Shared ownership is a popular option for people who want to buy a home but can’t afford to purchase one entirely. It involves buying a part of a property and paying rent on the rest, making it a more affordable choice for first-time buyers and those with smaller savings.
But, like any housing plan, shared ownership has its good points and some challenges that you should think about. In this blog, we’ll go over the main benefits and downsides of shared ownership to help you figure out if it’s the right option for you.
We’ll talk about how it can lower your initial costs and also explain some of the legal things involved, so you have all the information you need to decide if this is the right way for you to become a homeowner.
What is Shared Ownership?
Shared ownership is a government-supported program that helps people get on the property ladder more easily. It lets you buy a part of a home—usually between 25% and 75%—while paying rent on the remaining share owned by a housing association or developer.
Over time, shared ownership usually allows you to buy bigger shares in the property through a process called “staircasing.” This means you can gradually increase your ownership until you eventually own the home completely, depending on your financial situation.
However, it’s important to know that most of these properties are leasehold. This could mean additional costs like ground rent and service charges, and there may be rules about making major changes to your home.
Pros of Shared Ownership
- Lower Deposit and Mortgage Requirements:
You only need a deposit and mortgage for the share you’re buying, not the full property value, making it significantly easier for buyers with limited savings to get started. - More Accessible for Lower Incomes:
The scheme is particularly suitable for those on lower incomes or with less borrowing power, as the mortgage amount is smaller and more manageable. - Potentially Cheaper Monthly Costs:
Monthly payments (mortgage plus rent) can often be lower than private renting or buying outright, especially in high-demand areas. - Staircasing Flexibility:
You can increase your share in the property over time (“staircasing”), potentially up to 100%, allowing you to transition gradually to full ownership as your financial situation improves. - Benefit from Capital Growth:
You benefit from any increase in the property’s value on the share you own, and if you staircase to full ownership, you benefit from the entire property’s appreciation. - Greater Stability Than Renting:
As an owner-occupier, you have more security and stability compared to renting, with less risk of being asked to move at short notice (as long as you keep up with payments). - No Stamp Duty on Initial Purchase (in Some Cases):
Stamp Duty Land Tax is often not payable on the initial share purchase, especially for first-time buyers and smaller shares.
Cons of Shared Ownership
- You’re Still a Tenant for the Unowned Share:
You pay rent on the part you don’t own and remain a tenant for that portion. This means you could be evicted for non-payment of rent or other breaches, and you don’t have full control until you own 100%. - Leasehold and Service Charges:
Shared ownership properties are usually leasehold, meaning you don’t own the land. You’ll pay service charges and possibly ground rent, which can be high, especially for flats, and you’re responsible for maintenance and repairs even if you only own a small share. - Restrictions on Alterations and Subletting:
There are often restrictions on making changes to the property or subletting. Major alterations may require landlord approval, and subletting is typically not allowed unless you own 100%. - Limited Choice and Lender Availability:
Not all properties are available for shared ownership, and not all mortgage lenders offer products for this scheme, which can limit your options. - Costs of Staircasing and Selling:
Buying additional shares (staircasing) incurs extra costs, including valuation and legal fees. When selling, you usually must give the housing association the first option to find a buyer, which can slow down the process. - Lease Length Issues:
Properties with shorter leases (under 80 years) can be harder to sell and more expensive to extend, which may affect long-term value. - Potential for Negative Equity:
If property values fall, you could end up in negative equity, especially if you own a small share and the market drops.
| Pros | Cons |
|---|---|
| Lower deposit and mortgage | Still pay rent on unowned share |
| Accessible for lower incomes | Leasehold, service charges, and ground rent |
| Potentially cheaper monthly costs | Restrictions on alterations and subletting |
| Option to staircase to full ownership | Limited property and lender choice |
| Benefit from capital growth on your share | Costs for staircasing and selling |
| Greater stability than renting | Lease length issues |
| No stamp duty on initial purchase (often) | Risk of negative equity |
Tips for Shared Ownership
If you’re thinking about shared ownership, here are some helpful tips to make the most of it:
Understand the Details: Carefully read the lease agreement and make sure you know what your rights and responsibilities are, including how rent and service charges might increase.
Plan Your Budget: Consider all the costs involved, such as mortgage payments, rent, service charges, and any future maintenance or repair costs.
Get Advice: Talk to a mortgage broker or housing adviser to understand your options and find the best way forward.
Need More Support? We Can Help!
Shared ownership can seem complicated, but you don’t have to do it all alone. At JG Mortgage Services, we focus on helping you understand your options and find the best plan for your specific situation. Whether you’re thinking about shared ownership for the first time or want to gradually buy more of your home until you own it outright, our experienced mortgage advisors are here to help.
We’ll guide you through the different mortgage options for home movers, first-time buyers and more, explain the terms and costs, and make sure you feel confident in your decisions.
Contact JG Mortgage Services today to see how we can support you with shared ownership and other mortgage choices. Let us make moving into your new home easier and less stressful.
