how to benefit from shared ownership?

Today I want to share the story of my first flat – it was a shared ownership. For those of you who read this article about buying vs renting it might be of interest. Your initial reaction might have been – I’d love to buy but can’t afford to do so in this crazy market.

As I mentioned above – my first flat was a shared ownership property. It’s one of many different ways the government is trying to help people to get on the property ladder through their so-called affordable housing scheme.

While some will challenge the word affordable when it comes to housing in the UK, the scheme definitely does help people to get on the property ladder. Below I will share what shared ownership is, how you can benefit from it and what are the potential watch outs.

what is the shared ownership?

Before I start – NO, you don’t have to share the property with another person! Shared ownership is a scheme that allows people to partially buy a property. One of the key issues here – you have to pay rent for a part of the property. This part is owned by a housing association.

There are some good news to the rent though. Your rent in fact should only be 2.75% of the property value pro rata. This should come out cheaper than equivalent property on an open market in theory.

You will need a mortgage to cover the other part. This allows you to start paying off your own property, at least a part of it. You are also allowed to buy extra share within the property – process called staircasing.

what share of a property I can/have to buy?

This is the slightly confusing part. Two shared ownership schemes are currently out in the market. One is the old original scheme, the other one is the new that was launched in 2021.

Properties that were part of the original scheme require you to purchase a minimum of 25% of the value. You will most likely apply for a mortgage to cover this. The shares can go up all the way to 75%. You will need to buy out the remaining 25% in one go to become an owner of the whole property.

The new scheme is even more affordable. You are only required to purchase 10% of the full property. The current issue with this is that there are more properties on the old scheme than the new.

On the bright side, there are properties in London even on the old scheme that require less than £5,000 deposit in order to buy these. It is the case for the properties with the smallest share available – only 25%. Please keep in mind that the rent element of the deal will be fairly high here.

The new scheme in theory should enable you to get onto a property ladder with a deposit as little as couple of grand.

One other thing to keep in mind is all the legal fees you will have to pay. The official guidance is roughly £4,000. My personal experience was more like £2,500.

criteria to be considered for the shared ownership

As with any scheme there is a set of criteria you have to hit. And the rules are fairly straightforward and easy to understand.

The criteria is as follows:

• you can’t be earning more than £80,000 outside of London or £90,000 in London
• you can’t own another home

That’s pretty much it! Really easy to understand for a change.

On top of the above you need to have deposit and the legal fees available to you. Stamp duty on your shared ownership doesn’t need to be paid straight ahead.

If you want to check the eligibility criteria – this link is a great place to start.

what-casing?

Staircasing is a process of buying extra share in the property you live in. The fact that there is the new and the old scheme will determine how much extra you have to buy as a minimum.

With the old scheme – 10% extra was the minimum you could buy. This was up to the point you get to 75%. Afterwards you had to buy the remaining 25% in one go in order to become the owner of the whole property.

New scheme made it slightly easier however I’d guess also more expensive. The minimum additional share you can add with the new scheme is as low as 1%. This might sound great however I would suggest you check the fees linked to this.

You will most likely be responsible for paying the valuation of the property to determine the value of that 1%. Afterwards, the solicitor might need to get involved as well. If this is the case – the fees might come higher than the 1% of the actual value of the property.

The big benefit I can see here – 1% is small enough that one can potentially save up and pay it out as a lump sum. This would simply mean – your mortgage stays as it was before while the rent you are paying is dropping down. You do however need to check if you need to pay for the solicitor in this instance.

how do I find a shared ownership property?

There are many different web sites to start your hunt for the perfect future home. This could be a great first stab. You will see many different options all over the country. You should be able to find a property to suite your budget and hopefully location.

On top of the above I would suggest the more mainstream property search websites. Places like Zoopla offer shared ownership search as well. When you search your preferred location – within filters you can switch to show only shared ownership properties.

I found my very first property through a third party web site rather than official help to buy scheme portal. Since then, I have learnt that most new built projects have some sort of affordable housing options – so definitely worth stopping by and checking in case you find your dream come true project on the market.

This is something that might become a potential issue as well. When it comes to you selling the property – you can only sell it as a shared ownership, unless you own the whole property. This in theory limits the number of potential buyers out there.

summary

Buying your first property can both be an exciting and stressful process. There are a lot of things to consider. If you believe that you are far off from being able to afford to buy – shared ownership is a great scheme to consider.

This was exactly why I decided to look into the scheme. While the total amount you would have to pay monthly is not massively different – deposit is the key difference here. A deposit you would need for a £300k property normally is roughly 10% – in this case £30k. For many people this is really hard to save up.

On the flip side – if you look into buying a 25% share with a 5% deposit, the amount you would need as a deposit is less than £5k.

It isn’t the perfect scheme and has it’s own issues. You clearly can’t buy any property, only the ones that are on the scheme. You are partially limited to changes you can make to the property and need to agree everything with the housing association. Staircasing can be expensive as well.

The bright side to all of this though – you are paying out your own equity in a property. Even though, this is only for a part of the property. In the future, when you sell and move out – this cash can become the deposit to your new home. One that is fully owned by you.