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Shared Ownership and what to watch out for

Shared Ownership: What to watch out for

Shared ownership is a great way to get a stake in a property when you can’t afford or can’t borrow enough to buy outright on the open market. There are however common complaints from people in shared ownership schemes. This guide points to the pitfalls you’ll want to avoid.

What is shared ownership?

  • Shared ownership schemes allow buyers who meet the eligibility criteria to secure a mortgage to buy a stake (usually between 25% and 75%) in a property, while paying rent on the remaining share to the housing association or private developer that own the building
  • The rent you pay on the remaining share is charged at a discounted rate
  • The properties are usually leasehold properties and you therefore have to pay a monthly service charge as well as contribute to major maintenance works
  • You can buy more of the home by “staircasing” i.e. increasing your share. Shares can be bought in 10% increments. This in turn will reduce your rent.

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

What are the downsides to shared ownership?

1. Maintenance charges

Hopefully the monthly mortgage repayments, plus rent will still make shared ownership far cheaper than buying a property outright. But don’t forget to add on maintenance charges and be prepared for possible increases in the future. As well as a general monthly service charge for caretaking and maintenance of communal areas, ask how you will be expected to pay for more significant works e.g. for roof maintenance.

2. No renting allowed

There are also likely to be restrictions on whether you can rent the property out. In the great majority of cases, sub-letting is not allowed.

3. Buying up increased shares in your property can be expensive

When it comes to increasing the stake in your property  – or “staircasing” – it’s not just buying the share you need to worry about. There are other costs involved:

  • Valuation fee –  your housing provider will instruct a surveyor to confirm the current market value of the property.
  • Legal expenses – staircasing will involve changes to your existing lease which will require a solicitor
  • Stamp duty – there are two ways to pay. The first involves one-off payment in advance based on market value of the property and the second is by paying in stages. You will need to calculate the best option for you.
  • Mortgage fees – If you are applying to change lenders to buy your additional share or to access better interest rates you will need to pay the lenders valuation fee and a mortgage arrangement fee, plus any penalty your existing lender may charge for terminating your mortgage with them.

Check with your housing provider whether there are any restrictions when it comes to buying up a greater share in your property e.g. Will you be able to staircase to 100% outright ownership or is there an upper limit? Can you start staircasing immediately? What are the maximum number of times you can staircase? What’s the minimum share you can buy at any one time?

4. Restrictions on what you can do

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.

5. The 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?

6. Issues around selling your share when moving home

When you are ready to sell your home, the process is not straightforward and can stall your progress on to the next rung of the property ladder. First of all, the housing provider is likely to have the right to buy back the property before it is marketed to anyone else (this is called “right of first refusal”), even in some cases if you have purchased 100% of the property through staircasing. This is so your property can be put to other people on the waiting list who are unable to buy on the open market.

After a period of time, if your housing provider fails to find a buyer you are free to market your share of the property yourself or using an estate agent. But you will need to find a buyer who fulfils the housing providers eligibility criteria for shared ownership. As not all banks provide shared ownership friendly mortgages, your pool of potential buyers may be reduced.

7. You don’t have greater protection under shared ownership

Just because this is a government backed scheme doesn’t mean you get any more protection.

  • Costs can spiral. Check you can afford increased maintenance charges
  • While rents start low, expect these to increase
  • It is your responsibility to keep up repayments on your mortgage loan
  • Be aware that as rent is paid on the part of the property not owned by you, the housing provider can take action to repossess the property for rent arrears in the County Court. 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

Found a property you like? Research the housing provider on-line. See what customers say on forums. Are they satisfied? How well are they maintaining the property and at what cost?

What should I do before I apply?

  • Check the eligibility criteria of the housing provider for the property you like
  • Read and understand your lease and what restrictions it sets out
  • Price up the various costs, work out your monthly payments
  • Think about your long term plans and when you could afford to start staircasing
  • Check out our other unbiased guides on buying, selling and running your home, alongside money saving tips and join to access to our panel of housing experts ready to answer your questions, a legal advice line, fee-free mortgage advice and more

The HomeOwners Alliance provides members with guidance on buying, selling and owning their homes. To see how we can help, find out more about the benefits of joining the HomeOwners Alliance.


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24 Comments

  1. Hi Marie, sorry to hear that you’re in this situation which isn’t unusual I’m afraid. To be able to help you further we’d need to see the paperwork that your housing association has sent you. This would be a service we provide to members so please do consider taking out a membership with us and we’ll do our best to help you.

    Comment by Sara Hind — October 17, 2018 @ 2:36 pm

  2. Hello Quincy and thanks for your question. If you were to become a member, we’d be happy to look into this for you. Alternatively, you might want to contact the Govt’s Stamp Duty Land Tax helpline on 0300 200 3510.

    Comment by Sara Hind — October 16, 2018 @ 2:52 pm

  3. Hi

    I purchased 50% 24 years ago. I have saved the money to purchase the remaining 50%.

    However, the landlord. Not the original landlord. The house transferred twice whilst I’ve lived here. They are dragging their heals. I have had to pay for a 2nd valuation because the 1st expired. The 2nd will expire in less than a month. It’s not as if we are negotiating, they just take on average 2 weeks to respond to requests. I am still be charged rent and my conveyancing firm just seem to toddle along with it. It can’t be right that they can drag their heels and i have to keep forking out for it? I have only just received the TP1 as i am requesting the freehold. However, i have asked if they will still expect service charges after the purchase? To be fair, my conveyancing firm aren’t too sharp but its the delays in getting answers. Sorry to bore you….

    Comment by Andrew Ridley — October 9, 2018 @ 4:35 pm

  4. Hi, I’m considering buying a shared ownership flat, but I’m a bit concerned f I’ll be able to sell my shares in a few years’ time as my situation might change. If I want to move to a bigger flat, can I purchase the flat earlier than managing to sell the shared ownership? I know if I had a regular residential home, then I’d pay 3% extra stamp duty to own the second home, and will get a stamp duty refund if I sell within 3 years. Is it the same with shared ownership?

    Comment by Quincy — October 8, 2018 @ 7:57 pm

  5. My question is my housing association says that i can only sell with a RICS valuation. The valuer that was on their panel as valued my property at £110,000 more than three estate agents say its worth and the valuer wont reduce their valuation. Is there any way that I can resolve such a situation.I dont want to pay another valuer and find the same thing again. The valuer says they are protecting the housing association. It was bought as a private property under a DIYSO scheme so was never a housing association property. So stuck this has been going on for months

    Comment by marie mulcahy — October 4, 2018 @ 9:42 pm

  6. No Tania, it will remain a leasehold property. You will own 100% of the leasehold.

    Comment by AKerr — October 3, 2018 @ 11:03 am

  7. Thanks Miss Martinez. Being pressured to use the in-house solicitor is a big problem and we agree doesn’t get buyers the independent advice they need from the start. We do have very varied experience of shared ownership from members but a lot of your points are common, particularly around opaque service charges. Please get in touch with us at hello@hoa.org.uk and we can see if we can help.

    Comment by AKerr — October 3, 2018 @ 11:02 am

  8. Potential Shared-Ownership buyers DO NOT have access to read or view leases prior to purchasing, therefore regardless of how much background research you do, unless you already know a friend or resident already living at the development, willing to share impartial advice/information, you will never be aware of the full T’s & C’s of Lease until post-purchase.Similarly with the Service Charges costs. housing Associations often generally give prospect buyers unrealistic estimates (exactly my case)to attract and encourage them to purchase. They strongly recommend solicitors which also work jointly with them and are favoured by the Developer, as it reduces the turnaround and they know exactly which critical information NOT to disclose to secure a deal. What’s even worse is they ALL take advantage of the unprivileged socio-economic status of the buyer (who has no other possibilities of getting on the property ladder). In addition to being unrealistic “charges”, owners are quickly placed under huge financial burdens when they discover these developments are run by scrupulous Estate Management Companies who abuse not only Shared Owners positions, but also that of traditional Leaseholders as they know the whole Leasehold system is severely flawed, there is no monitoring by a Regulator, Government or even the Housing Associations involved, of the fees they impose on Residents (I.e: they include huge deficits ranging from £350K due to mismanagement of Estate Budget, discovering flaws in building designs such as the “infamous” Flammable Cladding & consequently adding “Waking Watch” costs, unjustified yearly increases in Service Charges to the point of being triple or cuadruple in amount, just to name a few). Despite Residents reporting this ongoing abuse and initially engaging in dialogue with all parties involved to: Firstly find out the why? Secondly request to see receipts justifying provision of services and provider/maintenance contracts to ascertain if we are really getting “good value for money”, NOBODY wants to listen, NOBODY wants to assume one iota of responsibility, Government DOESN’T intervene or even attempt to change/penalise the abusive behaviours and practices from “Offshore tax-avoiding Freeholders”, Estate Management Companies, Developers, Housing Associations. Families and single individuals are at their financial and emotional wits end because there is NO SOLUTION for them. They are being held hostages in their properties, which are now an unsellable and unsafe product, additionally in danger of negative equity, while still having to survive on unsavoury salaries and feed themselves (basically survive). This NEEDS to stop!!!

    Comment by Miss R Martinez — September 30, 2018 @ 4:50 pm

  9. Hi
    after purchasing the whole 100% of the shared ownership property, does this make the house freehold?

    Comment by Tania — September 28, 2018 @ 8:38 pm

  10. Shared ownership now is much better I bought an older house own half and sadly retired and all repairs are down to me. They sell their older houses or did then to sit on money while the leaseholder keeps the house up to date rather unfair

    Comment by Mary Sullivan — September 25, 2018 @ 10:26 am

  11. Hi Glenn, it’s not possible for us to answer this question. It’s best posed to the Housing Association, and if you have a conveyancer, ask them to check this out for you.

    Comment by Sara Hind — September 24, 2018 @ 4:22 pm

  12. We are currently trying to get out if this scheme but our housing assosiation have wanted 3months before we are able to go to estate agent.
    Also we didnt hear anything from our housing assosiation which were clarion.
    I wouldnt recommend this to any of my friends its very expensive to get out and weve had to do all the work

    Comment by zalie olmos — September 24, 2018 @ 11:02 am

  13. I am currently in the process of buying a 50% share in a property. I was concerned with the rent on the other half of the property. Does the housing association have the right to sell their share of the property to a third party, then increasing the rent?

    Comment by Glenn — September 18, 2018 @ 12:28 pm

  14. Hi Annette, we’d suggest you contact your local Citizen’s Advice Bureau for advice on housing benefit.

    Comment by Sara Hind — August 22, 2018 @ 2:16 pm

  15. I have a concern.
    We are in a shared ownership which we own 10% of.
    We are worried that if my husband comes out of work, will the government pay our rent as we have no savings. This has become a bit scary because of rumours at work.

    Thank you

    Comment by Annette — August 21, 2018 @ 6:13 pm

  16. hi …currently buying a 50|% shared ownership with a private housing company – currently selling a flat – sold subject to contract – heaven forbid anything goes wrong…but if the flat fell through would we if able to raise the money of the share out of desperation..be able to continue with the purchase???…house is new build and we have completed reservation etc..

    Comment by ali — April 8, 2018 @ 8:51 am

  17. I’m thinking of buying a share of the HA house I’ve lived in for the last 35 years, under the Social Homebuy scheme. I would really like to talk to a solicitor about the pros and cons of this, particularly one who is familiar with the downside of SO/SH. Knowledge of inheritance tax would be also very useful. Can you recommend anyone?

    Comment by Jane — November 23, 2017 @ 12:33 am

  18. valuable brief on shared ownership. i wish to feedback on shared ownership with no rental for 55+ groups where for economic reasons have had to sell their properties resulting in falling between the cracks as they do not fall in the poverty bracket but unable to obtain a mortgage but may be able to use the balance from the sale of the property. however some of which has been used towards rental in the meantime resulting in being forced into shared housng and in depletion of this money after a number of years. What happens at this point especially as around this vulnerable age to end of life it is difficult to manage maintenance costs and council tax which are excluded from service charges. Pensions have depreciated. can one get support as is from a rental perspective?

    Comment by m wilks — October 19, 2017 @ 8:40 pm

  19. Hi Tim, mortgage arrangement fees can vary from zero to as much as £2,000 but a typical arrangement fee now is perhaps £999.
    That would also usually include any booking fee if applicable. Eg you might have £99 or £199 upfront with the remainder on completion. Again there are lots of lenders that don’t charge a booking fee and it could even vary between products. So it’s worth speaking to the lender direct and a broker. It is sometimes the case that you can get a better deal from a lender going through a broker then going to the lender direct. Our mortgage broker partner are L&C and are fee-free, so worth giving them a ring on 0800 073 2326 – or request a call back here
    Angela

    Comment by AKerr — August 2, 2017 @ 11:07 am

  20. My daughter is about to purchase a 30% share and I am interested in the difference between going through a broker for the load and and using a lender direct. Arrangement fee is £1000.00 Is this normal ?

    Comment by Tim Jones — August 1, 2017 @ 12:14 pm

  21. I have just been to view a share to buy resale with Notting hill housing association in London. The sellers of their 50% are obliged to sell their share through the housing association- to which they take 1% of the sale value for doing so. This particular seller was due payout 25000 for the commission!

    Comment by Rory Tiernan — April 6, 2017 @ 7:47 pm

  22. Interesting. I purchased my house (50%) via Shared Ownership. I have maintained the property the best I can. The crux being is that the house was not on a HA street. What exactly am I paying a service charge for? Apart from a yearly statement and correspondence informing me of increase in rental and service charge I have heard NOTHING from the HA. They obviously don’t maintain the street, nor the lighting, nor anything else for that matter. Quite apart from the service charge I am also charged a small monthly sum for buildings insurance!

    Comment by Mark Casey — March 6, 2017 @ 2:27 pm

  23. Dear

    My shared ownership property was destroyed inva fire on the 30th April 2016. Currently still not fixed.

    My Housing association expects me to pay rent in this.

    Can I be expected to pay rent for a flat that I have not been able to inhabit?

    Please please advice me?

    Kind regards,

    Mr Johann Swanepoel

    Comment by Johann Swanepoel — February 8, 2017 @ 5:29 pm

  24. Great insightful article thank you. Has given me some questions to ask the developer

    Comment by james — February 2, 2017 @ 9:39 am

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