The big, wide world of moving out for the first time is a scary one. Not only do you have mortgages and solicitors to contend with, but you’ve also got the tough decision of whether you use a government scheme to get you on the property ladder, and if so, which one! So to help you make your mind up, I’m going to run through some of the pros and cons of shared ownership which is the route we took when we bought our first house in January.
What is shared ownership?
Shared ownership is a Help To Buy scheme run by the government which basically allows you to part buy, part rent a property if you are a first time buyer. It depends on the property you’re buying but generally, you can purchase between 25% and 75% of it and then you pay rent on the rest.
For example, let’s say there’s a shared ownership house on the market and the total house price is £250,000. You want to buy 30% of it which equates to £75,000. That means you’ll be paying rent on the remaining 70% which if you divide 3% of that total by 12, it should give you a rough idea of your rent each month. In this case, 3% of £175,000 is £5,250 and that divided by 12 would give you £437.50
There are obviously a whole host of pros and cons of shared ownership which I’ll through later in this post but the basics of the scheme are:
- You buy shares in a property and pay rent (and service charge) on the rest
- Properties are leasehold
- To be eligible, you must be a first time buyer and have a combined household income less than £80,000 (or £90,000 if you’re in London)
- You can register your interest on the Share To Buy website or your region’s Help To Buy website
Pros of shared ownership
Affordability – One of the main pros of shared ownership is that it makes a very expensive process much more affordable which is amazing for young people or those with lower wages. You can essentially go from having to buy 100% of a property with a standard mortgage to as low as 25% with shared ownership. That’s crazy how much more affordable your first home can become!
Cheaper deposit – Not only are monthly mortgage payments cheaper with shared ownership but you can also get away with paying a 5% deposit instead of a 10% one which means you don’t have to save as much initially either!
Buy more shares – With shared ownership, you have the ability to buy more shares in the property which is called ‘staircasing’. Our estate agent recommended when doing this, you take no more than three jumps to get to 100% and do it in the largest steps you can manage. So let’s say you buy 50% of a property, you could up your shares to 75% then 100%. As you probably guessed, this means you pay less rent and if you reach 100% you won’t have to pay any rent at all, although you’ll still have to pay a service charge.
Quick process – It can get you on the property ladder quicker than a standard mortgage since it’s quicker to save for a 5% deposit rather than a 10% one.
Can be cheaper than renting – And you’ll be putting money towards a mortgage rather than chucking it down the loo.
You will benefit if the property increases in value – If your property’s price rockets by the time you come to sell, the good news is you can profit from it! If you bought 50% to begin with then you still own 50% when you’re selling regardless of how much it’s valued at. But then remember, if the price goes down then you’ll lose money!
Cons of shared ownership
Not all lenders offer shared ownership mortgages – Bit of a bummer really but yeah, you’ll have to shop around to find a shared ownership mortgage as not all lenders offer them.
You have to pay rent and service charge (and it can increase) – The shared ownership scheme really would be the dream if you could pay for a share of a property and that was it but unfortunately, you do have rent and service charge to pay for as well! The rent is obviously to cover the housing association’s share of the property and the service charge is for things like the maintenance of communal areas and buildings insurance. It’s also completely out of your control whether these costs go up or not and the housing association also has the right to kick you out or repossess if you fall behind on your payments. Scary shit right?
Staircasing is expensive – I mentioned earlier how one of the pros of shared ownership is that you can staircase and buy more shares in the property. HOWEVER what I didn’t talk about was how expensive it can be. Staircasing involves valuation, legal and remortgaging fees which aren’t cheap so it’s not just as straightforward as saying “hey, we can afford more of our property!” Although, I wish it was!
Properties might not always be in your preferred location – Unfortunately, not all properties are shared ownership which means if you want to take part in the scheme, you’ll have to look where the houses are (generally new developments) which might not always be the best place for you.
Difficult to make a profit – If you’re buying your first property to make a profit then shared ownership isn’t the best way to go. Because you have to pay rent, it often scuppers your chances of making any money unless the value of the property soars so you need to be aware of the risk of negative equity.
Paying stamp duty and council tax as if you owned 100% – This is sooooo unbelievably shit and can’t believe it but yeah, if the total price of your property is over the £300,000 threshold, then you have to cough up the stamp duty as if you owned the whole property, it’s not divided up proportionally between you and the housing association. This goes for council tax as well. Bollocks, I know!
You’ll have to find a mortgage lender and solicitor who specialise in shared ownership – Okay so this isn’t exactly necessary but in all honesty, most of the solicitors we spoke to were fuckwits and didn’t have a clue what shared ownership was so if you can get one who specialises in it then you’re onto a winner.
Decorating limitations – It depends on your lease but you can basically decorate as you wish BUT if you’re making structural changes, you’ll have to gain permission from the housing association.
No subletting – Subletting is basically when the homeowner rents out the property to another person to rent and live in. It is strictly not allowed unless you’ve staircased to 100% ownership, however, you are allowed to let rooms out to lodgers/flatmates as long as you are living in the property permanently yourself.
Corhhhh that was a long old post wasn’t it! But I really hope that’s outlined a few of the pros and cons of shared ownership for you without too much jargon or waffle. Basically, it just makes everything so much more affordable but if you’re looking to make a profit and lots of structural changes then it’s probably not for you!
Would you ever consider shared ownership?