How does shared ownership work?

If you are looking to get onto the property ladder, you will have probably heard of the shared ownership scheme. Since its introduction back in the 1970s, it has grown and grown in popularity and has now established itself as a solid and reliable affordable purchasing option for those who may be struggling to raise a deposit to purchase on the open market.

Personally I have never tried, but have lots of friends and readers who have, and ask me questions about it. Here is how it works.

As with any financial scheme, however, you may be approaching shared ownership with caution. How does it work? Is it worth it? What’s the catch?

Shared ownership explained

Think of the shared ownership scheme as a cross between renting and buying. Typically, you purchase around a 30-50% share of a property. You then pay a mortgage on this share, as opposed to the full property percentage as you would traditionally. You then pay rent to a Housing Association on the remaining percentage of the property.

Let’s explain this with an example. If you found a shared ownership property for the value of £200,000 and wanted to purchase a 25% share, your share would amount to £50,000. To put down a 5% deposit, you would need to raise £2,500.

This is obviously much more affordable than if you were required to put down a 10% deposit on a £200,000 house without using the scheme, coming in at £20,000.

Of course, you do then have rent to pay on the remaining 75% share. Rent on a shared ownership home is usually set at around 3% of the unsold equity, however, it will differ between properties/Housing Associations. As per our example, you will pay around £375 per month in rent.

Can you eventuality own 100% of a shared ownership property?

Yes! Over time, you can increase your stake up to 100% ownership. This means that you will own the property and stop paying rent. This process is called ‘staircasing’. It’s important to be aware that each time you want to staircase, you will need to have your home valued. This is because the price of any additional shares will be based on the current market value of the property.

You will also need to appoint and pay for a solicitor when you staircase, as they will be responsible for making the changes to your existing lease and ensuring that all the legal details are taken care of correctly. You may also need to extend or remortgage your shared ownership mortgage, so you’ll need the help of a mortgage advisor and broker who specialises in this area.

Who is eligible for the shared ownership scheme?

The beauty of the shared ownership scheme is that it is designed to be accessible. That being said, there are some criteria you must meet in order to qualify, and these criteria are in place to ensure that the scheme is restricted to those who actually need it.

With this in mind, you must be over 18 years old and not currently own a property. This means that you could either be a first-time buyer or someone that previously owned a home but no longer does. You also must have an income of less than £80,000 a year (£90,000 in London) and be able to obtain a mortgage.

Shared ownership comes with both its pros and cons and whilst it may be the perfect route to take for one person, it may not suit another person quite as well. If you are considering making use of this scheme, make sure you do your research and decide whether it is right for you!