Shared ownership is an attractive option for many first-time buyers looking to get onto the property ladder in the UK. With shared ownership, you purchase a share of a property (between 25% and 75%) and pay rent on the remaining share. This can make buying a home more affordable, especially in expensive areas like London. In this article, we’ll look at everything you need to know about buying a house with shared ownership in the UK.
What is Shared Ownership?
With shared ownership, you buy a share of a property and pay rent on the remaining share that you don’t own. The share you own entitles you to live in the entire property. Your rent payment is based on the share you don’t own.
For example, you might purchase a 50% share in a £200,000 property. You would pay a mortgage on £100,000 (50%) and rent on the remaining £100,000 (50%).
The minimum share you can purchase is usually 25%, but it may be as low as 10% in some areas. The maximum share you can initially purchase is 75%. Over time, you can choose to “staircase” and buy additional shares until you own 100% of the property.
Shared ownership is available through housing associations, which are not-for-profit organisations that provide affordable housing. When you want to sell the property, you must first offer your share back to the housing association.
Benefits of Shared Ownership
There are several benefits that make shared ownership appealing for first-time buyers:
- More affordable – Since you only need a mortgage on the share you own, deposits and mortgage payments are lower. This helps buyers who are priced out of full ownership.
- Get on the ladder – Shared ownership provides a step onto the property ladder for those who can’t afford to buy a home outright. You can build equity and potentially staircase to full ownership.
- Lower moving costs – Stamp duty and other purchase costs are based on the share you buy, not the full value. This reduces your upfront expenses.
- Stable payments – Your rental payments on the unowned share remain stable and are not affected by interest rate changes on your mortgage.
- Customisable – You can often choose the share you want to purchase based on what you can afford. Some schemes also let you select your preferred property.
Eligibility for Shared Ownership
To qualify for shared ownership, there are a few basic requirements:
- Household income under £80,000 outside London or £90,000 in London.
- You cannot currently own a property or have owned one in the past.
- You must take out a mortgage on the share you purchase – cash buyers are not eligible.
- You must use the property as your main residence.
In addition, some housing associations may have additional eligibility criteria you must meet. It’s important to check with them before proceeding.
The Process of Buying with Shared Ownership
If you meet the eligibility criteria, here is an overview of the shared ownership process:
- Browse available properties – websites often list properties online, including these shared ownership in the east London area.
- Secure mortgage agreement – Speak to a mortgage lender and get an Agreement in Principle for the share you wish to buy. This confirms you can afford it.
- Make an offer – Submit an offer on the share you want to purchase. This is agreed with the housing association.
- Conveyancing – Appoint a conveyancer to handle the legal side, including conducting searches.
- Mortgage application – Complete a full mortgage application with supporting documents for underwriting.
- Exchange contracts – Exchanging contracts makes the purchase legally binding. A completion date will be set.
- Completion – On the completion date, your conveyancer transfers your purchase funds. You can collect the keys!
- Pay rent – You now own your share and start making rent payments on the unowned share. Enjoy your new home!
The process takes around 2-3 months with a conveyancer handling the legal aspects. You may need to budget for additional costs like survey fees on top of your deposit.
Staircasing to Full Ownership
One of the appealing aspects of shared ownership is the ability to increase your share over time through a process called staircasing.
Here’s how it works:
- You notify the housing association that you wish to staircase and purchase a bigger share.
- The value of your home is reassessed to determine the cost of the additional share.
- You apply for additional mortgage funds to cover the cost of the increased share. This may require a new valuation and affordability assessment.
- Legal documents are drawn up to transfer the extra share to you.
- Your rent decreases since you now own a bigger percentage of the property.
You can gradually staircase in this manner until you own 100% of the home. Staircasing to full ownership may take a few years depending on how ready you are financially. Some schemes let you staircase in increments as low as 10% at a time.
Shared ownership can be a great route onto the property ladder, but there are some key considerations:
- Limited space – Since you only own a share initially, you are essentially still a tenant sharing ownership with the housing association. They retain some rights over the property.
- Rent increases – Rent on the unowned share will likely increase annually in line with inflation or market rates.
- Reselling limitations – You may need to offer your share back to the housing association first when selling. Options for selling on the open market can be limited.
- Staircasing costs – Each time you staircase, you will incur fees like valuation and legal costs. Make sure to budget for this.
- Lease terms – Check the length of the lease and provisions for extending the lease when staircasing to full ownership.
Overall though, shared ownership can be an excellent way to buy if you are priced out of the market. With careful planning and budgeting, it provides a realistic path to homeownership. The key is researching all the ins and outs so you know what you are getting into.
Finding Shared Ownership Schemes
If you think shared ownership may be right for you, here are some tips for finding available schemes:
- Check websites of large housing associations operating in your desired area. Some good options are Peabody, L&Q, and Notting Hill Genesis.
- Search property portals like Rightmove and Zoopla which let you filter for shared ownership listings.
- Visit the Share to Buy website which aggregates listings from multiple housing associations in one place.
- Check local authority websites as councils sometimes operate their own shared ownership schemes.
- Speak to an independent mortgage broker who can help find suitable options and get you mortgage ready.
- Consider using a shared ownership specialist solicitor who understands the process intricacies.
With some diligent hunting, you should be able to find shared ownership schemes that match your budget and preferences across the UK. Good luck with your property search!