, household income must be a maximum of £80,000 per year outside London, or £90,000 or less in London. The scheme applies to first-time buyers who previously owned a home but cannot afford to buy now, or to an existing shared owner looking to move.
Disabled people can apply for the Home Ownership for People with Long-Term Disabilities (HOLD) scheme on the same criteria basis as above, but they are only eligible if houses available in other shared ownership schemes do not meet requirements, such as ground floor accommodation.
Contact a Help to Buy agent Help to Buy agent in the area in which you aim to live.
Careful research is needed when considering Shared Ownership purchase, but given the current housing crisis it seems to be a good way for many people to afford to buy a home. Further information should be sought to tailor purchases to individual circumstances and the local area; making an assessment of the options with full knowledge of the pitfalls is crucial.
What do you think about Shared Ownership purchase?
Let us know if you have had good or bad experiences of this market.
GOV.UK. 2021. Affordable home ownership schemes. [Online]. Available from: https://www.gov.uk/affordable-home-ownership-schemes/shared-ownership-scheme Accessed 7th September 2021
Money Saving Expert. 2021. Shared ownership scheme. [Online]. Available from: https://www.moneysavingexpert.com/mortgages/shared-ownership-scheme/ Accessed 7th September 2021
The Telegraph. 2021. Shared ownership downsides. [Online]. Available from: https://www.telegraph.co.uk/personal-banking/mortgages/shared-ownership-downsides-should-buy-property-what-cons-2021/ Accessed 7th September 2021
Home Owners Alliance. 2021. Shared ownership. [Online]. Available from: https://hoa.org.uk/advice/guides-for-homeowners/i-am-buying/shared-ownership-what-to-watch-out-for/ Accessed 7th September 2021
Leasehold Knowledge.com. 2019. Shared ownership is not ownership. [Online]. Available from: https://www.leaseholdknowledge.com/shared-ownership-is-not-ownership-its-the-pay-day-loan-of-housing-and-most-regret-having-done-it-london-assembly-told/ Accessed 7th September 2021