Shared ownership is a home ownership scheme that allows you to purchase a share of a property, typically between 25% to 75%, and pay rent on the remaining share owned by a housing association or developer. Shared ownership homes, also known as "part-buy part-rent", only require a mortgage on the share that you would own. Therefore the deposit required would be lower than that required on the open market. Shared ownership aims to enables you to become an owner-occupier in cities like London, obtaining the stability of homeownership at a price that is more affordable.
Eligibility
Shared ownership schemes often have specific eligibility criteria:
You are at least 18 years old
Your maximum household income is £90k per year
You are unable to purchase a suitable home on the open market
You don't already own a home, or would have sold your home before purchase
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Prioritisation
Since April 2016, you are no longer required to live or work in the London borough where you want to purchase your home. However with some developments, the local authority planning permission may require that new homes are first prioritised to those living or working in the area. Priority is also given to members of the military.
Part-Buy, Part-Rent
The deposit for a shared ownership property generally ranges between 5%-10%, which is considerably less than 20% on the open market. Initially, you would buy a share of your desired property, which would normally range between 25%-75%, and is purchased via a mortgage. Rent will then paid to the housing association or developer on the portion of the property that you don't own. This rent is typically subsidised and below the market rate. Services charges and ground rent will also be chargeable expense you will need to budget for.
Staircasing
Shared owners have the option to buy additional shares in the property over time, in a process known as "staircasing." With each additional share purchased, your rent would decrease proportionately. In most cases, there would be the option to staircase to 100%, enabling you to become the outright owner, removing the requirement to pay rent.
THINK Service Charges
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Responsibility
As a shared owners, you will be responsible for maintaining your property, just like any homeowner. This includes all repairs and maintenance within the demise of your property. The communal areas in your estate or block will remain the responsibility of the housing association or managing agent, but you should check the terms of the lease for clarity of responsibilities.
Selling the Property
If you decide to sell your share of the property, you would typically have to inform the housing association or developer first, so they can initially market the property for approximately 8 weeks. The new buyer would have to buy shares equal to or higher than what you currently own. If after 8 weeks they are unable to locate a buyer, you would be free to sell it on the open market. If you were to staircase up to 100% and become an outright owner, you will not be required to inform the housing association or developer when you are decide to sell, and would be free to sell your property wherever you choose.
Potential for Profit
Just like property in general, if the value of the property increases, you will benefit when you sell your share. However, if the property depreciates in value, there is the potential that a loss may incurred. Property in London is prime location for value appreciation on average, but remain aware, as stranger things have happened!
All of that said, shared ownership could be the avenue for you to get on the property ladder, especially where you may be finding full ownership upfront unaffordable in London.