Shared Ownership as a Home Ownership Option
An Affordable Solution for First Time Buyers
Shared ownership has been around in Britain for over 20 years, but most people still don't know much about it. This well-kept secret is worth finding out about, though, because it can be the answer that first-time buyers or people on lower-than-average incomes need when it comes to buying a house.
How Does Shared Ownership work?
Shared ownership means the ownership of the house is shared between two parties. You own one part, and a housing association owns the other. Your share can start from as little as 25% of the value of the house, although you can also buy in at 50% or 75%. Often the share that is up for sale is fixed by the housing association so you have no option but to start with that share, but the principle of "staircasing" means that after a year you can choose to increase your share.
To buy your share you take out a mortgage as you would for a normal house purchase. Not all lenders deal in Shared Ownership mortgages, so you may have to shop around a little. The bank will then own security on your share of the house or flat, meaning that they can force you to sell it if you cannot meet your mortgage payments.
The rest of the house is owned by the housing association and you will pay them rent on this part. You only pay rent on the part you don't own, so the bigger a share you purchase, the less rent you pay. Housing association rents are lower than private rents, so this should be quite affordable. Normally the housing association organises the buildings (but not contents) insurance, and the factoring (external maintenance etc.), and you pay them a fee for this as part of your rent.
What's the Difference between Shared Ownership and Shared Equity?
Shared equity, sometimes called homestake, is also offered by some housing associations. The basic idea of this scheme is the same – to help people onto the housing ladder – but it works differently:
- With a shared equity house you would have to buy a bigger starting share, usually around 80% of the full price of the house.
- You don't pay rent to the housing association on the part they own. They just hang onto it until you sell, and then take their percentage, without charging you anything in the meantime.
- You cannot "staircase" your stake until you own the whole of the house – the housing association will always keep a stake in the house.
The simplest way to think of it is that shared ownership is a part-buy, part-rent arrangement, whereas shared equity is more like buying a house with a 20% discount.
Is Shared Ownership for You?
To purchase a shared ownership house you will have to register with the housing association offering the properties, and they will put you on a list. You will be graded on factors like income and whether you are a first-time buyer, and this will decide your position who will get a house if more than one person is interested in it. It's best to register with all the housing associations in your area offering shared ownership, to increase your chances. You can find information about local housing associations on your local council website, or in the phone book.
There are not many shared ownership properties on the market, but if you can't afford to buy a property that is suitable for your needs, shared ownership can be the perfect solution, especially as, if your circumstances improve, you can buy the remaining percentage and becoming a full home-owner.
A development with shared ownership flats
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