Shared ownership has been around since the Seventies but, with a frenetic rental market, rising house prices and lenders tightening their affordability criteria, it’s becoming an increasingly popular option.
How does it work?
Shared ownership involves buying a share in a property, usually 25 per cent, although the minimum share was reduced to 10 per cent in 2021, so the share you buy might now be lower.
You then pay rent to a housing association or organisation on the remaining value of the property, as well as 100 per cent of the service charge. Instead of having to find a deposit for its full value, you only need to find a deposit for your share. For example, if you want to buy 25 per cent of a £400,000 flat, you would typically need a £5,000 deposit — five per cent of £100,000 — instead of the £20,000 minimum which would be required to buy the property at full price.
You can also choose to only pay stamp duty on the percentage you purchase. Over time you can buy a larger share, known as “staircasing”, and work towards owning the property outright. Most shared owners plan to stay for the medium term to allow house prices to increase before selling. They then use this equity to buy a property via the traditional route.
In London, there’s a household income cap of £90,000 and you can’t already own a property. You don’t have to be a first-time buyer, though most are. “It appeals to a range of people, from those in their early twenties through to their sixties,” says Denise Stewart, sales and marketing director at Legal & General, one of England’s major shared-ownership providers.
“We also have people coming out of a relationship who can’t buy on the open market on their own,” she adds.
Mark Humphrey, of MHC Mortgage & Protection Ltd, says: “Shared ownership [suits] employees on a career pathway who expect a rise in income in the future, which could enable them to buy further shares.”
What are the advantages?
Shared ownership is especially useful for those who “don’t have the deposit or income to buy a property the traditional way”, says Mark.
Denise adds: “The advantages are security and stability over renting. Rents have significantly increased, and many people have been asked to move out by their landlords in the past year.”
Shared-ownership properties include everything from family homes in seaside resorts to townhouses in commuter hotspots and Zone 1 flats.
What do you need to be aware of?
“Understand the lease and what the maintenance will be; understand what you are paying and why,” says Denise. “When you look at bad press [about shared ownership], a lot of it is around leasehold and block management. Ensure you understand who looks after what,” she adds.
Ask your solicitors and financial adviser about any queries. The mix of mortgage, rent and service charge can also mean your outgoings are higher than paying a mortgage alone, so do the sums. You also aren’t allowed to rent out a shared-ownership property unless there are very exceptional circumstances. “[This] can restrict your options,” says Mark.
How do you sell your shared-ownership property?
Initially, the housing organisation will market the property on its portals after it has been valued. It will be able to exclusively market the property during the “nomination period”, which tends to be eight or 12 weeks.
“If the housing organisation can’t find a buyer, there is usually a provision in the lease that means the property can go on the open market. You need to put extra time for that in your plans as a contingency,” says Denise. Once a home is sold, any profit will be split proportionally between the shared owner and the housing organisation.
‘A new-build is an exciting blank canvas waiting for us to make it our own’
Mortgage team leader Ana Fernandes, 27, and estate manager Diogo Daniel, 30, had been saving for three years and were living with family when they decided to take the plunge and move in together. They stepped into Network Homes’ Faber Green development in Northolt and knew it was for them.
“It was the first home we had viewed in person, and it happened to be exactly what we were looking for and more, so we reserved it that very same day,” says Ana. They bought a 25 per cent share of the £485,000 two-bedroom property, paying just a £6,000 deposit between them.
In December 2022 they moved in, and they haven’t looked back. “A new-build home feels like an exciting blank canvas, just waiting for us to make it our own,” says Ana.
They have an office space which can be converted into a bedroom if they have guests, and the open-plan living and dining area opens out onto a tranquil rear garden. “I’ve never been particularly interested in gardening, but now I have outdoor space of my own, I feel inspired to make it as nice as it can be,” says Ana.
Faber Green has a laid-back, suburban feel, while central London is still easily accessible. “Our new home is ideally located for us in terms of our work commutes, and the wider development has such a relaxed vibe that we absolutely love, especially when we compare it to the hectic hubbub of central London,” says Ana. Northolt Underground Station is a 10-minute walk away, and then it takes just 30 minutes on the Central line to get to Oxford Circus.