What is shared ownership?
Also known as 'part buy, part rent', shared ownership is a scheme that allows you to buy a share of a property and pay rent on the rest. It's designed to help people with small deposits and lower incomes get on the property ladder.
You buy a stake of between 25% and 75% of the property from a housing association (a not-for-profit organisation that supplies housing), and pay rent of up to 3% on the remaining share.
You typically need to put down a minimum 5% deposit, but that's only on your share rather than the total property price. You pay for the rest of your share with a mortgage.
How is rent calculated on a shared ownership scheme?
Let's look at an example. Say you've bought a 40% share of a £150,000 property, worth £60,000.
The housing association charges rent of 2.75% - which is fairly typical - on the £90,000 share that it owns. This would be £2,475 over the year, or £206.25 a month.
Of course, you would have to make mortgage repayments on top of this if you've borrowed money to fund your share of the property. If you'd put down a 5% deposit, you'd need to make repayments on a £57,000 mortgage.
Who is eligible for the shared ownership scheme?
Shared ownership is only available to first-time buyers, those who've previously owned a home but can't afford to buy one now, and existing shared ownership homeowners who want to move house.
Your household income must be less than £80,000 if you live outside London or £90,000 if you're living in London.
In the past, certain groups such as teachers and nurses were given priority, but this now only applies to military personnel.
How do I apply for the shared ownership scheme?
First, you'll need to find your local Help to Buy agent, which you can do on the government's Help to Buy website.
Your local Help to Buy agent's website should contain details of how to apply for shared ownership.
You'll be asked questions about where you want to live, what your income is and how much you have in savings, as well as your history with making credit repayments and debts. Your application will be assessed within around four days.
If accepted, you can start looking around for a shared ownership property. Your Help to Buy agent should be able to show you available properties in your local area, and you can also search the Property Booking and Share to Buy portals, which list thousands of shared ownership and Help to Buy homes.
You can book viewings through the relevant housing association and once you've found a shared ownership property you want to live in, you'll need to put down a reservation fee. It's typically £200, but could vary.
Although you'll have already shared some financial details when applying for the scheme, you'll need to go through a full financial assessment with the housing association. This will be carried out by an independent financial adviser.
They will typically ask to see:
- Three months of payslips
- Three months of bank statements
- Proof of ID
- Proof of savings
- Information about existing debts and other credit arrangements
- Information about any benefits you receive.
You may also have to go through a credit check. Following this assessment, you'll find out what kind of share you can afford, and what rent you will need to pay.
The financial adviser you deal with may also offer to arrange a mortgage for you. You don't have to use their services, though, and are free to arrange a mortgage yourself.
Shared ownership mortgages
Once you've passed the housing association’s financial checks, you’ll need to go through a similar process with a mortgage lender.
You’ll go through all the normal stages of a mortgage application, including a detailed analysis of your income and outgoings, which helps the mortgage provider decide whether and how much to lend to you.
However, when you're buying a shared ownership property, two costs in particular will need to be factored in: the rent you'll pay on the portion of the property that you don’t own, and the ground rent and service charges you'll pay due to shared ownership homes being sold on a leasehold basis.
These costs are unavoidable with shared ownership, and could drag down the amount you could borrow if your monthly income is stretched.
If the costs combined with your mortgage exceed 45% of your overall income, you may struggle to pass affordability checks.
Who offers shared ownership mortgages?
The market for shared ownership mortgages is not as big as that for all first-time buyers – but there's still plenty of choice, with most high-street lenders and some smaller building societies offering shared ownership products.
Some lenders offer mortgages specifically designed for shared ownership. These tend to be smaller, regional building societies, which are often willing to lend at high loan-to-values - useful if you have a smaller deposit.
Be prepared to supply a lot of paperwork to these lenders, as they tend to use a process called ‘manual underwriting’, meaning there's someone checking through all of your details (bank statements, payslips etc) to make sure you can really afford the loan you’ve asked for.
Big high-street lenders more commonly offer their first-time buyer mortgage range to shared ownership buyers.
If you have bad credit issues – such as county court judgments (CCJs) or debt arrears – you may struggle to find a lender willing to give you a shared ownership mortgage.
Our analysis of the entire mortgage market found just three lenders willing to offer shared ownership mortgages to people who have had credit problems in the past.
Things that can slow down a shared ownership mortgage
1. Ground-rent-doubling clauses
Before committing to buy a shared ownership property you should check through the lease with a fine-tooth comb for any unusual or punitive clauses.
Some leases have a 'ground-rent-doubling' clause that means what starts out as a reasonable-sounding ground rent of, say, £300 a year doubles every 10 or 15 years so that, in 60 years’ time, the owner will be paying £10,000 a year.
It can be very difficult to sell properties with ground-rent-doubling clauses, and the amount of ground rent you pay as a proportion of the property’s value has become a key consideration for lenders in recent years.
As a guide, many lenders will only approve a mortgage if the annual ground rent on a leasehold property is no more than 0.1% of the property value. For example, on a £250,000 property, many providers will only lend on properties with monthly ground rent of £250 or less.
Even if you do find a lender willing to give you a mortgage on a property with high ground rent, that doesn’t necessarily mean you should buy the property. Shop around and look at comparable properties to ensure that the terms of the lease are competitive compared with the rest of the market.
2. Restrictive covenants
Some leases contain a ‘restrictive covenant’, which might restrict what can be done with a property or the land it's built on, or restrict how much it can be sold for or who it can be sold to in the future.
Whatever the covenant, it's important to be aware of them early on. They can put mortgage providers off lending and are often only checked when you’re about to complete on your property purchase, when you may have already spent a fair amount on legal, mortgage and survey fees.
If you're considering buying a shared ownership property be sure to ask the selling agent if they're aware of any restrictive covenants attached to it. Also, always ensure your conveyancer checks the terms of the lease early on in the process so you can send these onto your lender in good time where possible.
Get professional mortgage advice
Talking to an independent mortgage broker early on in the process of buying a shared ownership property is often invaluable.
Their knowledge and experience could help you avoid properties with onerous lease clauses, and they'll also be able to give you an accurate idea of how much you could borrow.
What is 'staircasing' with shared ownership?
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%.
For this reason, it's worth being strategic and working out a long-term plan before you begin staircasing.
Potential changes to staircasing rules
In September 2019, the government announced proposals to allow all shared ownership homeowners to staircase by a minimum of 1%.
A review has been launched, but this change is unlikely to come into force until at least 2020.
Pros and cons: are shared ownership properties a good idea?
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 were buying a home outright
- You can buy additional shares as time goes on and you save more or pay off more of your mortgage
- It may be cheaper than renting (but not always)
- 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 more expensive
- You'll usually have to pay a service charge - although this is generally true with all leasehold properties, whether they're shared ownership or not
- It can be tricky to get a shared ownership mortgage.
Which properties are available for shared ownership?
You can't buy any property you want under the shared ownership scheme. Only properties that have been specifically built for shared ownership can be bought this way.
These are properties that have had a government subsidy and been built by a housing association. They are usually part of an estate, like an apartment block, in which a proportion have to be sold as affordable housing, or the entire estate is sold under the shared ownership scheme.
Shared ownership properties are leasehold, meaning you will only be the official owner for a fixed period of time, typically 99 years (though you should be able to extend the lease as time goes on). You'll also have to pay a service charge for the property, usually on a monthly basis.
They will either be new-builds or resales of older shared ownership properties that have already been owned by someone else.
There are pros and cons to both: while you may be purchasing a brand-new property with a new-build, the price and rent tend to be higher. You may also encounter snagging issues.
With a resale property, while you might save on rent, you may have to fork out to fund renovations. You'll also have to purchase at least the same size of share that the current owner has.
Stamp duty on shared ownership properties
When you buy a shared ownership home, you have the option of paying stamp duty on the full market value or just the share you’re initially buying.
Some first-time buyers don't need to pay the tax at all (see below), but if you’re not a first-time buyer you’ll have to pay normal home mover rates.
Whether you choose to pay stamp duty on just your share or the full property value up front is a personal decision. The obvious advantage of only paying it on your share is the smaller initial outlay you'll face, but if you buy additional shares later on and the value of the property has increased, your stamp duty bill will be higher too.
First-time buyer stamp duty discount
In Autumn 2017, the Chancellor introduced rules meaning that most first-time buyers would pay less stamp duty or none at all - but when it came to shared ownership, this only applied to first-time buyers paying stamp duty on the full property value.
However, changes introduced in the Autumn 2018 Budget mean that you could now get a first-time buyer stamp duty discount even if you're only paying stamp duty on your initial share, provided the total property value doesn't exceed £500,000.
This means that, if your share costs £300,000 or less, you won't pay any stamp duty at all. You'll pay 5% on anything over £300,000.
This has also been back-dated so that, if you bought your shared ownership home on or after 22 November 2017 and paid stamp duty which you wouldn't have paid under the new rules, you can claim it back (see below).
If the total property value is over £500,000, you won't get any discount and will have to pay normal stamp duty rates.
- Cost of your share = £350,000
- Stamp duty rate on amount between £300,000 and £350,000 = 5%
- Total stamp duty = £2,500
How to reclaim stamp duty on a shared ownership property
If you bought a shared ownership property between 22 November 2017 and 28 October 2018 and paid more stamp duty than you would have under the new rules above, you can claim it back.
To make a claim, you'll need to write to HMRC before 28 October 2019, stating:
- That you're claiming first-time buyer stamp duty relief
- The unique reference number from your original stamp duty return (UTRN)
- Confirmation of the amount to be refunded
- The name of the person to be refunded
Refund applications should be sent to:
BT - Stamp Duty Land Tax
HM Revenue and Customs
Do I need to pay stamp duty when staircasing?
If you want to buy further shares in your property further down the line (staircasing), you may need to pay stamp duty depending on the percentage of the home you'll own after buying the additional shares.
If you staircase, you’ll only need to pay stamp duty if the transaction takes your stake in the property to above 80%. Any further purchases once you’ve passed 80% will also be subject to the tax.
So if you own a 25% share of a property and then staircase to 75% (by buying a further 50%), you won’t pay stamp duty on this transaction regardless of how much you spend.
If, however, you staircase from 25% to 85% (by buying a further 60%), you’ll need to pay stamp duty at the usual rates on the full transaction.
You may also need to pay a one-off tax on the property's ‘lease premium’ when staircasing to full ownership. You can find out more about this in the government’s guide to paying stamp duty in stages.
Stamp duty on annual rents
In some cases, you’ll also need to pay stamp duty on the annual rent you pay on the share owned by the housing association. This calculation is based on Net Present Value, which can get quite complicated.
In simple terms, if the rent you'll be paying over the term of the lease exceeds £125,000, you'll need to pay 1% on the amount you'll exceed the threshold by.
- A 30-year lease at £500 rent per month totals £180,000 (360 payments of £500)
- The stamp duty threshold is £125,000, and £180,000-£125,000 = £55,000
- 1% of £55,000 equals £550, so this is the sum you'll need to pay.
How do I sell a shared ownership property?
You can sell your shared ownership property at any time, but there are a number of fees you'll need to factor in (see below).
The housing association also has the right to try to find a buyer before you put it on the open market. This is known as the 'nomination period'.
Nomination periods vary depending on the housing association. Some have very short ones, say 28 days, whereas other require eight weeks.
What fees will I pay?
You'll be charged a marketing fee for the housing association to advertise your property, as well as the housing association's legal costs and fees for a leasehold information pack.
You'll also need to pay for an energy performance certificate (EPC).
You'll also have to pay to get the property valued, usually by a panel of surveyors provided by the housing association.
If you're not happy with the valuation of the property you can challenge it, but you'll need to provide evidence, such as proof that similar properties have recently sold for more.
When the housing association has found a buyer, you'll need to pay it an 'assignment fee'. Similar to a traditional estate agent fee, this will be a percentage of the total amount the property sells for - not just a percentage of the share you own. This could be around 1% to 2%.
If the housing association cannot find a buyer during the nomination period, you are free to market the property yourself.
The amount of cash you and the housing association will get from the sale will depend on how much the property ends up selling for.
Shared ownership: FAQs
Is a shared ownership property leasehold or freehold?
Shared ownership properties are all sold on a leasehold basis. This means that you are a tenant on a lease typically lasting 99 years, and the housing association is your landlord.
You'll both have obligations to meet, which are set out in the terms of the lease. Yours will include paying service charges and for the upkeep of the property and its surroundings, and restrictions on what alterations you can make to the property.
Who pays for repairs to my shared ownership property?
If anything within your shared ownership property needs to be repaired, it's generally your responsibility. The housing association will be responsible for the upkeep of communal areas, although you will likely pay a service charge to cover these costs.
If you're buying a brand-new property, you should strongly consider getting a snagging survey. A snagging survey is designed to check for problems with a new-build home. Developers should fix problems identified in snagging surveys quickly - ideally before you move in.
Can I sublet a shared ownership property?
Generally, you aren't able to let out shared ownership properties to other tenants. This will usually be specified in your lease.
You may, however, be able to take on a lodger, but you'll need to check with the housing association.
Can I make changes to a shared ownership property?
Decorating your property is usually fine - you won't need to seek permission from the housing association.
But if you're thinking of knocking down walls and making structural changes to the property, it's vital you check the terms of your lease to see if there are any restrictions. You may need to seek permission from the housing association before you make any changes.
Do I need to use a special shared ownership solicitor?
Your housing association will likely have a panel of property solicitors or conveyancers they recommend you use if you want to buy or sell a shared ownership property.
You aren't obliged to use the ones they recommend, but if you do seek out your own conveyancer, make sure they have experience and expertise in dealing with shared ownership properties.