Shared ownership is a government-backed scheme that enables you to buy a share in a house or flat, and pay rent on the remainder of the property to a landlord or housing association.
The shared ownership scheme can be a great way to buy a home that you would otherwise be unable to afford, with the potential to increase your share over time through a process known as “staircasing”. In some cases, you can start by buying as little as a 10% share in a property, for example, and then buy further shares when you can afford to.
However, shared ownership is only available on certain properties and you’ll need to be eligible for the scheme to apply. It’s also vital to ensure you’re aware of the potential downsides of shared ownership before signing up to the scheme.
Here, we’ll explain how shared ownership works, and take you through some of the main pros and cons.
Bear in mind that the following rules mainly apply in England, and the scheme may work slightly differently in other parts of the UK.
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How does shared ownership work?
Certain properties, typically new build houses and flats, can be bought through the shared ownership scheme.
If you find a home that is available to buy under shared ownership, the share you buy will typically be between 25% and 75% of the full market value, but can sometimes be as low as 10%. In Northern Ireland, you normally need to buy between a 50% and 90% share of the home.
You pay rent on the remaining portion of the property to the organisation that owns the home, such as a housing association or the developer who built the home, who acts as your landlord. These payments will be lower than the rent you would pay if the landlord owned 100% of the property, and the more of the property you own yourself, the lower they’ll be. You will also have to pay for buildings insurance, and may also have to pay service charges to maintain communal areas if you are buying a flat.
Most of the same mortgage costs involved in the process of buying a home outright will still apply if you’re buying a shared ownership property, such as mortgage arrangement fees, solicitor fees and stamp duty. As with most new build homes, you may also have to pay a reservation fee to take the property off the market – this amount will be knocked off the final price when you complete the purchase.
Shared ownership is typically available to people who don’t earn enough to buy a house outright, either because they can’t afford to put down a big enough deposit or won’t be able to make mortgage repayments. You can find out more about eligibility criteria later on.
Can I take out a mortgage to buy a share in a home?
You can take out a mortgage to buy a share in a home under the shared ownership scheme. Since you are only buying a portion of the home and renting the rest, a shared ownership mortgage will be smaller with lower monthly repayments than a mortgage on the entire property.
You won’t need as big a deposit if you’re buying a share rather than the entire property.
The minimum deposit you need to put down to secure a shared ownership mortgage may be lower than a standard mortgage as well, with some lenders accepting deposits of 5% or 10% of the share you’re buying.
However, not all lenders offer shared ownership mortgages, and it may be worth speaking to a mortgage advisor to find the best deal for you.
What is staircasing?
Staircasing (or ‘buying out’ as it’s known in Northern Ireland) refers to the process by which someone buys additional shares of a shared ownership home over time, thereby increasing the proportion they own. Owning a larger share in the home means you will pay less rent and gain a greater percentage of any profits on sale of the home.
In order to buy a larger share of a shared ownership home, contact your landlord to let them know you’d like to do so. You’ll also need to get the home valued by a chartered surveyor, who will let you know how much the share you want to buy will cost. If you decide to go ahead, then you usually need to do so within three months of the valuation (and pay an administration fee).
If you have made home improvements with your landlord’s written permission, then these will not be factored into the valuation. This means that the share price will be based on the home’s “unimproved value”, so that you won’t be impacted unfairly by paying for home improvements using your own savings.
However, there may be limitations on when, and by how much, you can buy a greater share, or ‘staircase’, set by your landlord or housing association. For example, there may be a minimum amount that you must increase your share by (such as 5%, 10% or 25%), a certain amount of time you must wait before you can increase your share, or a limit on the number of times you can do so (such as three). Some shared ownership homes bought from 1 April 2021 onwards allow you to buy an additional 1% share every year for the first 15 years. If you are considering buying a shared ownership property, make sure you check the rules regarding buying more shares in that particular property very carefully.
In Northern Ireland, you can increase your share at any time in 5% increments.
Can I buy 100% of my home through staircasing?
Most shared ownership homes will allow you to own up to 100% of the property, which would mean you could eventually own it outright, though some may have a limit, such as 80%.
If you are aged 55 or over, you can buy through the Older Persons Shared Ownership (OPSO) scheme. This means you can only own up to 75% of your home, but once you reach this percentage, you won’t have to pay rent on the remaining share.
Can I apply for shared ownership?
Are you eligible?
You can only buy a home through the shared ownership scheme if both of the following are applicable to you:
- Your household income is £80,000 a year or less, or £90,000 if you live in London.
- You cannot meet the mortgage costs (deposit and repayments) for a home that meets your needs.
One of the following must also apply:
- You are a first time buyer.
- You used to own a home but can’t afford one now.
- You own a home and want to move, but can’t afford a new home that meets your needs.
- You’re forming a new household, for example, after separating from a partner.
- You’re a current shared homeowner and want to move.
According to Gov.uk, you may have to show proof that you live in, work in, or already have a connection to the area in the case of certain homes before you can by a share.
If you already own a home, you must sell it before buying a shared ownership property.
Which properties are eligible for shared ownership?
The vast majority of homes available to buy under the shared ownership scheme are new build flats or houses specifically built for this purpose.
The best way of finding a shared ownership home is through:
- Organisations that sell them. You can search for organisations here (outside of London) or here (inside London)
- Websites like sharetobuy.com
- Your local council
- Housing associations or homebuilders.
Most property listings websites, such as Rightmove, will also list shared ownership homes.
If you have a disability and can’t find an eligible home that meets your needs, you may be able to apply for shared ownership on a property on the open market that would not normally be eligible, through a scheme called home ownership for people with a long-term disability (HOLD).
In Northern Ireland, the scheme is known as Co-Ownership, and is run by a not-for-profit organisation of the same name. Unlike the English system where specific homes are sold as shared ownership, in Northern Ireland, you can apply to co-own a home and find out if this is possible. The property cannot be worth more than £190,000 in order to be eligible.
Can I sell my shared ownership home?
You can sell your shared ownership home at any time. If you own 100% of the home by the time you come to sell, you can sell your home on the open market.
However, if you do not own the home outright, you’ll have to seek permission from your landlord first in order to sell your share. Your landlord may choose to either buy back your share or, more likely, find a buyer for the home themselves. If they cannot find a buyer within the ‘nomination period’ (4-12 weeks, depending on the lease) then you can look for one on the open market.
You’ll have to pay a fee to your landlord in order to sell, and will have to get the property valued as well in order to set a sale price. Make sure to check the process and fees involved for selling a shared ownership property before buying a share in one.
What are the risks of shared ownership?
While shared ownership can be a really effective way for some people to get onto the property ladder, there’s reason to be cautious about it.
Some homeowners who bought a flat through shared ownership have reported being issued enormous service charge bills by their housing association, and say there has been a lack of transparency about how this money is being used.
While leaseholders have the legal right to ask for receipts breaking down how their service charges are spent, some of these homeowners say they have not received such information.
It’s usually best practice to research the company or housing association first, and read reviews on Trustpilot to see if anyone has had bad experiences with them.
What are the other advantages and disadvantages of shared ownership?
The pros
- Shared ownership can make home ownership more affordable for people.
- A smaller mortgage means you can potentially secure a deal with a much smaller deposit, and have smaller repayments to make.
- You can work your way up to owning the home outright through purchasing more shares, a process known as ‘staircasing’, which will also reduce your rent payment on the percentage of the property you don’t own.
- Schemes like Older Persons Shared Ownership (OPSO) and home ownership for people with a long-term disability (HOLD) can provide unique advantages to people over 55 or with disabilities.
The cons
- If you fail to keep up with mortgage payments in a home that you own outright, it is extremely unlikely that you will lose your home. However, if you miss rental payments in a shared ownership home or break the terms of the lease, you may lose both your home and the money you put into it.
- You don’t have full ownership of the home, meaning you will have to seek permission to sell it or make improvements.
- The combination of mortgage payments, rent and other fees for shared ownership means you will have several outgoings to make and keep track of each month. The extra costs may outweigh the benefit of a smaller mortgage with smaller repayments.
- Shared ownership is not widely available. There are usually a limited number of properties that are eligible for the scheme, and these properties are mostly new builds – you don’t get the same variety as on the open market.
- Not every lender offers mortgages on shared ownership homes, so there are not as many options to choose from as on the mainstream mortgage market.
- Shared ownership homes are always leasehold, meaning they do not come with the same flexibility as freehold homes. Learn more about the difference in our article What is the difference between leasehold and freehold?
While there are some clear advantages to shared ownership, it is worth seriously considering the downsides and alternative options, and seeking advice before you buy a share in a property under this scheme.
You can read more about how to go about getting a mortgage in your 50s and 60s in our articles Mortgages for over 50s: what you need to know and Mortgages for over 60s: what you need to know.
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
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