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Shared ownership is a scheme that helps people who cannot afford to buy a property outright. Instead of taking out a mortgage for a property in its entirety, shared ownerships presents the opportunity to buy part of the property, and rent the other share. If you are considering shared ownership as an option, you need to be fully aware of how system works, and if there are any potential pitfalls to look out for.

How Does Shared Ownership Work?

Shared ownership works on a part buy, part rent basis. How much you buy will depend upon what you can afford, but usually falls somewhere between 25%-75% of the total property. The larger the percentage you buy, the less you will have to pay on rent. The amount of rent will be agreed upon in the terms of the lease, but will usually be fixed at a set rate. As time goes on, you will have the chance to buy more and more shares of the property. This is known as ‘staircasing’, and you can continue to increase your shares incrementally until you own the property outright.

The share of the property upon which you are paying rent will usually be owned by a housing association. These are organisations that provide and manage property for those who cannot afford to buy or rent on a private basis. Often the government or the local authority will contribute money towards a housing association in a bid to help people with a lower income find a home.

When you purchase a shared ownership property, the housing association will then grant you a lease. This is usually for a period of 99 years, and sets out other rights and responsibilities. For example, it will detail how rent should be paid, how you can buy shares and certain restrictions imposed upon you. Therefore it is crucial you understand the terms of the lease before you sign – otherwise you could enter into an agreement without fully realising the implications.

How To Apply For Shared Ownership

If you would like to enter into a shared ownership, the first thing to do is to contact your local ‘HomeBuy Agent’ (which are authorised housing associations) and ask how to make an application. Every area of the country has a different method of doing this, but once completed will allow your interest to be officially registered. It is worth noting that some housing associations have particular restrictions – for example, homes only for first-time buyers or for people over 55 years old – so research the various options available.

If you are accepted for a shared ownership, it will be necessary to obtain a shared ownership mortgage. Except for some rare examples, you will still need a 10% deposit. This, however, is usually only 10% of the share you are buying.

Risks of a Shared Ownership

While shared ownership does have many benefits for those who could not otherwise afford a buy a property, there are a number of risks that need to be considered. These include:-

• A lack of flexibility – eg. you must ask for permission if you wish to make any improvements to the property;
• Service charge – there will be an expense for the up-keep of general areas;
• Loss in value – if the property market declines, your shares may lose value;
• You may never achieve full ownership;
• Must pay both mortgage and rent, and if these cannot be met you risk losing your home;
• Terms of the lease, in which you have certain restrictions and responsibilities.

Ask A Solicitor

Before you enter into a shared ownership, ask a legal advisor to look over the agreement for you – particularly the terms of the lease. This will help to ensure you do not run into any difficulties later on, saving you time and money.

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