Shared Ownership: Is it for me?

Introduction:

Shared ownership has become a popular avenue for aspiring homeowners in the United Kingdom, providing an alternative path to homeownership in an otherwise challenging property market. In this blog post, we will explore what shared ownership is, delve into its pros and cons, discuss the concept of staircasing, and highlight key shared ownership

providers in the UK.

What is Shared Ownership?

Shared ownership is a government-backed scheme designed to help individuals step onto the property ladder. Under this arrangement, buyers purchase a share (usually between 25% and 75%, but possibly as low as 10%) of a property and pay rent on the share they don't own.

Pros of Shared Ownership:

1. Affordability: Shared ownership makes homeownership more accessible, particularly for first-time buyers who may struggle to afford a full property outright. The deposit you put down is on the share that you don't own, making the barriers to home ownership far less stringent.

2. Flexible Ownership: Buyers have the option to increase their ownership share over time through a process called staircasing (more on this later). This might not make sense for everybody, but it allows you buy additional shares in your property over time for as little as 1%

3. Reduced Deposit: Since buyers only need to finance a percentage of the property, the initial deposit and mortgage requirements are generally lower. For example, if you bought a 25% share of a £500,000 property, you'd be putting down a deposit on a share worth £125,000, not the full £500,000

4. Security: If you have limited buying options and you are having to choose between renting or buying, shared ownership can provide more security of tenure compared to a landlord who can sell the property at any time they choose to do so.

Cons of Shared Ownership:

1. Rent Payments & Service Charges: Buyers are still required to pay rent on the portion of the property they don't own, which can be a long-term financial commitment that you have to make robust plans for. Most shared ownership units also require you to pay 100% service charge costs irrespective of the size of your share

2. Limited Control: Shared owners might face restrictions on making certain modifications to their homes without the landlord's consent. Although you have slightly more freedom than if you were renting, you will still need to seek permission to make any major changes

3. Staircasing Costs: While increasing ownership is an option, there are associated costs with staircasing, such as legal fees and potentially higher property valuations.

4. Insurance: You will need to pay for items like home contents insurance and repairs and maintenance costs. These costs will be unaffected by the size of your share.

5. No Sub-Letting: Sub-letting your property to someone else is typically restricted with shared ownership properties. However, letting out a room to a lodger is usually allowed,

Staircasing in Shared Ownership:

Staircasing is the process by which shared owners can gradually increase their ownership percentage. This can be done in increments, ultimately leading to full ownership if desired. The process involves obtaining a current market valuation of the property and purchasing additional shares based on this valuation. While staircasing allows for increased control and potential profit, it's essential to consider the associated costs and potential market fluctuations.

Also from experience, if you ever look to sell your shared ownership property, you'll typically have to give the housing association first right of refusal. Additionally, homes with a larger share are sometimes harder to sell, as there is a bigger audience/market for buying smaller shares.

Shared Ownership Providers in the UK:

Several housing associations and developers offer shared ownership schemes in the UK. Some prominent providers include:

1. Clarion Housing Group: One of the largest housing associations in the UK, Clarion offers a range of affordable housing options, including shared ownership.

2. SO Resi: Operated by Metropolitan Thames Valley Housing, SO Resi provides a variety of shared ownership properties across different regions.

3. L&Q (London and Quadrant): L&Q is a leading housing association in London and the South East, offering shared ownership as part of its commitment to affordable housing solutions.

4. Guinness Homes: Guinness Homes is part of The Guinness Partnership, and they provide shared ownership opportunities across England.

Criteria:

• You must be at least 18 years old.

• Outside of London your annual household income must be less than £80,000.

• In London, your annual household income must be less than £90,000.

• You cannot own another home. Shared Ownership purchasers are often first time buyers but if you do already own another property (either in the UK or abroad), you must be in the process of selling it.

• You should not be able to afford to buy a home suitable for your housing needs on the open market.

• You must show you are not in mortgage or rent arrears.

• You must be able to demonstrate that you have a good credit history (no bad debts or County Court Judgements) and can afford the regular payments and costs involved in buying a home during your Shared Ownership credit check.

Conclusion:

So should you go for it? It's totally contextual and you should work out your affordability with every buying option available to you so you can make the most informed decision possible.

If you're in two mind son whether you should buy traditionally on the open market or through this scheme, focus on what will satisfy your day to day needs and work backwards from your long term goals, there is no right or wrong answer, only your answer that makes sense to you at this current stage in your life. I know plenty of people who are elated they bought using shared ownership and plenty of people who regret it.