The Pros and Cons of Shared Ownership

Shared Ownership makes it easier to get on to the property ladder, but what exactly is it and what are the pros and cons of the scheme?

What is Shared Ownership?

Shared Ownership is a government-backed scheme that helps first time buyers step onto the property ladder at a more affordable level. Through Shared Ownership, first time buyers start by buying a share in their home – usually between 25 – 75% – and then progress to full ownership by buying more shares. A 5% to 10% deposit is only required on the share they are buying, meaning the initial upfront payment is typically much lower than buying on the open market. Shared Ownership residents will pay a mortgage on the share they own and a rent to L&Q on the share that they don’t own, with the opportunity to then staircase to 100% ownership.

Advantages of Shared Ownership

The main advantage of Shared Ownership is that it is more affordable to buy a home. The reason it is easier for people to get onto the property ladder is because the initial deposit is much less, as the percentage paid is taken from the share price of the property. Applying for and securing a Shared Ownership mortgage is also often easier when purchasing through Shared Ownership, because the mortgage will only need to be granted on the share that the buyer is purchasing.

Accessible for Lower Income buyers

Another advantage of Shared Ownership is the fact that it makes it easier for low-income earners to secure their own home. Through Shared Ownership, the money that a buyer will borrow for a mortgage is much less than if they were to buy from the open market, making them a much smaller credit risk. We always recommended speaking to a financial advisor to discuss what’s affordable and within budget for each customer, and it’s important to also check the eligibility requirements for household income limits before applying.

Staircasing

Shared Ownership residents will initially only partly own their property – varying from 25 – 75%, however another advantage is the ability to own more shares as and when the buyers’ circumstances allow them to do so. This is done through a process called ‘staircasing’, and in most cases, buyers are able to staircase their way to owning 100% of the property – meaning they do not need to pay any rent to L&Q, and just have remaining mortgage payments. If a buyer staircases to under 100%, their monthly rent payment will decrease, reflecting the new mortgage payments based on the share amount.

Shared Ownership Considerations

Buying a home through Shared Ownership might not be the right option for everyone – there are a few pointers to keep in mind when determining whether the scheme is for you.

Tenancy

As residents will initially part-own their home, they will still be paying a subsidised rent to L&Q, the landlord. The terms of the lease will be set out in the initial contract, and it is important for buyers to make sure that they can make both the mortgage payment and rent payment each month.

Staircasing Prices

The ‘staircasing’ method is also something to be aware of when purchasing through Shared Ownership. While staircasing is an advantage when it comes to owning more shares, it’s important to understand that the price of the next share a buyer chooses to own, will be based on an independent valuation at the time of staircasing.

There are other factors surrounding staircasing that each buyer will have details on in their contract. Usually, homeowners can staircase up to three times, and each time they will have to pay a fee to carry out the process. For some first-time buyers, buying more shares in their home might bring them over the threshold for stamp duty, so Stamp Duty fees may also have to be paid.

Selling a Shared Ownership Property

If in the future a resident decides to sell their Shared Ownership home, they will have to sell the percentage share that they own (for example, 40%), rather than the full property. Initially, the seller will first have to offer their home back to the housing association, which is known as ‘first refusal’. If the housing association is unable to find another applicant to purchase this share of the property within the given time frame, the seller is then able to market the share themselves. This will then come with typical selling fees.

Subletting

If you own 100% of your home, there shouldn’t be an issue with you subletting. We will, however, just check the terms of your lease to make sure there are no hidden restrictions. You can find out more about subletting here.

Is Shared Ownership worth it?

Shared Ownership is a successful way for first time buyers to step onto the property ladder and has already helped thousands of people own a home. Often more affordable than renting, the Shared Ownership scheme ensures that homeowners can build equity and eventually own their home outright. There are plenty of advantages to Shared Ownership, which focus on creating an affordable solution for first time buyers who may feel priced out of the property market.

Although Shared Ownership is a stepping-stone towards owning your own property, you are still a tenant and therefore need to ensure rent payments happen on time or risk eviction or repossession.

While Shared Ownership works brilliantly and has helped lots of people get on the property ladder, it may not be suitable for everyone. It’s always important for potential buyers to carry out their own research into the scheme, to work out if it’s a good option for them, and to assess their current situation and housing opportunities.

At L&Q, our sales team are always on hand to support our customers with their home ownership decisions, and to support buyers through the Shared Ownership process. Our Complete Guide to Shared Ownership offers information on the Shared Ownership scheme and its benefits.