Buying a home can be fraught with questions – how good are the local schools? Where’s the nearest train station, park or pub? – and one thing an increasing number of buyers are asking is whether shared ownership is an option that would work for them. We talked to experts to get clarity on what it means, how it works, and who exactly is eligible.
Shared ownership? Sounds complicated. Do I have to share with someone?
This is probably the most common misconception about shared ownership, but it’s forgivable. “I think the name can be a little bit confusing”, says Sandy Kelly, head of sales at housing association Onward Living, who notes people often dismiss the idea of shared ownership, assuming they’d have to shack up with a stranger.
In fact, shared owners are the sole holders of their homes, having bought a share of the overall property through a housing association, to which they pay rent for the remainder.
“Sometimes, because it’s through a housing association, people don’t think they’re eligible for it”, Kelly says, noting that buyers are often surprised when they find out their household can be bringing in up to £80,000 a year (£90,000 in London) and still be eligible for the scheme.
“As a former shared owner myself, I know what a great opportunity it offers to get a foot on the ladder,” adds Kush Rawal, director of residential investment at Metropolitan Thames Valley.
It’s just for young people, isn’t it?
As those household income figures might suggest, people of all ages can – and frequently do – choose to buy their home through a shared ownership scheme. “There’s a real mix of uptake,” according to Rob Poole, managing director of Cheshire-based Halton Housing.
“There are people leaving home for the first time who are beginning to find out that home ownership is available to them as opposed to private renting”, he says, and this also includes older people who might be downsizing or looking for communal living arrangements.
According to research by the House of Commons Library, the most common age group for buyers is 30 to 39. While older tenants are still in the minority, Rawal says shared ownership is also popular with “silver splitters”, who he describes as “people who have recently divorced who want a room for when the children visit”.
There’s also the Older People’s Shared Ownership, or OPSO, scheme that allows over 55s to buy up to 75% of their shared ownership home, after which they won’t be required to pay rent on the remaining portion.
Renting and paying a mortgage – why would I do that?
One reason for the increase in popularity of shared ownership is the well-worn issue of house prices, as Kelly says: “There are a lot of people who just can’t afford to buy outright.” According to the most recent Office of National Statistics data, average house prices are 7.8 times average earnings in the UK and in Wales.
With shared ownership, deposits – which start at about 5% – are much lower than in traditional home sales; Kelly noted that she had recently seen deposits as low as £2,500. Buyers take between a 25% and 75% share of the property on which they pay the mortgage and pay subsidised rent on the rest. “In the majority of cases”, this works out cheaper than renting privately, Poole says.
What would you say are the benefits of shared ownership?
Shared owners are spared the need to save for years for a deposit to get a toehold on the property ladder. They also don’t have the type of individual private landlord who may place limits on decorating and other improvements – which many people view as an essential part of making a home their own – and can even decide to sell their properties out from under their tenants. Shared owners don’t need anyone’s permission to hang pictures, strip the hallway, or paint every room a different colour.
Poole points out that there could also be some less obvious benefits, like housing associations being in a position to assist purchasers by reviewing affordability and highlighting other potential savings. For example, Poole says: “We have a toll bridge crossing in Halton that spans the Mersey and, being a resident of Halton, you get free bridge crossings. When we actually spell out the localised benefits like this for new purchasers, they’re taken aback by how much money they can save.”
What are the responsibilities people should be aware of when considering shared ownership?
All shared ownership homes are leasehold and buyers are bound by the terms of their leases, so although you wouldn’t need permission to improve, paint and decorate, your housing association would need to approve any larger structural changes and tenants are responsible for the costs of all repairs and maintenance, for example to a boiler. Shared owners will also be responsible for any service charge associated with a property.
“There are lots of policies established in the lease on things like subletting and modifications,” says Kelly. “These can be decided on a case-by-case basis; buyers have to ask permission of the housing association but this can’t be unreasonably withheld.”
“[Housing associations] always make sure they’re very transparent about these obligations”, says Poole, but adds that buyers should always work closely with a conveyancing solicitor who will break these obligations down for them.
I’ve heard a lot about ‘staircasing’, what is it exactly?
“Staircasing is a term that refers to increasing the share of the property you own,” says Rawal. Just as we use the term “housing ladder” to illustrate the process of stepping up from renting to owning, we also use “staircasing” as a metaphor for the way shared owners can increase their stake in their property over time. Each new “step” on the staircase represents a share of the whole of the home, calculated by the market value of the property at the time the shared owner began staircasing. The larger the share you buy the less rent you pay, meaning tenants that staircase all the way to 100% no longer pay rent.
“I think we’re going to see this tenure type come to the fore a bit more”, says Poole, noting the flexibility of the process. While his company doesn’t set time limits on when buyers can begin staircasing, some do and other housing associations cap the amount tenants can staircase up to; as ever, it’s important to discuss this when reading the lease agreement.
How realistic is it that I can staircase to 100%?
You might assume that staircasing to 100% is pretty rare, but it turns out that’s far from the case. “A lot of housing associations are now being more proactive around staircasing and communicating with shared owners to remind them that the option is there,” says Kelly. The stats certainly back this up: of the 320,000 shared ownership homes built, 134,000 have been 100% staircased and 186,000 remain under shared ownership – which means 42% have been fully purchased by their owners.
To find out more about shared ownership – and if you could be eligible – head to sharedownership.net
