If you’re keen to have a place to finally call your own, but only have a small deposit, a shared ownership home could be the answer.
What is shared ownership?
Essentially, shared ownership is where you buy a share of a property and you pay rent on the remaining share – and because you’re buying a smaller percentage of the house, you can take out a smaller mortgage and therefore put down a smaller deposit, which makes homeownership more affordable.
If you’re currently renting and worried about your long-term security, shared ownership can also give you more security, as you become a part-owner.
Will I have to share a house with other people?
Despite what you may have heard, you will not have to share a house with anyone else, (unless you want to). It’s called shared ownership because you share the ownership of the house with the housing association, not other people.
How does a shared ownership mortgage work?
You buy a share in a house or flat of between 25% and 75% of the value of the property, depending on what your mortgage lender says you can afford.
- You only need a mortgage for the share you are buying.
- You pay the mortgage on your share and you pay rent on the rest to the housing association.
- As you only need a mortgage to cover your share of the house, your deposit could be a lot lower than if you were buying a whole house outright.
For example, the minimum deposit and income requirements for a £230,000 home are:
- 50% share requires a 5% deposit which equates to £5,750 and a minimum income of £27,600 and you then pay rent on the other 50% share to the housing association.
- 25% share requires a 5% deposit which equates to £2,875 and a minimum income of £21,600, and you then pay rent on the other 75% share to the housing association*.
* Research by Savills.
You’ll receive a lease that sets out everything, for instance, the amount of share you’ve bought, how long you can keep the house for (usually 125 years), how much your monthly rental payments are, as well as your responsibilities while living there. Make sure you take the time to thoroughly read the lease and ask your solicitor any questions you have – no matter how silly you think they are.
How much might it cost overall?
You’ll have to pay a minimum of a 5% deposit based on the share you’ve bought, as well as stamp duty on the value of your share, and any legal fees. These exact amounts will depend on the purchase price of the house and the amount of deposit/rent you pay.
Who can apply for Shared Ownership?
Many people think it’s just for first-time buyers, but this isn’t necessarily the case. The beauty of shared ownership is that it’s for anyone who fits the following criteria:
- Must be able to put down a deposit of 5-10%
- Must not already own another property outright
- Have a total household income of £80,000 or less (under £90,000 in London)
- You need a good credit history and prove you can afford the costs (just like when buying any other house)
Will I be restricted to the type of house I can buy?
Shared Ownership schemes are usually available on either newly built houses or resales from current shared ownership homeowners.
What is ‘staircasing’?
Staircasing is the process of increasing your share of the house. You can keep increasing your share until you own the property outright. (Although some housing associations will cap the amount of shares you can buy).
With every increase in your share, the amount of rent you pay will be recalculated and reduced accordingly.
Please note – you are under no obligation to increase your sharehold. It can remain as it was the day you first started the scheme.
What else I should know about Shared Ownership?
- You can decorate and hang pictures to make the place your own. However, you’ll have to run any bigger renovation plans past the housing association first.
- If you have a pet or would like one, make sure you read your lease. If you’re buying a house, this is usually fine, but the rules are sometimes different for a flat or an apartment.
- You can sell your share at any time to another Shared Ownership buyer through the housing association or through an estate agent if your housing association agrees.
- Different rules sometimes apply when looking at Shared Ownership properties in different areas, so bear this in mind and make sure you do your research with the housing association.
