Shared ownership is gaining popularity as an accessible option for entering the property market in the UK. It offers a viable alternative to the conventional approach of purchasing a home outright. This part-ownership scheme presents an appealing solution for individuals aspiring to own a home, especially amidst escalating property prices and the hurdles of affording a home independently.
In this article, we will delve into what shared ownership entails, how it operates, the eligibility criteria, the pros and cons, and essential considerations to help you determine if shared ownership is the right choice for you.
What is Shared Ownership?
Shared ownership, also known as part buy/part rent, is a housing scheme designed to assist individuals in purchasing a share (typically between 25% and 75%) of a property. buyer takes out a mortgage on this share and pays rent on the remaining portion.
The initial share is bought through a housing association, which owns the remaining share and charges rent on it. Over time, you have the option to purchase additional shares of the property, known as 'staircasing,' eventually reaching full ownership (also known as 100% ownership).
How Does Shared Ownership Work?
The process of shared ownership begins with selecting a property available under this scheme. You'll need to find a home through a housing association that participates in shared ownership schemes. Once you've chosen a property, you can apply for a mortgage to buy a specific share of it. The amount of the share you can purchase will depend on your financial circumstances and the property's value.
After the purchase, you will make mortgage payments on the share you own and pay rent to the housing association for the remaining share. It's important to note that the rent paid is often subsidized to make the overall cost more affordable.
Who is Eligible for Shared Ownership?
Shared ownership is tailored to help first-time buyers and those with a household income under a certain threshold. The eligibility criteria typically include:
First-time buyers: Individuals who have not previously owned a home or those who used to own a home but can no longer afford one.
Household income: There's usually a maximum income limit to qualify for shared ownership. This threshold varies based on location and whether you're applying on your own or with a partner.
Local residency: Some shared ownership schemes prioritize applicants with local connections or residency in the specific area.
Affordability assessment: Applicants need to demonstrate that they can afford the mortgage, rent, and other housing-related costs associated with shared ownership.
Pros and Cons of Shared Ownership
Affordability: Shared ownership provides a more accessible route to homeownership, especially for those struggling to buy a property outright.
Lower Deposit: The initial deposit required is usually lower compared to buying a property outright, making it easier to get on the property ladder.
Opportunity for Ownership: You have the potential to increase your ownership share over time through 'staircasing.'
Stability and Security: Shared ownership provides the stability of homeownership and the security of living in your own home.
Limited Control: Since you own a partial share, you have limited control over the property and may need permission for significant alterations.
Ongoing Costs: Aside from the mortgage, you must pay rent on the remaining share and other associated costs, which may add up.
Resale Challenges: Reselling a shared ownership property can be complicated, and there may be restrictions on the price you can sell for.
Staircasing Costs: Purchasing additional shares can involve valuation and legal costs, which may be a deterrent.
Things to Consider to Decide Whether Shared Ownership is Right for You
Financial Stability: Assess your current and future financial situation to ensure you can afford the mortgage, rent, and potential increases in ownership share.
Long-term Goals: Consider your long-term housing and financial goals to determine if shared ownership aligns with your plans.
Local Market Conditions: Research the property market in the area you're interested in to understand if shared ownership makes sense given the local property values and trends.
Flexibility and Control: Evaluate how important full control and flexibility over your home are to you versus the potential affordability benefits shared ownership offers.
Consult a Financial Advisor: Seek advice from a financial advisor to understand the implications of shared ownership on your finances and overall financial portfolio.
In conclusion, shared ownership is a viable option for many individuals seeking a foot on the property ladder, especially in the challenging UK housing market. However, it's essential to consider various homeownership schemes to find the best fit for your circumstances.
Schemes like First Homes, Rent to Buy, or even private Rent to Own options such as Jrny offer promising pathways to homeownership. It's crucial to carefully consider your financial situation, long-term goals, and the pros and cons of these schemes to make an informed decision that aligns with your homeownership aspirations.