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Guide to Shared Ownership

If you’re struggling to raise a deposit, or cannot secure a high enough mortgage loan to buy your home outright, you could try considering shared ownership properties.

This guide will take you through the scheme, how it works and how it could help you get a home of your own (well, most of it anyway).

What is Shared Ownership and How Does it Work?

Shared ownership is when you buy a share in a property and pay rent for the remaining shares. You own the property on a part buy/part rent basis.  These are sold through housing associations and they offer a minimum of 23% share, up to 75%, of a home’s total value. Properties sold through the scheme are always leasehold. There are six initiatives within the scheme;

• New Build Home Buy- This is where you can buy shares on an approved new build property. This is open to key workers (emergency services employees, teachers etc..)
• Expanded Open Market Scheme – This is where you buy 75% of the home with a normal mortgage and then a separate loan from the same lender of 12.5%. The other 12.5% is loaned from the government. This government loan is interest-free and the additional 12.5% loan from lender charges no interest for the first five years. After that time, the lender can charge interest.
• Government-Only Open Market Scheme – This is where you fund at least 82.5% of a home with a mortgage and the remaining 17.5% is borrowed as an interest and fee-free government loan. The maximum amount available for this is £50,000.
• Social Home Buy – This is where existing council tenants can buy shares in the home they are living in, for a discount. They would then pay rent for the remaining share. You can buy additional shares, but if you want to sell within five years you will have to pay the discount back, out of your share of the sale proceeds.
• Older People Shared Ownership Scheme (OPSO) – for people aged 55 and over, you may buy 75% of your home through the scheme and you won’t pay the remaining 25% as rent.
• Home Ownership for people with a Long-Term Disability (HOLD) – This applies to people who may need to live in a ground floor property, or may not be eligible for Help to Buy because the places on offer do not meet certain requirements. You can buy up to 25% of the property, as opposed to a general shared ownership which could be 75%.

Am I Eligible for Shared Ownership?

• If you earn under £71,000, live in London and wish to buy a house with up to two bedrooms. You must earn below £85,000 if you want a three-bedroom home within the greater London area.
• You earn less that £60,000 a year living outside of London
• You may be a key worker, working as a nurse, police officer, teacher etc.. If you change jobs after you have taken out a shared ownership property, you will have five years to sell the property, as you will no longer have key-worker status.
• You must not already own your own home.
• You must have the legal right to live and work in the United Kingdom.
• Depending on the scheme, you may be required to have at least £20,000 a year in household income, this figure could be more if you have dependents. This is excluding money received as benefits.
• You may need to have some savings put back to pay for the legal fees.
• The property must be your sole residence; you are not permitted to rent out your shared ownership property.

If you would like to find out more about buying homes to rent, check out our Buy to Let Guide.

What are the Extra Costs of Shared Ownership?

There are a number of extra costs in securing this mortgage so it is wise for those considering to save a little more onto their deposit total, in order to cover the legal fees.  These costs could include;

• Stamp Duty (to homes over £125,000)
• Arrangement fees
• Legal costs

How to I apply for a Shared Ownership Property?

The application process for shared ownership mortgages is slightly different to applying for an average mortgage. First, you must make your application to the authority selling the shared ownerships properties in your areas and make an appointment to see them. The company will be assessing your ability to pay and if this is a realistic option for you. They would also be sizing you up as a tenant and for that, you may need to provide references.

After that, you will need to apply for a mortgage as you would expect with any other type of property. Please note, not all lenders have shared ownership mortgage products, however, they are readily available and there is a great amount of choice on the market.

Take a look at these guides to making your first mortgage application for more details. You could also look at this handy guide to improving your credit rating to check if you have done everything to secure the best deal you can.

Once you have secured approval from the housing company and an offer for a mortgage, you can then proceed with buying your shared ownership property.

Find out more in this Guide to Buying and Selling your Home to find out more about the process of buying a house.

Can I Buy my Shared Ownership Outright?

Yes, once you have lived there for a while, paying your mortgage and rent on time, you may get approval to buy more of a share in your home.

For example, you may have started off with 80% and after three years you may want 90% of the home. This process is called stair-casing shared ownership.

In order to do this, you must inform your mortgage lender and write to the housing association in order for them to assess your suitability to buy more shares. For this, they will need to send a valuator to check the current value of the property and you may be charged for this service. The company will then inform you of the price of a share. And you can make your decisions and advise solicitors from there.

Please note; Some lenders may restrict stair-casing ability, due to a scarcity of available housing. Some providers will also have an upper limit on the amount of shares you can buy, meaning you may not be able to stair-case up to 100% ownership. You may also be restricted in how soon you can stair-case, as well as the maximum number of times you will be permitted to it.

Conversely, you are not obligated to buy any more shares in your home, the choice is yours to increase or stick with the level of ownership you have.

Let’s Look at An Example

Terry and Charlotte started a family and need somewhere to live in their local area. A new housing development has popped up and they have decided they would like a shared ownership home on this estate. They have a deposit of £7,000 and would like an 80% share of the home. Terry and Charlotte were able to secure a mortgage of £120,000, allowing them to get an 80% share of the house.

After three years, Terry and Charlotte wished to increase their share to 95%. They contacted their agent, who sent a valuator to assess their home’s value. Over the last three years, they have managed to increase the property’s value to £130,000. The housing association asked for £19,500 for the price of staircasing, plus the additional fees of;

• £150 for valuation
• £100 + VAT for admin fees
• £350 processing fee for Charlotte and Terry’s solicitor. 

How do I sell my Shared Ownership?

You can sell your shared ownership property at any time. However, under some agreements, you may have to pay back some or all of the discount you received, if this is done within the first five or ten years.

If the housing association still have a stake in your home, you can sell these shares, along with yours, in a process called ‘back-to-back staircasing’. This may cost you extra to do but if it is possible with your agreement, you can complete the sale as if it were a freehold property.

At the start of the sales process, you must write and get permission to sell your home from the housing association. This is applicable even if you own the property outright from stair-casing, as it may be reserved key workers, the elderly or disabled people who need housing in your area. If this is the case, the new buyer will also need to pass the same eligibility checks to secure the property. This process could considerably increase the amount of time it takes to sell.

Advantages of Shared Ownership

• Great For Low Income Households- For those on lower incomes, this may be the perfect option for becoming a first time home buyer. As you are only paying for part of a property, the amount of mortgage required will be less. This could make a huge difference to the properties you make offers on. For example, you may be able to get a house with an extra bedroom, if you plan on having children in the future. 
• Buy More Later - You can also choose to buy more shares in your home at a later date. This is a great option for those who need to buy a house now, but couldn’t otherwise afford to get one outright.
• Longer-Term Security- If you are trying to start a family, short term tenancies and the threat that you can effectively be evicted at any time, make shared ownership a nice option. This is because you will own a significant share in your home, offering you longer-term security. 
• It’s Possible to Sell -If you make improvements to the home, you could raise its value. You may have to seek permission before you do anything drastic. However, it is possible to sell your shared ownership property. And if you increase the home’s value, you may have a larger deposit for your next home.

Disadvantages of Shared Ownership

• Maintenance Charges -You may have to pay some of your rent towards maintenance charges and the association may have certain standards, which you will be responsible for paying for.
• Not For Rental - The property must be your main place of residence; you are not permitted to rent out your shared ownership property.
• Expensive Shares - Buying extra shares in your home could be quite expensive, once you have factored-in the legal fees.
• Restrictions There may be restrictions on the improvements you are permitted to make, so make sure you are clear on these before you buy a shared ownership property.
• Negative Equity - There is a chance you could generate negative equity in your home. This will mean that you owe the association, as well as your lender, if there is a shortfall at the end of the mortgage term, or at resale.
• Right of First Refusal - You may encounter some issues with selling your shares when you decide to move. For instance, even if you own 100% of the home after staircasing, the provider may have first refusal. This may prevent you from securing offers on your next place, due to hold-ups in the property chain.
• Problems Remortgaging – It is very difficult- nearly impossible- to refinance your home under a shared ownership agreement. If you are looking to remodel your home, you may need to find other sources of funding.
• No Government Protection - There is no protection from the government should you fail to keep up with the payments. Your home may be repossessed in failure to keep to your repayment schedule. Check with lender to find out more. You can also look at our Guide to Mortgage Arrears for more advice on how to avoid this.

What Alternatives are there to Shared Ownership?

If you are a council tenant, you may be eligible for the government’s Right to Buy Scheme, where you can buy the council property at a discounted price, if you are a secured tenant.

Similarly, you may qualify under their Right to Acquire scheme if you are an assured tenant in a property and the house was built with public money after 1997.

It is a wise plan to speak to an independent mortgage advisor before making any mortgage applications, they will explain the process to you in detail and discuss your personal finances, helping you make the most informed decision. Get in touch for free now.