What is Shared Ownership? Is it worth it?

Shared ownership can be a great way to get a stake in a property when you can’t afford to buy on the open market. But there are common complaints. So what is shared ownership? How does it work? And what are the pros and cons you need to be aware of?

Angela Kerr Director, Editor

What is Shared Ownership?

Shared ownership is a government scheme that lets you buy a share of a property and pay rent on the remaining portion to the housing association or private developer that owns the building. It’s designed to help people who can’t afford the full purchase price of a home.

But the scheme is complicated, comes with additional costs and restrictions and there are a number of pitfalls you need to be aware of.

How does Shared Ownership work?

Shared ownership works by making the cost of home ownership more affordable because you only buy a share of a property (10%-75%). This means you need a smaller mortgage and deposit. In addition to that, stamp duty can generally be deferred until you increase your share of the property to 80%.

However, you’ll need to pay the legal and other costs associated with buying a home as well as ongoing costs like rent, a monthly service charge and may face other leasehold costs too. Read on to find out more about these.

And it’s important to understand shared ownership schemes are provided by housing associations or private developers. The details, costs and restrictions involved vary by provider so research each one on its individual merits and read the small print of your lease. Getting independent legal advice when you buy is essential. You can get instant quotes from a conveyancing solicitor to advise you today.

Shared Ownership example

How does shared ownership work? Say you buy a 25% share of a £400,000 property. This means your share is worth £100,000. For example:

*Calculated based on a rate of 5.3% over 25 year term. Mortgage rates are changing rapidly. So get the most up to date information by calling a fee-free mortgage broker.

** Based on the landlord charging 2.75% on their share

Shared ownership pros and cons

Pros:

• An affordable way to buy a house
• You can increase the amount of your property you own over time.
• Preferable to renting as it’s more secure
• If the property value increases, so will the value of your share

Cons:

• Potential for increased costs
• You may need to pay all repairs costs
• Restrictions on renting out
• Staircasing can be expensive
• Limited mortgage choice
• Restrictions on home improvements
• Risk of negative equity
• Difficulty selling
• Your rent could rocket
• You could be evicted by your landlord
• Expensive lease extensions

Shared ownership pros

The main advantage of shared ownership is that it makes it more affordable to get on the property ladder because you’ll need a smaller deposit and smaller mortgage. Over time you can increase the amount of the property you own and in some cases you can buy the property outright – but you don’t have to.

For many people it’s preferable to renting as it is a more secure tenure. And assuming the value of the property increases, so will the value of your share. If this happens you could use the equity you have built up to help you on your next step up the property ladder.

Shared ownership cons

1. Costs can spiral

Service charge costs: Housing expert Sue Phillips, founder of Shared Ownership Resources, warns, ‘Service charges aren’t capped in the same way as annual rent reviews. Some shared owners find that service charges can rise quite rapidly. However, this is more likely in flats – where there may be shared facilities such as lifts to maintain – rather than houses.’ 

Ask your solicitor for service charge estimates for the next five years. If they can’t provide them, Sue recommends asking for information on current service charges for flats in similar developments nearby.

Estate charges and ground rent: Ask your solicitor to confirm if you need to pay estate charges and ground rent.

Recent leasehold reforms may have abolished ground rent on new leases but these reforms aren’t retrospective. So ask your solicitor to check. And if the housing provider isn’t the freeholder, ask your solicitor to also check for ground rent in any superior leases as well as your own lease, Sue advises.

2. You may need to pay all repairs costs

If you bought under the old shared ownership scheme, even if you own a share of the property of say 30%, you are responsible for paying the full maintenance and repair costs. Under the new scheme, homeowners will have a 10 year initial repair period, during which the provider is responsible for structural repairs. Shared owners can also apply to the landlord for a contribution towards ‘essential and genuine works’ to certain parts of the interior of the property which are the shared owner’s responsibility under the lease.

But after this period ends, shared owners have the same uncapped liability for all repair and maintenance works as under the standard shared ownership model.

3. Restrictions on renting out

With shared ownership houses and flats, there are also likely to be restrictions on whether you can rent the property out. In the great majority of cases, sub-letting of these properties is not allowed. This means you have much less flexibility than if you were a traditional homeowner. For example, if you own a property with a mortgage and need to let it out, for example if you were relocating for a period of time with your job, you would be able to rent it out to tenants to cover your mortgage (providing your lender allows).

4. Staircasing can be expensive

When it comes to increasing the stake in your property , or “staircasing”, it’s not just the money to cover buying the share that you need to worry about. There are other costs to consider including legal expenses, mortgage fees and you may need to pay stamp duty too. Find out more with our guide to staircasing your shared ownership home.

5. Limited mortgage choice

One of the other disadvantages of shared ownership is that when you take out a mortgage you’ll have fewer products to choose from compared to if you were getting a traditional mortgage. And you’ll usually pay a higher rate too. So it’s important to shop around for the best shared ownership mortgage deal. The easiest way to do this is by speaking to a fee-free mortgage broker who will outline your options. For more information read our guide on Shared ownership mortgages.

6. Restrictions on home improvements

Check for restrictions within your lease. You are likely to be required to ask the housing provider’s permission in writing before you make any structural alterations to your home. In some cases the lease will require you to ask permission for redecorating as well.

7. Risk of negative equity

Buying a new build property – whether through shared ownership or on the open market – is more likely to make sense if you expect to stay put for a number of years. This is because new-build properties include an extra premium on the sale price that, like a new car, depreciates as soon as you move in. If house prices fall, you may fall into negative equity and lose money if you try to move.

To avoid the risk of feeling trapped in the event of negative equity, be honest about the properties you are looking at. Is there enough storage? Are you expecting to start a family in the next few years? Does your furniture fit in the rooms?

8. Difficulty selling

Selling a shared ownership property can be more complicated then selling other types of homes. See our guide on selling your shared ownership home for more information on the selling process.

9. Your rent could rocket

If you buy a new build shared ownership property, the rent limit is 3% on the value of the share the landlord owns. Most landlords charge 2.75%. So if a house is valued at £400,000 and your landlord owns 60% – this means their share is worth £240,000. This means the rent for the first year (at 2.75% of their share) is £6,600 – or £550 a month.

For resale homes, the starting rent will be at the same level as the previous shared owner was paying.

Your landlord will review your rent at the times set out in your lease, it’s usually once a year. When the scheme was set up, the rules stated that the most your rent can increase by is the percentage increase in the Retail Prices Index (which measures inflation) for the last 12 months plus up to 0.5%. So if the RPI increase for the 12 months is 0% or negative, the most your rent can go up by is 0.5%.

However, while the example on the Government’s Shared Ownership scheme website gives the following example:

• Rent review date: 31 May 2021
• Rent in May 2021: £550 a month
• Percentage increase: 3.8% (3.3% increase in RPI + 0.5%)
• Rent from June 2021 onwards: £570.90 a month

At HomeOwners Alliance we have highlighted this as misleading. In times of high inflation, this formula means rents can increase by much higher than the figure quoted in the example. If we use the RPI figure from April 2023 of 11.4% and add 0.5%, it means rent could increase by up to 11.9%. This means a rent of £550 a month would increase to around £615 a month.

Changes to shared ownership rent reviews

In response to these concerns, in October 2023, the Department for Levelling Up, Housing and Communities announced it is changing this rule and will move from the “outdated” RPI to a new system based on the Consumer Prices Index (CPI) plus 1%. It says this will bring shared ownership rents into line with the limit that applies to annual rent increases in other types of social housing.

Also, the floor for shared ownership rent increases has been reduced from 0.5% to 0%. This means that rents cannot be increased if CPI is minus 1% or lower.

But the new rules will only apply to new leases and some properties will be exempt.

10. You could be evicted by your landlord

Just because this is a government-backed scheme doesn’t mean you get any more protection. And as you’re still paying rent on a portion of the property, you remain your landlord’s tenant. So you can still be evicted for, for example, not paying rent. We know of one case where after falling behind on her rent, one homeowner was evicted from her part-owned property and a court ruled she had no right to the £30,000 she had already paid for her share.

11. Expensive lease extensions

When you buy a leasehold property, the amount of time left on the lease is very important. When a lease drops below 80 years it’s considered a short lease and is a problem because it suddenly gets more expensive to extend it. Plus many mortgage lenders typically won’t lend on properties with short leases.

If you bought under the new model for shared ownership, you will have been issued with a minimum 990 year lease term so this won’t be an issue. However, under the original model, shared owners can be issued with a minimum 99 year lease term. It’s important to discuss this with your solicitor before buying so you know where you stand and what fees may be involved in extending the lease.

Am I eligible for Shared Ownership schemes?

To be eligible, you must meet certain Shared Ownership rules / criteria. You must:

• Be a first-time buyer, a former homeowner who can’t afford to buy on the open market now or an existing shared homeowner.
• Be over 18 years old
• Have an annual household income of less than £80,000 (£90,000 in London).
• Show you are not in mortgage or rent arrears.
• Demonstrate that you have a good credit history (no bad debts or County Court Judgements) and can afford the regular payments and costs involved in buying a home.

For eligibility requirements and how to get a mortgage for a shared ownership property, see our guide Shared Ownership Mortgages

How has the Shared Ownership scheme changed?

In 2020, the government announced changes to some elements of how shared ownership works. This affects properties being built under the affordable Homes Programme between 2021 and 2026. So depending on which type of scheme the property was built under, some of the rules are significantly different. To find out more read our article on Shared Ownership Changes

How does shared ownership stamp duty work?

Firstly, you may not need to pay stamp duty. When you’re buying a property to live in (assuming it’s not an additional property and that you’re UK-based) you will only pay stamp duty on properties over £250,000. And the threshold for first time buyer stamp duty is even higher. First time buyers buying a home up to £425,000 in England and Northern Ireland do not have to pay any stamp duty. And if your new home is worth £425,001 to £625,000 you’ll pay 5% stamp duty, but only on the value above £425,000.

However, if you do need to pay stamp duty you have two options:

• Making a one-off payment based on the total market value of the property, or
• Pay any stamp duty due in stages

If you opt to pay stamp duty in stages, you pay anything that’s due on the first purchase amount. But you then don’t make any further payments until you own more than an 80% share of the property.

You can choose which option’s best for you, depending on your circumstances. You can use HMRC’s stamp duty calculator to work out how much tax you would have to pay if you buy a shared ownership home.

Is shared ownership worth it?

After reading all the potential pitfalls you might assume shared ownership isn’t worth it. And in most cases, if you can, it is better to buy on the open market. To explore other ways of getting on the property ladder, see our guide to What’s replacing the Help to Buy scheme? and Buying your first home.

Or you may prefer to take longer to save up your deposit with the help of a Lifetime ISA. The government will give you a 25% bonus on your contributions, up to a maximum of £1,000 per year. This government top up definitely makes it a product worth considering to boost your savings. 

Perhaps get help from a relative or buy a home with friends or buy with a partner. See our guide to getting a no deposit mortgage for more on options to consider.

Having said that, shared ownership can and does work well for many people who can’t buy on the open market. The key is to explore all the pros and cons so that you can make a fully informed decision.

If buying through shared ownership means you can afford to get on the property ladder now and buy a property that will suit your needs for the next few years – and you’ve also checked that you can afford annual rent increases and the cost of a lease extension if required – you may decide it’s worth it for you. But don’t go into it without researching it properly first as you could regret it.

See our range of calculators to give an indication of how much you can afford to borrow or speak to our fee free mortgage partners at L&C to explore your options

Shared ownership London: How is it different?

When it comes to eligibility, with shared ownership London, maximum household income is capped at £90,000 compared to £80,000 outside London.

How to find shared ownership houses

You can also find organisations selling shared ownership homes outside London on gov.uk and in London at London.gov.uk. If you’re looking for shared ownership houses or flats to buy, another good place to look is the Share to Buy website. You can also find shared ownership properties on portals like Rightmove too.

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