Should I Use a Shared Ownership Scheme?
You’ve almost certainly heard about shared ownership, but – like most of the population – that may be where your knowledge about them begins and ends. They certainly sound like something that could help people get a foot in the door of the housing market. And they’re even more appealing if you’re not in a position to get onto the housing ladder through more conventional pathways. But, you ask, surely there are downsides? Let’s take a closer look. What exactly are shared ownership schemes, who operates them and how do they work? Here’s our Master Removers guide to help you get started.
What are Shared Ownership Schemes?
Shared ownership schemes are organised via a collaboration between government and housing associations. As you’d expect from their name, a shared ownership scheme means, instead of buying a home straight away, you own part of it. Every month, you’re charged mortgage repayments for the part of the property that you own, and then pay rent for the part you don’t own. At the outset of the shared ownership, you might buy anything from 10 to 70 per cent of the property. After that, you continue increasing the amount of the property that you own, with increases that must amount to at least one per cent. Shared Ownership is a halfway option between renting and buying and it’s especially useful for first-time buyers unable to raise a deposit large enough for upfront buying. Shared ownership represents a half-step out of renting and into ownership.
Am I Eligible For Shared Ownership
In all likelihood, you will only be eligible for shared ownership if you’re a first-time buyer. If you’re not a first-time buyer, you’ll need to be in the process of selling up in order to have a chance of qualifying. You’ll also need to have a household income below £80,000 (£90,000 in London), a good credit rating, a reputable rent/mortgage history and savings sufficient for the mortgage deposit and moving expenses. If you’re interested in getting started, a good place is your council’s Housing Team or the government’s website.
What are the Pros of Shared Ownership?
In addition to the fact that shared ownership schemes provide a route to ownership for people who might otherwise be consigned to a lifetime of renting, there are other positives. Since you’ll begin the process with a mortgage that’s smaller than the standard one, your deposit will be similarly diminished. You might also find that the combination of mortgage repayments and rent comes to less than you’d be paying if you were renting privately. And you’ll be in a much more advantageous position than a renter because the portion of the home that you own will increase in value if/when the price of the property increases. The resulting equity will make it easier for you to increase your share of the property.
The process of increasing your share of the property (right up to 100 per cent) is called ‘staircasing’. You can undertake this process as your circumstances allow. For example, if your earnings go up or you’ve managed to save a lump sum. But there are restrictions – usually, you can only ‘staircase’ three times. A typical route might be starting at 25 per cent, going up to 50 (first stair-step), then 75 (second stair-step), then 100 (final stair-step). When you staircase, the housing association undertakes a property valuation, so that each extra share is purchased at the current market value, not the value dating from the time you began shared ownership. You’ll be required to remortgage each time.
And What About Stamp Duty When You’re in a Shared Ownership Scheme?
While there are stamp-duty exemptions for first-time buyers, with shared ownership you may not be entitled. Instead, you’ll most likely be faced with a choice: either pay all the stamp duty or just the stamp duty required for the portion of the property you’re buying. If you choose the former, you’ll then be entitled to exemption, but remember – the exemption is only for properties worth up to £300,000 (or £500,000 in the capital).
What are the Cons of Shared Ownership?
Until you reach 100 per cent ownership, you’re still a renting tenant. This brings with it many of the same risks associated with normal renting. For example, you could be evicted if you don’t pay the rent or if you’re anti-social and cause a nuisance to other tenants. You won’t be allowed to sub-let, either.
It’s also worth pointing out that part-ownership leaves you on shaky ground in some circumstances. For example, if you’re evicted there’s a chance you could actually lose the portion of the home you’ve already acquired since you’re not legally the owner until you reach 100 per cent. There is no legal requirement for the housing association to pay you back if you’re evicted – their only obligation is to pay you back for your share if/when they sell the property. Consequently, nothing could be more important than making double-sure you can afford both the mortgage repayments and the monthly rent before you take part in shared ownership.
Like a full owner, you’ll have to pay service charges covering any/all costs accrued through maintenance of the communal parts of the building such as cleaning/lighting/electricity in shared hallways and staircases.
You won’t own a share of the freehold; shared ownership properties come with a leasehold and if your lease dips below, say, 90 years, you’ll find it hard to sell. So don’t forget to ask upfront about the options for extending the lease.
If, once you’ve thought about these ‘cons’, you decide shared ownership isn’t for you, consider looking into the government’s Help To Buy scheme instead.