The concept of shared ownership has been around in the UK from the past 20 years, although many are unaware of its existence. This well-kept secret is worth investigating as it can serve as an affordable solution for first time homebuyers as well as those that fall within lower-than-average income brackets required for purchasing a home.
How does Shared Ownership Work?
The concept of shared ownership is very easy to understand. What is means is that ownership of a home bought is shared between two parties. You can own one part, with the other half belonging to a housing association. Shares can start from as little as 25% of the value of the property, although you may also acquire 50% and 75% shares. However, it is very often that the share that is up for sale is fixed by the housing association, but with the principle of “staircasing”, you are allowed to increase your share after a year.
In order to purchase a share, you would need to take out a home loan as per a normal home purchase. Not all financial institutions offering bonds deal in shared ownership, so it would be best to shop around.
The bank would then own security on your share, meaning that if you cannot keep up with your loan repayments, you could be forced to sell.
You are also required to pay rent on the share owned by the housing association. You only pay rent on the share you don’t own, so the bigger share you purchase the less rent you would have to pay. Housing Association rents are usually lower than private rentals, so it is generally more affordable. Normally, the housing association organizes the property’s insurance as well as external maintenance, this is then levies paid as part of your rent.
Shared Ownership vs. Shared Equity
Shared equity, which is also sometimes called homestake, is also an offer from housing associations. The underlying principles of this scheme are the same as shared ownership, i.e. to help people put a foot into the property market, although it works differently:
- With a shared equity home, your starting share is larger at approximately 80% of the full price of the house.
- There is no rental paid on the part you don’t own. Housing associations keep onto their share until you decide to sell, and then take their percentage, without charging you anything in the interim.
- There is no “staircasing”, so the housing association will always own a share in the house.
To summarize, shared ownership is part-buy-part-rent, whereas shared equity is more like purchasing a home with a 20% discount.
Is Shared Ownership for You?
In order to purchase shared ownership you will have to register with the housing association that have properties on offer and they will put you on a waiting list. You will be measured on factors such as income, whether or not you are a first-time buyer and this will decide your position if more than one person is interested in the same property. It’s best to register with all housing associations in your area which offer shared ownership in order to increase your chances of getting a property. You can find more about local housing associations on Holiday Homes Portal.
Shared ownership is the perfect solution if you can’t afford to purchase property, especially as, if your current situation improves, you’ll be able to purchase the remaining share and become the full-home owner.
