Pros and cons of shared ownership of property in the UK

Shared ownership is a popular scheme that aims to make home ownership more accessible, particularly for first-time buyers. Shared ownership allows individuals to purchase a share of a property, typically between 10% and 75%, while paying rent on the remaining portion. This approach to buying a property has both advantages and disadvantages which potential buyers should carefully consider.

Pros of shared ownership

Affordability:

• Lower initial costs: Shared ownership lowers the barrier to entry for home ownership. Since you only buy a share of the property, the initial deposit and mortgage amount can be significantly reduced compared to buying outright.
• Reduced monthly payments: Although you pay both a mortgage and rent, the combined monthly payments can often be less than what you’d pay for renting a similar property privately or servicing a full mortgage, although this should be confirmed by your mortgage adviser.

Incremental ownership:

• Staircasing: This feature allows you to purchase additional shares in the property over time. As your financial situation improves, you can increase your ownership stake, potentially up to 100%, thereby reducing the rent you pay.
• Investment potential: As you acquire more shares, you benefit more from any increase in the property’s value, which can enhance your investment returns. However, be careful, as the more the property’s value goes up, the more money you’d have to spend on buying the extra shares.

Security:

• Stable ownership: Unlike renting privately, shared ownership provides more stability since you have a long-term lease and are partly owning the property. This can provide a sense of security and reduces your exposure to significant rent increases enforced by some landlords.

Access to better properties:

• Higher quality homes: Shared ownership schemes often provide access to new-build homes or well-maintained properties that might otherwise be unaffordable. You may also find that you are able to live in an area that may be more attractive, such as closer to the city centre, or in a popular area.

Cons of shared ownership

Complex financial arrangements:

• Dual payments: Managing both rent and mortgage payments can be complex. Additionally, rent typically increases annually, which can lead to higher living costs over time, however these are typically limited at 3% of the share’s values but most landlords (housing associations) tend to charge 2.75%.
• Additional costs: There are costs associated with buying additional shares (staircasing), including valuation fees, legal fees, and potentially higher mortgage rates.

Restrictions and limitations:

• Selling restrictions: When you want to sell your share, you might have to give the housing association the first opportunity to buy it back or find a buyer who meets their criteria, which can complicate and prolong the selling process.
• Leasehold issues: Shared ownership properties are usually leasehold, which can come with service charges, ground rent, and other lease-related restrictions and costs, and these should be highlighted before you proceed.

Investment risks:

• Market fluctuations: If property prices fall, the value of your share decreases, and you might find yourself in negative equity, especially if you’ve staircased and own a larger share of the property.
• No full control: You don’t have full control over the property as you would with outright ownership. Major decisions, especially those related to maintenance and improvements, may require the housing association’s consent.

Maintenance responsibilities:

• Ongoing costs: Even though you don’t fully own the property, you are responsible for all maintenance and repair costs, which can be a financial burden.

Who is eligible for shared ownership?

Eligibility for shared ownership is determined by specific criteria designed to target those who need assistance in affording a home. We have highlighted the main eligibility requirements:

Income criteria

• Household income: Your household’s annual income must be below certain thresholds:
• Outside London: £80,000 or less.
• Within London: £90,000 or less.

Employment status

• Employment: You must have a stable and regular income. This typically means being in permanent employment, though there may be exceptions for those in long-term temporary contracts or self-employment, provided you can prove consistent income.

Home ownership status

• First-time buyers: Shared ownership is primarily aimed at first-time buyers who cannot afford to buy a home outright.
• Previous homeowners: You can also apply if you used to own a home but now cannot afford to buy one on the open market. This might be due to a change in circumstances such as divorce or relocation for work.
• Current shared owners: Those currently in shared ownership properties can move to another shared ownership home, known as ‘shared ownership staircasing’ or ‘resales.’

Age and residency

• Age: You must be at least 18 years old.
• Residency status: You need to be a British or EU/EEA citizen or have indefinite leave to remain in the UK. Some housing associations may have additional requirements for non-UK nationals.

Additional considerations

• Disabled applicants: There are specific shared ownership schemes, such as Home Ownership for People with Long-term Disabilities (HOLD), tailored to meet the needs of disabled individuals.
• Older people: There are also shared ownership schemes designed specifically for older people, often aged 55 and above, known as Older People’s Shared Ownership (OPSO).

Conclusion

Shared ownership can be a viable route to home ownership for those who cannot afford to buy outright, offering lower initial costs and the potential to increase ownership over time. However, it comes with complexities and potential risks that require careful consideration. Prospective buyers should consider the benefits of affordability and stability against the challenges of financial management, restrictions, and long-term costs. Engaging with financial advisors and thoroughly understanding the terms of any shared ownership agreement is crucial to making the right decision.