What Is Shared Ownership?
Shared ownership is a popular housing scheme in the United Kingdom that allows individuals to part-buy and part-rent a property.
It is primarily aimed at first-time buyers who may not have enough money to purchase a property on the open market.
What Does Shared Ownership Mean?
Shared ownership is a unique housing scheme that provides an opportunity for individuals to purchase a share of a property and pay rent on the remaining share.
By purchasing a share of a property, you become a part-owner and a tenant at the same time. You have the security of owning a part of the property, but you also have to meet your obligations as a tenant.
Shared ownership properties are usually provided by housing associations and come with restrictions in place that limit how much an individual can earn to be eligible.
Shared ownership schemes also offer the chance to buy more shares in a property in the future, increasing the share of the property you own and eventually buying it outright.
How Does Shared Ownership Work?
Shared ownership offers an affordable route to home ownership. Let’s look at the details of how shared ownership works, including eligibility, the buying process, and the financial aspects involved.
To be eligible for shared ownership, you must:
- Be aged 18 or over
- Have a household income of less than £80,000 per year (£90,000 in London)
- Be a first-time buyer or a former homeowner who cannot afford to buy now
There may be additional criteria depending on the specific shared ownership scheme.
The Buying Process
The process of buying a shared ownership property involves several steps:
- Find a shared ownership property that meets your needs and budget
- Contact the relevant housing association or developer to express your interest
- Complete an application and provide the necessary documentation to prove your eligibility
- If approved, obtain a mortgage, and pay a deposit on your share of the property
- Move into your new home and start paying rent on the remaining share
When purchasing a shared ownership property, you will typically require a deposit of between 5% and 10% of the share you are buying.
You will also need to pay a service charge and ground rent on the property, in addition to your mortgage and rent payments. You may be able to purchase additional shares in the property in the future, a process known as ‘staircasing’.
What Are The Benefits of Shared Ownership?
Here are five key benefits of buying a home through shared ownership:
- Affordable Entry Point: Shared ownership requires a smaller initial deposit, making it more accessible for those who might struggle to save for a larger deposit required in traditional home purchases.
- Lower Monthly Payments: The combination of mortgage payments on the owned share and rent on the remaining share often results in lower monthly costs compared to full mortgage payments or market rent for a similar property.
- Pathway to Full Ownership: Shared ownership provides an opportunity to gradually increase your stake in the property over time through ‘staircasing’, eventually leading to full ownership.
- Access to Desirable Locations: This scheme can enable you to live in areas or properties that might be unaffordable if purchased outright, broadening your living options.
- Building Equity: Even as a partial owner, you build equity in the property with each mortgage payment, which can be beneficial for your long-term financial health and investment portfolio.
Types of Shared Ownership Schemes in the UK
Shared ownership schemes in the UK are designed to cater to different sets of requirements. The schemes are mainly facilitated by housing associations in partnership with local authorities.
Here are some of the common types of shared ownership schemes:
Homeownership for People With Long-Term Disabilities (HOLD)
The HOLD scheme enables eligible people with long-term disabilities to purchase a home on a shared ownership basis.
The scheme is available to individuals who are unable to buy a suitable home for themselves on the open market.
Older Person’s Shared Ownership (OPSO)
The OPSO scheme is designed for individuals aged 55 and over who wish to use shared ownership as a means of buying a home.
Under this scheme, individuals can purchase a share of the property (between 25% and 75%) and pay rent on the remaining share.
New Build HomeBuy
New Build HomeBuy is a scheme that enables eligible individuals to purchase a new-build property on a shared ownership basis.
The scheme allows people to buy a share of the property (between 25% and 75%) and pay rent on the remaining share.
Rent to Buy (Available in England, Excluding London)
Rent to Buy, an option available in England (excluding London), presents an alternative path to shared ownership, particularly for those who struggle to accumulate the necessary 5% deposit.
This scheme, offered by housing associations and registered providers, allows individuals to rent homes at a rate approximately 20% lower than the standard market rent.
Shared ownership provides a vital opportunity for individuals to own a share of a property while also paying rent on the remaining portion. It offers a feasible alternative to those who are unable to purchase a home on the open market.
The various shared ownership schemes in the UK provide critical support and assistance to those seeking to climb the property ladder.
If you are considering shared ownership, it is essential to research the available options and seek professional guidance to make an informed decision.
By purchasing a share of a property, individuals can build equity and work towards full home ownership.
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