What is shared ownership?
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.
Our two-minute video explains the basics of how shared ownership works, including how to buy extra equity in your home by 'staircasing'.
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 eligibility
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.
What is '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 a 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)
Do I pay stamp duty on shared ownership properties?
When you buy a shared ownership home, you'll have the option of either paying stamp duty on the full market value or on the price you're paying for your initial share and on the rent you'll need to pay per year.
Paying stamp duty on the full market value
If you pay stamp duty on the full value of the home, you'll pay the standard stamp duty rates.
This can be a good idea if you're buying in a rising market and are planning to staircase up to full ownership, as you'll have already paid all of your stamp duty in advance, meaning you won't need to pay it at market rate further down the line.
Paying stamp duty on your initial share
If you choose to pay for only your initial share, then you'll only need to pay stamp duty if the price of your share is £125,000 or more.
You may also need to pay stamp duty on your annual rent. 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% for the amount you 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, so £180,000-£125,000 = £55,000
- 1% of £55,000 equals £550, so this is the sum you'll need to pay
Correct as of date of publication.