Help to Buy explained Shared ownership

House and keys

Shared ownership can help people onto the property ladder who may otherwise struggle.

If you can't afford to buy a property outright, shared ownership allows you to buy a share of a home and rent the rest. We explain how it works. 

Shared ownership properties are sold through housing associations. You buy a stake of between 25% and 75% of the property, using a deposit and a mortgage. 

You then pay rent on the remaining share, which is owned by the local housing association. The rent you pay can be up to 3% of the association's share of the property's value. 

For example, if you owned a 40% share of a £150,000 property - £60,000 - the housing association would only be able to charge rent on the £90,000 share that it owns. This would be a maximum of £2,700 over the year, or up to £225 a month.

Shared ownership properties are leasehold properties, meaning you will own the lease on them for a fixed period of time, typically 99 years. You also have to pay a service charge for the property, which is usually charged on a monthly basis.

  • Not all lenders offer mortgages for shared ownership properties. For independent advice on how to get a shared ownership mortgage and the best deal for your personal circumstances, call Which? Mortgage Advisers on 0808 252 7987.

Shared ownership: video guide

Our two-minute video explains the basics of how shared ownership works, including how to buy extra equity in your home by 'staircasing'.

 

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Video transcript

If you're struggling to save a big enough deposit to buy your first home, shared ownership might be the answer. But how does it work? With shared ownership, you buy a share of between 25% and 75% of a home. The rest is owned by a housing association and you'll have to pay them rent on their share.

You'll need a deposit of at least 5% and a mortgage to cover the purchase price of your share. All shared ownership homes are leasehold so you might also need to pay a monthly service charge. If you're a first time buyer and your household earns �60,000 a year or less, then you're eligible.

If you live in London, this threshold is a bit higher, �71,000 for a one or two bed, or �80,000 for a three bed. This changes in April 2016 when shared ownership will be renamed helped-to-buy shared ownership. From then on you can earn up to �80,000 outside of London or �90,000 if you live in the capital.

To buy a shared ownership home, you should contact the local help-to-buy agent in the area you want to live. Not all mortgages can be used for shared ownership, so it's worth getting advice from an impartial expert broker such as Which? Mortgage Advisers. As with any mortgage, the more money you can put down as a deposit, the better the deal you'll get.

It's possible to increase your share of the property at a later date. This is called stair-casing. You can stair-case whenever you like but some housing associations will only let you buy in 10% chunks, so it could take a while. You'll also have to get a valuation before buying a bigger stake.

So if the value of your home has increased, it could cost more than you bargained for. If you think shared ownership could be the right option for you, call Which? Mortgage Advisers on 0800-98-05-489. Our team of impartial experts will work with you to understand your financial situation and recommend the best mortgage for you.

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Shared ownership: am I eligible?

Anyone with a household income of less than £80,000 outside London, and £90,000 inside London, is now able to buy a shared ownership home, with the previous restrictions on income and location now relaxed.

In the past, certain groups, such as teachers and nurses, had been given priority, but this now only applies to military personnel.

Staircasing

It is possible to buy a greater share of your property at any time from the housing association - this is called 'staircasing'.

The cost of increasing your share will depend on the market value of the property at the time. 

To staircase, you'll need to pay for the housing association to carry out a valuation of the property and make sure you have the cash or mortgage finance in place to pay for the extra share.

Each housing association will have different rules, but you'll generally have to buy a 10% share as a minimum when staircasing. If you want to buy a share of more than 10%, that's usually fine provided it's in 5% increments (eg 15%, 20%, 25% and so on).

Many housing associations will only let you staircase up to three times. Some will only let you staircase a third and final time if you intend to buy the entire remaining share of the property, taking your ownership up to 100% and effectively buying the housing association out.

Selling shared ownership property

You can sell your shared ownership property at any time, but the housing association has the right to try to find a buyer before you put it on the open market.

The amount of cash you and the housing association will get from the sale will depend on the market value of the property at the time. 

Shared ownership pros and cons

Shared ownership can be a great way of getting onto the property ladder, but it's not the ideal solution for everyone. Here are some of the pros and cons:

Advantages of shared ownership

  • It can enable you to get onto the property ladder more quickly than you might if you wanted to buy a home outright
  • You can buy additional shares as time goes on and you save more
  • It may be cheaper than renting
  • You can sell a shared ownership property at any time, and will benefit from any increase in value it's seen since you bought

Disadvantages of shared ownership

  • You'll have to buy where the shared ownership properties are, which may not be your preferred location
  • It can be difficult to staircase (build up the share you own) if the value of the property increases, as the shares will become pricier to buy
  • You'll usually have to pay a service charge - although this is true with many leasehold properties, whether they're shared ownership or not
  • It can be tricky to get a shared ownership mortgage - call Which? Mortgage Advisers for help with this (0808 252 7987)

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Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.