Aims of the scheme
Shared Ownership is a government scheme designed to help more people get onto the housing ladder in the face of spiralling house prices. It operates on a part rent, part purchase basis: the participating homeowner owns a share of a house and rents the remainder, receiving an assured tenancy for the length of the lease. Homeowners have the option to buy some or all of the remaining share in the future, however, the price of this will vary according to the market value. The homeowner pays rent to the landlord, which may be a housing association, local authority or private developer, on the share that is not owned as well as mortgage repayments, a service charge 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.
There are three main costs involved:
• 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.
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 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 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 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 value of the house. It may be possible to buy 5% or more depending on the housing association or landlord concerned and rules vary on the number of times that staircasing is allowed. When staircasing, the homeowner 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 homeowner 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 homeowner. If the housing provider does sell the property, the homeowner is liable to pay the marketing, legal and valuation fees.
Downsides to Shared Ownership
Shared Ownership schemes have 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
This applies to the over 55’s who can buy 75% of a house and do not pay rent on the remainder.
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