Shared ownership: Is it worth it?
A much-needed helping hand for buyers or a big mistake that should be avoided? We look at the pros and cons of shared ownership.
September 28, 2018
You may have heard quite a lot about shared ownership over the last few days. That’s because we have just marked Shared Ownership Week (how did you celebrate?!). The scheme offers you the chance to buy a share of your home (between 25% and 75% of the home’s value) and pay rent on the remaining share. Later on, you could buy bigger shares when you can afford to. The extra focus on the scheme in the last week has opened up the debate on whether or not it’s actually a good route into homeownership, with some commentators claiming it should be avoided like the plague and others recognising the benefits. So who should you believe? We take a look at the pros and cons.
The good points
For many it’s the only option
It’s all well and good suggesting a would-be buyer waits and saves and gets on the property ladder the traditional way but for many people that just isn’t an option. According to latest figures by Hometrack the average minimum income needed for a first-time buyer to purchase a home in a city has risen to £53,000, up from £45,000 in 2015. Meanwhile the average UK salary is around £27,000. You do the math.
You can buy more
Shared ownership offers buyers the chance to increase their share in the property over time through a process called staircasing. That means while you may only be able to afford a small share to begin with, as your circumstances change and your earning power improves you can increase how much you own until you own it outright.
Cheaper than renting
It can vary but in most cases the rent part of your repayment is normally less than you’d pay renting on the open market as well.
More secure than renting
There is far greater security of tenure, which you don’t necessarily get in the private rented sector – but you do need to keep up with your rent payments.
The bad points
You may not be eligible
Not everyone can apply for a shared ownership property. The rules vary. In most cases it applies to new build properties that are sold on a shared ownership basis or properties that are owned by housing associations that are being resold. To be eligible you need to have
- a household income of £80,000 a year or less outside London, or £90,000 a year or less in London
- be a first-time buyer, you used to own a home but can’t afford to buy one now on the open market, or are an existing shared owner looking to move.
You don’t have the same security as full homeownership
Whether you own 25% or 75% until you own the property outright you could still lose your home if you fail to keep up with the rental payments to the housing association. and you’ll need to pay for these on top of the mortgage repayments (which you used to buy a the % of the property you own), any services charges and usual utliity bills and council tax.
There’ll be additional service charges to pay
This is one of the biggest disadvantages of shared ownership. You’ll have to pay service charges to the housing association and these costs will vary depending on what needs doing and you won’t have any control over the amounts. The amount charged should be divided by the number of people who receive the service but this is often not the case. And it isn’t fair that even though you only own 25% of the property you have to pay 100% of the costs that fall to you. Remember, check your lease very carefully and work out the likely costs in advance.
Staircasing and selling can be tricky
To start the process of staircasing you’ll need to get the house valued by a surveyor approved by your housing association and there may be additional administrative costs that they pass on to you. You need to be really clear about the process and act fast as the valuation will be time limited. The additional amount you’re able to buy may have a minimum limit (for example, 10% or 20%) and there are sometimes limits to how many times you can staircase.
When it comes to selling, the housing association often has the right to offer your home to a buyer on their waiting list or they may have the right to sell it for you within a set timeframe. If they can’t sell it in that time, then you will be able to sell it on the open market. Again, before you embark on buying a shared ownership property, think ahead to the process of staircasing and eventually selling and check the process and costs for both.
Paula Higgins, chief executive, HomeOwners Alliance says: “Clearly, shared ownership is not perfect. There are drawbacks and, obviously, buying in the traditional way is preferable. But the fact is, it’s just not possible for some people to get on the property ladder with a regular mortgage. Deposits required by lenders are often impossibly high, prices are extortionate in some areas and wages, for many, are stagnant. This may not be the ideal solution but it gives homebuyers choice. But they must tread carefully and get detailed legal advice so they enter any agreement with all the facts and details of their lease laid out.”