Is Shared Ownership A Good Idea OR Something To Avoid?

Written by Myles Hemingway

Myles is our self-confessed ‘word nerd’ and property geek. You’ll find him mythbusting everything from house repayments to maisonettes, as well as giving you our spin on the latest property news and industry trends.

Is shared ownership worth it in 2020? Or is it another homebuying scheme you should avoid?

Selling a house fast is much like buying one – it’s usually quite a challenge, especially when money is tight. With the average property price now in excess of £300k (Halifax) and over half of the UK public saying a lack of affordable housing is arguably the country’s biggest issue (Yahoo Finance), proceedable buyers are becoming an increasingly rare breed (Where’d they go?).

But that doesn't necessarily mean that hopping on the housing ladder has become any harder. You see, thanks to recent changes to the shared ownership scheme, that first run of the property ladder is now further within reach than ever before thanks to recent changes in the shared ownership scheme.

Only trouble is, if you’re reading this thinking, “Great! But, what is shared ownership? Who’s eligible? How does shared ownership work?” you'll need some guidance before you can fully make sense of these new changes. Thanfully, we saw this one coming, which is why as well as breaking down the shared ownership changes for 2020, we'll also be touching on how shared ownership works.

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What is shared ownership?

Shared ownership is one of the most affordable routes to becoming a homeowner. Unlike a regular property purchase, with shared ownership you do much as the name suggests, buy shares in your property. For the most part, this means you’ll have a smaller house repayments, or at least to start off with.

As a shared owner, you can then buy more shares in your property until you’re the outright owner. While doing so, you’ll also pay a small rent to your housing association – the owner of the remaining shares in your property.

The government has set aside a budget of £12.2 billion to build over 180,000 affordable homes by 2026. A large proportion of which will be available to purchase through the shared ownership scheme.

How shared ownership works

As you’ve probably fathomed, unlike a conventional property sale there’s more to shared ownership than just a deposit and a house repayments. While these are still part of a shared ownership purchase, they work ever so slightly different as does the buying procedure. So to ensure you fully understand how shared ownership works, here’s our very own whistle-stop tour…

The first thing you should note is that a shared ownership purchase comes with three distinct parts: a deposit, a house repayments and a form of rent.

Your deposit

A deposit on a shared ownership property is calculated differently to a house repayments, so listen up. With a shared ownership property, the deposit is a percentage of the share you intend to buy in your property.

Buy a 25% share in a property worth £400,000 and your deposit will be calculated based on that figure, so in this case £100,000. Therefore, a 5% deposit would mean you only have to put down a deposit of £5000!

Your house repayments

Your house repayments acts much in the same way it would with a conventional property purchase only with shared ownership you don’t pay it on the full value of the property, only the remaining percentage of your share. So in the instance above your house repayments would be £95,000.

NOTE: To do so does requires a specific shared ownership house repayments – something worth looking into.

Your form of rent

The rent you pay for a shared ownership property all depends on the share you buy. The larger this share is, the smaller your rent will be. But don’t let the thought of rent put you off if you’re only able to buy a small share. The rent is roughly about half of than it would be on the open market - 2.75% of your property’s value per annum, according to Share To Buy.

Great, but how does shared ownership work if I want to increase my shares?

Increasing the shares in your property is known as staircasing. Doing so has two affects. Firstly it’ll decrease the portion of rent you pay to your housing association and secondly it’ll increase the amount you pay on your house repayments. So in many cases this shouldn’t make a huge difference in outgoings per month, but it does allow you to accrue more equity. Keep staircasing your way to 100% and you’ll own your property outright.

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Shared ownership elegibility: what is it?

So now you know how shared ownership works, you’re probably thinking, ‘who is eligible for shared ownership and are there any exceptions? Good question – one which this handy list of eligibility and FAQs should answer…

To be elegibile for shared ownership you have to be:

  • Over 18.
  • A first time buyer.
  • A citizen of Britain, the EU or the EEA (European Economic Area).
  • Employed permanently with no probationary period.
  • Pass an affordability check and prove you’re not in any form of house repayments arrears or debt.
  • Equipped with savings to cover your house repayments deposit + roughly £3,000 to cover any fees.
  • Earning less than £80,000 in your household, 90,000 if you're within London.
  • Without a second home.

Shared ownership with bad credit - is it possible?

Whether you can get shared ownership with bad credit all depends on what you consider to be ‘bad credit’. If you have a couple of black marks on your credit file, it’d be definately something lenders would take into account when you apply for a shared ownership house repayments, but not necessarily something that would make you exempt full stop.

NOTE: The requirements of the shared ownership scheme state a Good credit rating is required, not one that’s an Excellent.

Is shared ownership only for first time buyers?

While the majority of shared owners will be first time buyers, there are some exceptions. Shared ownership is also an option for anyone who can’t afford to buy on the open market, be this due to a lack of savings after a divorce, paying off debts etc.

Is shared ownership halal?

Not exactly the easiest question, but here goes…

According to Sharia law, the payment or receipt of interest is prohibited no matter if it’s variable or fixed. So as you can probably gather, this could make it more difficult for anyone who’s Muslim to get a house repayments on a shared ownership property.

NOTE: Even opting for a Sharia-based finance product may not necessarily solve this, as doing so would cause the lessee’s Stamp Duty costs to double! If you’re in this predicament we’d suggest quizzing your local housing association before applying.

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The shared ownership pros and cons explained

All schemes like shared ownership come with a broad mix of pro and cons. Why? Because they're designed to assist someone who's in a specific situation or has certain needs. So it's important that before you dive any deeper into shared ownership that you can work out whether it's a scheme that would benefit you. Here’s four pros and three cons to help you decide...

    Benefits of shared ownership

    1 Shared ownership is financially accessible

    Arguably the main advantage of shared ownership properties are their extremely low deposits - sometimes these can be as small as 5%! And bare in mind that’s 5% of the share you’re buying, not the property’s market value, although that does influence the price you'll pay for your share. Therefore, if you were to invest in shared ownership when prices are low, you could well see the value of your shares increase.

    Another plus in the affordability corner is the rent you pay on any remaining shares. Might seem like a bit of an odd statement to make especially when the general consensus is that ‘Rent is dead money’, but there’s no escaping the fact that it’s charged at a far lower rate than the open market. Oh and did we mention, you also don’t have to pay stamp duty on shared ownership properties until you’ve accrued an 80% share!

    2 Selling a shared ownership property – you’ve got options

    If you’ve ever found yourself wondering, ‘Are shared ownership properties hard to sell?’ then the answer is not necessarily. Put it this way, it’s not like you don’t have options…

      You can sell your shares – This would involve you selling on the shares in your property to another party, who in essence would pick up the deal where you left off.

      You can simultaneously staircase - Sounds complex, but simultaneous staircasing (also dubbed as ‘back-to-back’), is actually pretty simple.

      Your buyer pays the full market value for your property regardless of how many shares you own. Then as the sale completes, their money is used to pay off any shares you’ve not purchased from the housing association and what’s left, that goes to you.

      You can sell as usual- If you’ve purchased 100% of the shares in your property, then you can sell your house as you normally would, through an estate agent, auction or a ‘sell house fast’ company like us.

      NOTE: If you're worried about shared ownership resales, then don't be. One of the largest developers in the UK, Peabodys, has found a buyer for 98.8% of shared ownership properties with 8 weeks!

      Then again it takes us just 7 days (jaw drop)

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    3 Shared ownership offers stability

    Another brownie point goes to shared ownership when you evaluate risk. Unlike with renting (it’s more risky cousin), as a shared owner you don’t have to worry about spontaneous rent increases or being turfed out last minute because of some change of circumstance. Your payments remain structured and providing you keep up with them, your home remains secure.

    Disadvantages of shared ownership

    1 Shared ownership limits personalisation

    Buy a shared ownership property from new and you can personalise it cosmetically in more or less any way that you wish. From the counter tops and wall units to the carpets and even the furniture, you have control.

    It’s once you’ve moved in and unpacked that your options become more limited. The main bugbear here is structural changes, which will likely not be permitted. This includes additions like a loft conversion, garden room or even a garage, which can become an issue if your family grows. But, the reason for these limitations is simple – your home’s still partially rented.

    2 Shared ownership properties are typically leasehold

    We won’t dive too deep into the Leasehold VS Freehold debate here. All you have to know here is that because most shared ownership properties are leasehold, you would be liable to pay a form of service charge as well as a ground rent.

    The service charge will most likely go to fund the upkeep of communal areas if you’re on a new build estate or in a block of flats. The ground rent on the other hand will be paid to the freeholder, as with the property being leasehold, you technically don’t own the land it’s built on. Saying that though, you do have the option to buy the freehold once your property’s yours outright – i.e. staircased to 100%. So does that make this a con? We’ll leave that for you decide.

    3 Making a profit on a Shared ownership property isn’t easy

    With shared ownership properties, capital appreciation is slightly different. The main reason why is your equity. Typically the more of it you have, the more money you make on a property once you come to sell. By paying off a percentage share, of a share in your property, any capital appreciation you receive will be somewhat diluted.

    NOTE: If you're planning to earn some extra money through renting, this may be difficult. However, you can still sublet a shared ownership property, so rentinga rooom out to a friend wouldn't be a problem, as long as you're living in the property.

Shared ownership: What's the new rules for 2020?

Before we establish just how viable shared ownership actually is, here’s a quick lowdown on the new rules for 2020…

  • To buy into a shared ownership is even easier – the minimum share (entry threshold) has dropped from 25% to just 10%.
  • It’s even easier for shared owners to increase their shares – these can now be bought in chunks of 1% opposed to 5%.
  • Any new shared owner will be covered for 10 years against the costs of repairs through their landlord… i.e. their housing association.

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But wait, there’s more! Aside from the changes above there’s also another way in which you can do shared ownership - no longer does it need to be through a housing association.

This new alternative goes by the name of P2P (Peer To Peer) and is a finance deal that allows you to buy into a shared ownership property without initially having to apply for a house repayments. Deposits for P2P shared ownership are low too – just 5% of the property’s value.

The development opens up a whole new market for shared ownership, allowing property investors to go up against housing associations and potentially offer more attractive shared ownership deals. P2P Finance News have described the scheme as a more ‘ethical alternative to buy to let’.

It’s developments like this that we think will see shared ownership become more popular in years to come.

Is shared ownership a good idea in 2020?

Well, going by the new figures, it’s certainly a better idea in 2020 than it was originally. Entry requirements, while strict, are financially low, it’s more manageable and crucially it’s earning you some equity, which if you ask us is better than none at all.

Also, if you’re able to purchase the shares in your property fast and in large chunks, then it can help you get back into traditional home ownership in a matter of years, unlike if you tried to rent your way out of a financial blip. And it’s much the same with first time buyers. Building equity through shared ownership is going to prove itself to be more beneficial than a straight up renting – something the P2P scheme could well expand on.

So if shared ownership fits your circumstances and you want to get moving fast, then a speedy house sale is likely to be on your ‘to do’ list. If that’s the case, then we can help…

Being a reputable cash buyer of property with over 50 years’ experience, we can help you move on fast… so fast you could be moving into a new home as early as next week.

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