Spotlight on Shared Ownership | RM Surveyors
This month on the blog I’m shining a spotlight on Shared Ownership – a government scheme that aims to make housing more accessible amidst today’s highly competitive property market.
Shared Ownership often gets touted as having strong social credentials since it helps people get a foot on the property ladder, particularly those who may not have otherwise been able to.
Yet the scheme can still prove expensive, with fees and clauses that may actually end up costing people more over the long term. In this blog, I’m breaking down the topic so you can easily see what’s what.
What is Shared Ownership?
Shared Ownership is effectively a part-rent, part-buy scheme that gives first time buyers and those that do not currently own a home the chance to buy shares in a property. The buyer will use savings and/ or get a mortgage for the share they own, and pay rent – normally to a housing association – on the remaining share.
Because the buyer only needs a mortgage for the share they are purchasing, which is normally between 25-75% of its total value, the money required for the deposit tends to be a lot lower than if they were purchasing the property outright. In other words, Shared Ownership helps people get on the housing ladder with a much smaller mortgage and deposit.
Over time, buyers have the option to increase their share via a process known as ‘staircasing’, and in most cases, can staircase all the way to 100% ownership. When this happens, the buyer will no longer need to pay any rent, just the payments on their mortgage.
Who is eligible?
Those whose household income is less than £80,000 a year (or less than £90,000 a year in London).
First-time buyers and those who used to own a home but can’t afford to buy one now, or those who are an existing shared owner and are looking to move.
The Shared Ownership scheme is currently only available in England.
What are the benefits?
The scheme is a good stepping stone for those wanting to get a foot on the property ladder, but who can’t afford 100% of a mortgage on a home.
The deposit required will only be 5-10% of the buyer’s share, rather than the full market value of the whole property.
The rent on the share the buyer doesn’t own tends to be less than open market rental rates.
Stamp Duty can generally be deferred until shares reach 80%.
The government has also introduced a 10-year repair as part of the scheme, during which buyers will receive support from their landlord to pay for essential repairs – effectively bridging the gap between renting and home ownership.
What are the challenges?
Shared Ownership properties are always leasehold, meaning ground rent and service charges rent may be payable – which wouldn’t be there if purchasers were buying a property outright.
It may be more difficult to find a lender who offers Shared Ownership mortgages, although increasing numbers of lenders are offering them now.
The smaller the share a buyer owns, the less they will benefit from the property increasing in value.
There could be restrictions on what alterations can be carried out on the property.
Staircasing costs money: as well as saving up to buy more shares, buyers also need to fork out for a new survey each time they staircase. This is on top of legal and mortgage fees, whereas buying a property outright will only require these costs once.
Selling a Shared Ownership property can be a little more complicated than an ordinary sale, and leaseholders will require another valuation when they sell, since valuations are often only valid for 3 months.
How can I help?
