The Benefits and Pitfalls of Shared Ownership

It doesn’t take a genius to work out that houses are expensive. Whilst they have always cost a lot of money and it invariably requires a mortgage or a windfall in order to buy one, the property market has developed a scheme which can make a property much more affordable.

So, what is Shared Ownership?

Put simply, Shared Ownership is a scheme which allows someone who can’t afford to buy a house or flat on the open market to share the costs of ownership with a landlord.  The landlord is usually a not-for-profit social housing provider such as a Housing Association or Local Authority, but can also include for-profit companies or organisations.

How does it work?

You can buy a share of a property, usually between 25% and 75% of the home’s full market value and then pay a rent on the remaining share.  It is possible to buy your share using savings or the proceeds from the sale of another property, or you can take out a mortgage, but this will usually still require a deposit of 5-10% of the share you are buying.

Shared ownership schemes are available for some new homes, second hand re-sale properties which are already part of a shared ownership scheme and for homes which meet specific needs, if you have a long-term disability for example.

The idea is that by sharing the ownership costs, smaller initial downpayments are required and the overall cost of owning a property can also be less. Shared ownership works as a good stepping stone to full home ownership as it can allow buyers to build up equity through long-term house price growth and mortgage repayments. In time, you may be able to buy larger shares of the property in a process called “staircasing”, in some circumstances you may also be able to purchase the property outright, or you can sell the house and buy on elsewhere.

That all sounds great, but you said that there were pitfalls too?

Yes. Whilst the scheme is called shared ownership, that is a little bit of a misnomer. Shared ownership properties are always leasehold, which means that you do not own the bricks and mortar that make up the building. You will have service charges and rent to pay, even if you have paid off the mortgage, and if you fall behind on these payments you could be at risk of eviction.

You will be required to pay the full cost for any repairs or maintenance that may be required even though the home is shared. Should you wish to make major changes to the property, you are likely to require permission from the landlord in addition to any statutory planning permissions or building regulation approvals from the local authority which may be required, and you are likely to be required to foot the whole cost of any such improvements rather than just a proportion in-line with your share. Your lease will set out what you can and can’t do.

Shared ownership houses can also be more difficult and expensive to sell as often there are restrictions on who you can sell a shared ownership property to. You may be required to sell the house to another shared ownership buyer and the landlord may have requirements which mean you have to use their in-house selling service or their preferred estate agent in order to sell.  Furthermore, you are likely to be required to pay for an RICS Valuation in order to determine the sale price and to pay a proportion of the landlord’s costs.

So Shared Ownership is a good way to buy but there are things which I need to be aware of too?

Yes. Shared ownership can be a good option for people who can't buy on the open market. It has helped many buyers get a foothold on the housing ladder or to stay on the ladder during difficult times, but it's important to research the scheme carefully and make sure that you are aware of all of the requirements before making a decision.

If you are selling a Shared Ownership property and require and RICS Red Book Valuation for the property, please contact us.

‍

© Hill Home Survey, 2024. All rights reserved.
The content within this blog is strictly for information only. It is not intended to be and must not be construed as advice. The information provided was correct at the time of writing.
Hill Home Survey is not a mortgage arranger, adviser or provider. Your home may be repossessed if you do not keep up repayments on your mortgage.
For further information and to discuss the correct survey type for the property you are buying and/or your valuation options, please contact Hill Home Survey on 01733 855232