Shared ownership schemes are when you buy shares of a property from a UK housing association.
You can initially buy between 25% and 75% of shares in the property and then pay the housing association rent on the shares you don’t own. Further down the line, you can buy more shares in your home until eventually, you are the sole owner. This is a process known as “staircasing.”
There are many advantages associated with the shared ownership scheme but there are also plenty of myths that scare off potential buyers. Here, we will explore some of these common myths and dispel them.
Let’s dive straight into some of the most common myths surrounding shared ownership schemes.
1. You will have to live with strangers
The term “shared ownership” can be a bit misleading. It sounds like you risk sharing a home with total strangers. But don’t worry, you are not moving into a commune!
How it works is that you purchase a share of the house, for which you pay a mortgage. You then pay rent to a housing association for the shares you don’t own.
This means that you have the sole right to live on the property, even if you don’t fully own the house.
Also remember, as you save more money, you can purchase more shares until you own 100% of the property. But until that is possible for you, a shared ownership scheme will help you at least get a foot in the door!
2. You must be a first-time buyer to be eligible
Yes, the system was designed to help first-time buyers enter the property market. But, it is by no means restricted to them.
You are eligible for a shared ownership scheme if you meet the following criteria:
- You are 18 or older.
- Your household income is below £80,000 a year or £90,000 if in London.
- You don’t own other property. This means that you can be a first-time buyer OR a buyer entering the property market again. If you do own property and still want in on a shared ownership scheme, you will need to sell your existing property.
- You are unable to afford a suitable house in the open housing market.
- You are not in arrears for existing mortgages or rent.
- You have a reliable credit history and can afford to pay the required monthly mortgage and rent payments.
3. You won’t be able to decorate as you wish
You have full rights to decorate your home however you see fit. You can hang up as many pictures as you like and paint the walls any colour you wish.
However, any large structural alterations to the house will need to be approved by the housing association.
So, before you start knocking down any walls, consult your lease for any property alteration clauses and be sure to get your association’s permission for alterations in writing!
Many people think that because you pay both mortgage and rent, you end up paying more each month under a shared housing scheme.
This is simply not the case. Your share of the house is worth less than its total value. This means that the mortgage you pay will be significantly less than it would be for the entire house.
Because the housing association only owns part of the house, any rent you pay them will also be significantly less than it would be to rent out the full value of the house.
A 2013 report by the National Housing Federation stated that monthly payments for shared housing schemes averaged lower than full rental or full mortgage payments in most areas of England.
5: You won’t find family homes
Many people think that shared ownership homes only exist as cramped flats in crowded cities. This is not true.
Shared ownership homes are cropping up all over the country, with many different properties to choose from. You can choose to live in a studio apartment, a small flat, or a three- or four-bedroom house.
It is true that not all lenders allow for shared ownership mortgages.
That being said, a property specialist can direct you to a lender that would be willing to help you out. Of course, this is provided that your credit score is good.
There is an official marketing website where all shared ownership properties are being advertised normally with the minimum criteria required to buy it. A good first move would be to review some available shared ownership properties here.
Remember, your mortgage will be much less than what you would pay for the whole property!
7. You can never truly own the property
You will always be able to invest in more shares provided you have the means. The more shares you own, the less rent you will have to pay to the housing association.
Eventually, you can own 100% of the property. This gradual purchase is known as “staircasing”. Generally, you will need to have owned your shared ownership property for a specific amount of time before you can buy more shares.
Your lease should outline these details but often the time period is one or two years. However, it is true that some housing associations don’t allow you to purchase 100% of the property shares. So, if that is your end-goal, make sure you check your lease agreement to determine if that is possible or not.
If you decide that you would rather sell your shares than invest in more, you need to give the housing association notice.
Upon notice, the association will have a period to find buyers interested in a shared ownership arrangement. Exactly how much time they have is usually specified in the original lease agreement.
If the housing association cannot find a buyer in time, you can start advertising your shares yourself, as a private sale.
Shared ownership can be the perfect stepping stone towards full property ownership.
It is definitely an avenue worth exploring if buying a home is not currently achievable for you. Shared ownership schemes are legitimate, there are no sneaky catches.
Hopefully, this article has helped dispel the common myths associated with these schemes and encouraged you to seriously consider this form of property ownership!