It’s no secret that buying a house can be extremely challenging – especially if you earn an average salary, you’re spending a ridiculous amount on rent each month, and you don’t have rich parents who can buy you a one-bed flat for Christmas. Is it any wonder, then, that so many people are turning to shared ownership schemes as a way of making their first steps onto the property ladder? You might not be able to buy a house in the traditional way but maybe you can buy a portion of it and gradually work your way up to owning it all.
At a glance, shared ownership might seem like a no-brainer for those finding it difficult to save a deposit but as the BBC’s Panorama documentary series recently highlighted, not all home buyers who use the scheme are happy with their purchase.
Let’s take a look at how the scheme works and weigh up the pros and cons of shared ownership.
Shared ownership explained
How does shared ownership work?
Shared ownership schemes allow first-time buyers aged 18+ to take out a mortgage to buy anywhere between 25% to 75% of a property’s value and pay rent on the rest. The portion of the property that you don’t buy is owned by either a housing association or property developer.
Who can buy shared ownership properties?
Shared ownership properties are typically available for first-time buyers aged 18+.
Older people – If you’re aged 55 or over you can buy up to 75% of your home through the Older People’s Shared Ownership (OPSO) scheme. Once you own 75% you will not pay rent on the rest.
Disabled people – You can apply for a scheme called Homeownership for people with a Long-Term Disability (HOLD) if other Help to Buy scheme properties do not meet your needs.
Shared ownership staircasing explained
Over time, you can increase the share of the property you own until you’ve purchased it in full. Gradually buying more of the home is known as ‘staircasing’ and you’ll usually be able to buy more shares in 10% increments.
Some buyers who purchase their homes through the shared ownership scheme decide against staircasing their way to full ownership and instead sell the property so they can buy one with a traditional mortgage.
Pros and cons of shared ownership
What are the pros and cons of shared ownership? Some people praise the system while others curse it. So how can you work out whether it’s right for you. Let’s way up the benefits and downsides.
Pros: What are the benefits of shared ownership?
✔️ Only route to homeownership
For many people, shared ownership is the only way they can work towards buying a home of their own.
✔️Buy a bigger home than you’d ordinarily be able to afford
Some people use shared ownership to buy a bigger home than they’d be able to buy without the scheme’s help. You may find that buying a bigger home is more cost-effective because you can live in it longer and won’t have to pay moving costs, solicitor fees and valuation charges when you need an extra bedroom.
✔️ Freedom to decorate
When you purchase a shared ownership property, you’ll be able to decorate and make the place your own. This is of course a benefit that comes with buying any home, but it’s something that many renters are greatful for – especially if they cannot afford to buy a home through the traditional route.
Cons: What are the downsides of shared ownership?
Shared ownership schemes have faced plenty of criticism. Some buyers have cited hidden costs that lead to debt and arrears, while property experts have warned it’s not always as affordable as people are led to believe.
In her book, Generation Rent, housing commentator Chloe Timperley writes: ‘Shared ownership schemes provide a type of home ownership that isn’t really ownership at all. It’s a form of tenure known as leasehold. Even when a resident has fully ‘staircased’ and bought out the housing association’s share of the property, they often remain a leaseholder, and thus liable for uncapped fees and service charges.’
❌ 100% of repair costs
It’s not uncommon for those living in shared ownership homes to pay repair costs by themselves, even though a housing association owns a percentage of the property and benefits from the maintenance and upkeep.
In the BBC’s Panorama documentary ‘The House I Can’t Afford’, Giulia Trovato explained that when she bought a 45% share of a new build flat in Hoxton, East London in 2017, she was excited to buy in a desirable area without having to borrow money from her parents. However, within a year of moving in, black mould started to appear and the basement of the apartment building began to flood with waste water. She had to move out of her home for six months while repairs to the pipework took place, only to receive a bill for over £20,000 from her housing association.
Trovato argues that since she only owns a 45% share of the flat, she shouldn’t have to pay 100% of the bill.
❌ Rising service charges
When someone buys a shared ownership property, their housing association and/or solicitor should inform them how much they’ll have to pay towards service charges. However, Panorama found that many buyers find themselves in debt due to sharp and unexpected rises in service charges.
When Chris Worrall first entered the shared ownership scheme in 2016, his service charges were £2,270 a year. They’ve since risen to over £4,300 a year.
❌ Short leases
All shared ownership properties are ‘leasehold’ properties. This means that although the person living there owns a percentage of their house or flat, they don’t own the ground it’s built on and therefore have to rent this from a landlord. Many of those who enter the scheme are shocked to learn about ‘ground rent’, especially since they already have to rent a portion of their home off their housing association.
When you buy a leasehold property, your lease will expire after a certain number of years. Some leases are as long as 200 or 999 years but when a lease is less than 80 years long, you may find it difficult to get a mortgage on the property and some people may be reluctant to buy it off you. Some people choose to extend their lease but this can cost tens of thousands of pounds.
If you decide to extend your lease, it’s unlikely your housing association will contribute towards the cost.
There are approximately 157,000 households living in shared ownership homes in England. Although this represents less than 1% of households, supply is on the rise due to increased demand.
❌ Permission to get a dog?!
Some schemes require you to get your housing association’s permission before getting a pet, just like you would if you were renting from a private landlord.
Are shared ownership properties hard to sell?
So, how do shared ownership properties work when you sell?
When you decide to sell your shared ownership home, you may encounter some difficulties. Selling a traditional home is often challenging enough but selling a shared ownership property can be even harder.
One reason for this is that the housing provider is likely to have the right to buy back the property before it’s marketed to anyone else. This is known as the ‘right of first refusal’, ‘first option to buy’ or ‘pre-emption’.
According to Home Owners Alliance (HOA), this can even be true if you’ve purchased 100% of the property through staircasing. Your housing provider may choose to offer the property to other people on the waiting list for shared ownership homes. However, according to the gov. uk website: “if you own 100% of your home, you can sell it yourself.” I will update this piece when I have more clarification on this.
If your housing provider fails to find a buyer, after a period of time you’ll be free to market your share of the property yourself or use an estate agent to do it for you. Unfortunately, the obstacles don’t end there because you’ll need to find a buyer who meets the housing provider’s shared ownership eligibility criteria.
On top of this, the number of potential buyers looking for a shared ownership home is likely to be smaller than the number of buyers looking for a more traditional home. A limited number of mortgage providers will offer shared ownership mortgages.
Is shared ownership a good idea?
When we consider how difficult it is to buy a home thanks to sky high property prices teamed with the cost of renting and wages that aren’t rising as fast as inflation, it’s no wonder so many people turn to shared ownership schemes.
Many people praise shared ownership for providing them the opportunity to decorate, have pets and invest in their future, but these schemes are not without their flaws.
If you’re looking to buy a home yourself, be sure to do lots of research before parting with your hard-earned savings. The last thing you want is to face costs you hadn’t prepared for.