If you’re a first-time homebuyer eager to own a property, shared ownership can be the perfect solution to turn your dream into reality.
With shared ownership, you can purchase a share of a property – usually between 25% and 75% – and pay rent on the remaining share. It’s a popular option for those who can’t afford to buy a home outright or struggle to get a mortgage.
But before you jump in, it’s important to weigh the pros and cons and understand the process of staircasing, which allows you to buy more shares in your property over time.
Shared ownership can offer a range of benefits, from a lower deposit and monthly mortgage payments to the opportunity to own a home in an area that would otherwise be out of reach. But it’s not without its drawbacks, such as restrictions on making changes to the property and the potential for service charges and ground rent to increase over time.
Additionally, the process of staircasing can be complex, and it’s important to understand the costs involved and the impact it will have on your finances before committing to buying more shares.
Let’s take a closer look at shared ownership, exploring the pros and cons and providing essential information on staircasing to help you make an informed decision.
Key Takeaways
- Shared ownership properties are typically new-build and always leasehold, which can come with extra charges.
- Rent is paid on the share that is not owned, and service charges are required to cover communal area upkeep and repair.
- Buying more shares in the property, known as staircasing, is an option up to 100%, but valuation costs are charged and shared ownership mortgages are typically more expensive.
- When 100% ownership is reached, rent is no longer charged.
Before We Go Any Further, Here’s the Pros & Cons:
Pros of Shared Ownership:
- More affordable entry into homeownership.
- Opportunity to build equity in the property over time.
- Greater stability and security compared to renting.
- Access to repairs, maintenance, and other housing services.
- Potential to increase your share of the property in the future.
- Helps establish a positive credit history.
Cons of Shared Ownership:
- Limited control over the property compared to full ownership.
- Potential restrictions on making renovations or modifications.
- Ongoing financial obligations, including rent payments and additional costs.
- Lengthy agreement terms that may affect the total cost of the property.
- Shared responsibility for maintenance and repairs.
Remember, while shared ownership can be an excellent option for many, it’s important to weigh these pros and cons against your personal circumstances and preferences to make an informed decision.
How it Works
So, how does shared ownership work for you?
Shared ownership allows you to purchase a share of a property and pay rent on the remaining share, with the option to buy more shares in the future through a process called staircasing. This is a great option if you can’t afford to buy a property outright, as you can start with a smaller share and gradually work your way up to full ownership.
The share you purchase can range from 25% to 75%, depending on what is available for the property you’re interested in. You’ll need to take out a mortgage for the share you’re buying, and pay rent on the remaining share to the housing association or developer who owns it.
The rent is usually set at a lower rate than the market rent for a similar property, which can make it more affordable for you. Plus, as you buy more shares, your rent payment will decrease.
Mortgage and Rent
When you’re considering shared ownership, it’s important to keep in mind that rent payments on the portion of the property you don’t own can be quite costly.
This is because you’ll be paying rent on the share of the property that you don’t own, and this can sometimes be more expensive than paying a mortgage on the full value of a property.
However, don’t let this discourage you from exploring shared ownership if it suits your needs.
Shared ownership can be a great way to get on the property ladder and own a home that might otherwise be out of reach. It’s worth noting that service charges are also required to cover the upkeep and repair of communal areas. Shared ownership properties are always leaseholds and often come with extra charges that freehold properties would not have.
However, shared ownership can still be an affordable and accessible way to own a home, especially if you’re struggling to get a foot on the property ladder. If you’re considering shared ownership, it’s important to speak to a financial advisor and explore all your options to determine whether it’s the right choice for you.
Buying More Shares
If you want to increase your ownership in a shared ownership property, you can purchase more shares all the way up to 100%. The process of buying more shares is called staircasing, and it gives you the flexibility to own more of your property over time.
You can increase your share by as little as 1% each year, and you may be able to purchase a share worth 5% or greater. It’s important to note that when you purchase more shares in your property, you’ll need to pay for a valuation to determine the new value of the property.
The cost of buying a share worth 5% or more can go up or down depending on property prices, so it’s essential to consider this before deciding to staircase. However, once you reach 100% ownership, you’ll stop being charged rent altogether.
Staircasing can be an excellent way to increase your ownership and take control of your property, but it’s crucial to understand the costs involved and consider your financial situation carefully.
Where Can I Buy a Shared Ownership Property?
The government funds shared ownership through a number of different schemes, including:
- Help to Buy: Shared Ownership: This scheme is now closed but for many years provided an equity loan of up to 20% of the value of the property, which can be used to reduce the amount of money you need to save for a deposit.
- Shared Ownership for First Time Buyers: This scheme provides a grant of up to £25,000 to help first-time buyers purchase a shared ownership property.
- Local authority shared ownership schemes: Some local authorities also offer their own shared ownership schemes, which may offer different terms and conditions.
If you are looking particularly in the South West of England then Aster are one of the largest providers of shared ownership properties in the UK with new developments that stretch all the way from Oxford to Cornwall. Aster is a housing association that owns and manages over 50,000 homes in England and Wales.
If you’re interested in shared ownership, I recommend checking out the Aster website to see what properties they have available in your area.