Should I buy a shared ownership property?

With roughly 202,000 households living in shared ownership properties in England at last count, the shared ownership market has no doubt gone from strength to strength in recent years. Billed as an affordable way to buy, shared ownership schemes have allowed several people to purchase a property who wouldn’t have been able to via the traditional property buying process.

With affordable housing continually in demand and supply remaining limited, shared ownership properties are more popular than ever. One of the largest mortgage lenders in the UK recently increased its LTV on newly built, shared ownership homes from 90% to 95% to open up the market even more.

Shared ownership no doubt has its benefits, but should you buy a shared ownership property? Here we answer all the key questions surrounding shared ownership so you can proceed with confidence and clarity.

What exactly is shared ownership?

The shared ownership initiative is just one of the UK-wide schemes that could help you move on or up the property ladder. With shared ownership, you purchase part of the property – a stake that’s usually between 10 and 75% – and pay rent on the remainder to the landlord.

What are the benefits of shared ownership?

As you only own a share of the property, the cost of ownership is much lower than purchasing the entire home. Shared ownership mortgages tend to have lower deposit requirements, with a deposit of as little as 5% needed to buy a shared ownership property. Costs like stamp duty are also made more affordable as Which? explains:

“When you buy a shared ownership home, you have the option of paying stamp duty on the full market value or just the share you’re initially buying. Some first-time buyers don’t need to pay the tax at all (see below), but if you’re not a first-time buyer you’ll have to pay normal home mover rates.”

These lower costs mean most buyers can purchase property more speedily. In many circumstances, buying a shared ownership property is cheaper than renting a home too, with the option to sell the property at any time paving the way to profit that you just don’t realise as a tenant.

What are the downsides of shared ownership?

Shared ownership doesn’t come without its drawbacks. Shared ownership properties tend to be located in specific areas, which means you may not be able to buy in your desired location. With most shared ownership properties, you’ll also have the extra expense of paying a service charge as well as footing the bill for your mortgage and rent payments from month to month.

Obtaining a shared ownership mortgage can be difficult without the right support. Ground rent doubling clauses and restrictive covenants are just two stumbling blocks that can slow a shared ownership mortgage application.

Can I buy the property outright later down the line?

The future of your shared ownership isn’t as set in stone as many people think. There is the opportunity to purchase additional shares in your property and even the chance to own the property outright in time.

Known as ‘staircasing’, gaining full ownership isn’t always easy. If the value of your property increases, shares will be priced in line with this new market value and will therefore be more expensive to purchase.

There are also some instances where you cannot ‘staircase’; the Older People’s Shared Ownership (OPSO) and Home Ownership for People with Long-Term Disabilities (HOLD) schemes do not allow buyers to own 100% of their shared ownership properties.

Need help obtaining a shared ownership mortgage? Getting professional advice from an independent mortgage advisor like us is always recommended. Contact our team today to discuss your options.

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