The popularity of shared ownership deals or shared mortgages are on the rise with more mortgage lenders creating shared ownership schemes than ever before.
Ideal for first-time buyers who haven’t quite got enough to pay 100% of the mortgage, shared ownership works really well for some people.
What is Shared Ownership and How Does It Work?
According to the government website, shared ownership is a ‘help to buy’ scheme, that offers you the chance to buy a share of the home, which is anywhere between 25% and 75%, depending on your finances at the time.
Once you’ve covered your share of the mortgage you then pay the housing association rent on the rest of the mortgage.
Who Can Take Part in Shared Ownership?
Not everyone can take on a shared ownership, but people that are eligible for it include:
- First time home buyers
- People who used to own a home but now can’t afford one
- People who already own a shared ownership and want to move to a new one
- Households that earn £80,000 or less a year outside of London
- Households in London that earn £90,000 or less a year
People with long-term disabilities or older people over the age of 55 can apply for shared ownership schemes that are tailored to suit their situation.
Can it Save you Money?
Yes and no.
Shared ownership is a great option if you want to move but don’t have the money to do so, meaning it saves you money in that way, as your fraction of the mortgage is less than if you bought a house outright without the help of the scheme. Although you pay less of a mortgage, it could be considered you technically don’t save any money because you’ll still have had to put all your money into your share of the mortgage.
You also then have to pay rent on what is left of the mortgage once you’ve covered your share and saving while paying monthly rent is notoriously difficult, especially as the rent repayments in a shared ownership can be quite high depending on the value of the property.
Can it Make you Money?
Although a long process, it is possible to own the home you purchased with help from a shared ownership scheme. Once you’ve paid your initial share of the mortgage, you can then buy chunks of the rented portion in a process known as ‘staircasing’. Every time you buy a chunk of the rented portion your rent will decrease as you’re paying for less and eventually if you own 100% of the property then you are equal with people who own properties they bought without ‘help to buy’.
The only problem with owning 100% of a property that was once on shared ownership, if you choose to sell, the housing association get first refusal on the property for up to 21 years after you first started on the scheme which means you could lose control of the sale of the property and could end up losing out.
What are the Advantages?
There are advantages to the ‘help to buy’ shared ownership scheme, especially for first-time buyers. If you’re on a low income but want to join the property ladder then this is a great way to take a step in the right direction and get in your own home.
It’s also a good way for first-time buyers to avoid becoming overwhelmed by the financial responsibility of buying a home. Although you’re paying your portion of the mortgage to start with, it often feels more manageable and the end goal of owning the house can seem easier to reach as the repayments are done in chunks.
What are the Disadvantages?
Apart from the issues when it comes to selling the property, the main disadvantage is that someone else owns your home too and some people don’t like the thought of that. Although you can opt to own a bigger share than the housing association, it takes a long time to own 100% of the property and in that time you may have to ask permission to make renovations or changes to the property.
If you do choose to buy 100% ownership in the end, in the long run, you’ll probably have paid more for the property than if you’d bought it outright without shared ownership originally but we’d suggest you don’t take that into consideration, as if you’re embarking on shared ownership, you probably can’t afford to buy the property alone right now so that is irrelevant.
There are a lot of times when shared ownership is a great option and it has helped many people onto the property ladder but it’s important you weigh up the pros and cons with your personal finances and situations and decide whether it’s going to work for you.