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Shared Ownership – affordable housing option explained

Is a share of something better than nothing? Our mortgage expert David Hollingworth tells us why Shared Ownership schemes, which pre-date Help to Buy, continue to be a very valuable offer in the battle to provide affordable housing options.

Help to Buy has been the Government’s flagship vehicle in responding to the needs of homebuyers in what became an extremely tough market following the onset of the credit crisis.  Seeking to offer more affordable options, stimulate new housebuilding and improve the range of finance available to those with small deposits Help to Buy has never been far from the headlines since its introduction.

Don’t forget shared ownership

That makes it easy to forget about the alternatives that have been around as affordable housing schemes long before Help to Buy was a twinkle in the Chancellor’s eye.  Shared ownership is one option that could help make the first step towards owning a home for those that find that house prices are moved out of their immediate reach.

Administered by housing associations shared ownership is exactly as it sounds.  Buyers that can meet the associations eligibility criteria can buy a share of the property, say half, and pay a below market rent to the housing association on the remaining half.

As their circumstances change they can then buy further shares in the property and eventually step up to full ownership once that is affordable, a process known as staircasing.

Benefits and limitations

Beyond the obvious benefit of affordability shared ownership gives security of tenure to the homebuyer that is so rarely available in private rental properties where 6 to 12 month tenancy agreements tend to prevail.  Those renting are therefore at the disadvantage of not knowing when they may have to find another place because the landlord has decided to sell up.

Owning a proportion of the property means that they also have a stake in any rise in the value.  That at least helps to keep them in touch with a rising property market, rather than being left further and further behind.

However there are some limitations with shared ownership.  Firstly it’s only available through housing associations which will have eligibility criteria to focus on the appropriate buyer profile in the local community.  Property choice and availability will also be limited with specific stock on offer, as opposed to open market property.

Although there is a reasonable choice of mortgage lender available for shared ownership ranging from big banks to small building societies, it is certainly not a market that all lenders are involved in.  That does reduce the choice although there are also some lenders that have specialist deals aimed at shared ownership.

It could be slightly more complicated when it comes to switching your mortgage as well, as there may be additional legal work and therefore cost due to the structure of ownership.

When it comes to selling the property it is likely that the housing association will have some conditions around sale, in an effort to keep the property targeted at affordable housing.  All the detail about how that would work and how the property will be valued will be laid out in the terms of the lease.

And how does it compare to the Help to Buy equity loan?

The Help to Buy equity loan may sound like a similar option and could suit some people better but it does work in a very different way.  Although it costs relatively little in interest, the equity loan will ultimately need to be repaid and the amount will be calculated at the same proportion of the sale price as was borrowed against purchase price.  It does however give a broad choice of new build properties on the open market from participating developers.

However, whilst Help to Buy is likely to remain in the spotlight, shared ownership is a very different proposition and one that could be much more suitable for some aspiring homeowners.  Pre-dating Help to Buy, shared ownership will continue to be a very valuable offer in the battle to provide affordable housing options.

David Hollingworth
London & Country Mortgages


For more advice on shared ownership and other ways to buy, see our advice guides…

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