What is shared ownership?

 

What is shared ownership?

Shared ownership is a government scheme that allows you to purchase a share in a new build property or a resale property (a property that was previously purchased by the shared ownership scheme and is now for sale) in England. 

With this scheme, you will pay a mortgage on the share you own and pay rent on the remaining share. 

Usually, with this scheme, the mortgage deposit is much lower when compared to a normal purchase, as you are only buying a share of the property.

However, depending on the price of the property, your mortgage deposit can still be high.

Why buy a shared ownership property? How does shared ownership work?

The most important advantage of shared ownership is that the cost of buying a house is initially much cheaper when compared to the other options. 

Usually, with this scheme, you only need to buy 25% of the property (you can buy up to 75% of the property). At the moment, there is a new model for the shared ownership scheme allowing people to purchase a minimal share of 10%. 

The mortgage deposit required, in most cases, varies from 5 to 10% and will be charged on the share you are purchasing, not on the full value of the property. 

IMPORTANT NOTE: These percentages can change depending on your case. Some properties come with specific shares and deposit percentages. 

Although it's important not to forget that you will be paying rent for the rest of the property, this rent is lower than the market value and is usually charged at 2.75% of the property value per annum. The more shares you own, the less rent you will need to pay. 

For example: 

If you are purchasing 25% of a property that values £100,000 with the shared ownership scheme, you will need a mortgage of £25,000, and your mortgage deposit potentially will be from £1,250 to £2,500 for a 5 to 10% down payment. 

This is much cheaper than a traditional deal in that you will need a mortgage of £100,000 and a mortgage deposit of at least £10,000 (10% down payment). 

In addition, you will have to pay for rent, and in this case, you would be paying around £2,750 per year as rent for as long as you live in the property and don't buy more shares.

IMPORTANT NOTE: This is just an example, and these percentages can change from case to case, but overall this is a more affordable way to purchase a property. Even though you still need to pay rent, this is still cheaper than a regular rent charge outside the scheme, for example. 

All shared ownership properties are sold as leaseholds. 

On the other hand, the biggest disadvantage of the shared ownership scheme is that all shared ownership properties are sold as leaseholds.

This means that you own the property, but you don't own the land where the property is built.

In most cases, and depending on the type of your property, you may need to pay ground rent, as well as a service charge and maintenance/management fees, which can make your monthly costs more expensive. Learn more about these extra charges and fees here. 

IMPORTANT NOTE: If you reach 100% ownership, in some cases, for houses, the freehold will transfer to you. For flats, the leasehold continues, but the shared ownership obligations won't. 

In addition, this is an important point to consider because the service charge and maintenance/management fees can increase unexpectedly. Make sure you know all the details!

Shared ownership pros and cons

The pros of shared ownership

• Smaller deposit and mortgage.
• More affordable.
• Possibility of increasing the ownership over the years.
• The properties are usually new or had fewer owners. 

The cons of shared ownership

• Properties are leasehold, and you may need to pay ground rent. 
• The selling process needs to go through the shared ownership scheme first before going to the open market. 
• Depending on the property, you will need to pay a service charge and maintenance/management fees. 
• The cost of the shares increase over time, so it gets more expensive to buy more shares and increase ownership.

What are the eligibility rules for shared ownership?

To be eligible for the shared ownership scheme, you must be at least 18 years old. 

If you live outside London, your annual household income needs to be less than £80,000. If you live in London, it needs to be less than £90,000. 

You don't need to be a first-time buyer to purchase a property with the shared ownership scheme, but you must not own any property at the moment of the new purchase or be in the process of selling a property. You will need to prove that. 

You must have a good credit score. 

You must prove that you can't afford to buy a property without the shared ownership scheme. 

Finally, you can't already have any mortgages or rent arrangements. 

IMPORTANT NOTE: Depending on the property you want to buy, you will have to meet certain eligibility criteria. Because the shared ownership scheme works with different housing associations, the criteria can change a lot. Some of them make it easier for people to purchase their properties, others harder. There are no guarantees that you will be accepted. 

In addition, some housing associations require you to prove that you have connections to the area you want to buy the property. For example, that you have previously lived in the area, that you work in the area, that you already have family members living in the area and others. 

How to buy a shared ownership property 

The first step to buying a shared ownership property is to make sure you are eligible. Latest Deals have listed some of the eligibility criteria above. 

After that, you will need to find a property you are interested in using the search tool from the shared ownership scheme. You can find this here. 

Then, you need to create an account with Sharetobuy.com to register your interest in the property and contact the housing association responsible for the property. When you register your interest, you will receive all the information regarding that property, including a summary of costs document, which will give you an overview of how much initially it will cost to purchase the property, the expected monthly expenses and how much it will cost to buy more shares in the future.

You can also use the information below to contact them and register: 

North England

Find out how to register and apply for shared ownership in the north.

Telephone: 0300 790 0570

Midlands and London

Find out how to register and apply for shared ownership in the Midlands and London.

Telephone: 0333 321 4044

South England (excluding London)

Find out how to register and apply for shared ownership in the south.

Telephone: 0800 456 1188

Finally, you will follow the same process of getting a mortgage and buying a house, but you can’t forget that this will come to an additional renting agreement for the property and the land. 

IMPORTANT NOTE: With time, you can purchase more shares of the property up to 100% to have full ownership, but the next shares you purchase will take into account the market value of the property at the time, which means that the values of the shares can increase over time, making it more expensive for you to own more shares.

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