How Does Shared Ownership Work?

For many aspiring homeowners, getting onto the property ladder can feel like a pipe dream, especially when faced with rising house prices and the challenge of saving for a deposit. For those wanting to buy a home, the shared ownership scheme is a practical solution that helps thousands of people achieve their homeownership journey every year.

At Eden Hawk Financial Solutions, we work with first-time buyers across Cardiff, South Wales and the UK to help them understand how the shared ownership scheme works and whether it’s the right path to owning their own home.

What is the Shared Ownership Scheme

Shared ownership is an affordable housing scheme designed to help those who may not have the required deposit needed to purchase in the traditional manner. The scheme allows you to buy a share of a property, usually between 25% and 75% of the full market value, and pay subsidised rent on the remaining portion to a housing association or housing provider. This makes homeownership more accessible by reducing the initial share you need to buy and, therefore, the size of your deposit and mortgage payments.

The beauty of a shared ownership property is that it offers security and stability whilst providing flexibility for your financial situation. As a shared owner, you can increase your share in the property over time through a process called staircasing, where you can purchase additional shares when you can afford to. In most cases, buyers eventually own the property outright when they buy additional shares until they own 100% of the equity.

How Does Shared Ownership Work in Practice?

Let’s look at an example. Say you find a shared ownership property worth £200,000. If you buy a 50% equity share, you would need a mortgage for £100,000 rather than the full value. You would also pay rent to the housing association on the 50% you don’t own yet. This rent is usually around 2.75% of the value of the landlord’s share, so it’s much cheaper than market-rate rent.

In addition to your mortgage and rent, you will need to pay a monthly service charge for the maintenance of communal areas and buildings insurance and ground rent as specified in your lease agreement. These extra costs should be factored into your affordability calculations when deciding if shared ownership is the right solution for you.

The Shared Ownership Journey

Your shared ownership journey starts with checking the eligibility criteria. Generally, you need to be a first-time buyer or previous homeowner who can’t afford a suitable property on the open market, with a household income of typically under £80,000 (or £90,000 in London). Your mortgage lender will also check your credit history to see if you can afford the mortgage payments on shared ownership homes.

Once you have found the property you want to make your new home, you will make a mortgage application with the help of a mortgage broker or mortgage advisor. At Eden Hawk Financial Solutions, our experienced team helps clients through the whole process, from finding the right mortgage lender to completing the paperwork.

After your mortgage application is approved, you will pay your deposit, typically 5-10% of the share you are purchasing, and complete the necessary legal paperwork. Your solicitor will review the lease agreement to ensure you understand all the terms. You will then move into your new home as a shared owner, making monthly mortgage payments to your lender and rent payments to the housing association.

Benefits of Shared Ownership

Shared ownership has several benefits that make it an affordable way to own a home. The most obvious is that it’s a way onto the property ladder for those who might otherwise be priced out of the market. By buying a smaller initial share, you require a smaller deposit and mortgage, allowing you to own a home sooner than if you save for a conventional purchase.

Another benefit is the flexibility to increase your ownership over time. When you buy more share, you pay less rent because you own more of the property. When you own 100% of the equity share, you stop paying rent altogether and only pay your mortgage along with your other commitments. This gradual approach allows you to work around your financial situation.

Shared ownership properties are usually new builds or resale properties from other shared owners, so you benefit from modern construction standards and lower maintenance costs in most cases. Shared ownership also works well for those looking to move sooner rather than waiting years to save a bigger deposit for a conventional purchase.

Staircasing: Buying More of a Share

One of the highlights of shared ownership is the ability to increase your share in the property. When you are ready to buy more share, the housing provider will arrange for the property to be valued at its current market value. You can then buy more share, usually in 10% increments or more, depending on your lease agreement and the timeframe since your last purchase.

Buying more share involves another mortgage application if you need to borrow the funds, although some owners use savings. Note that each time you staircase, you will incur valuation and legal fees, so it’s worth making informed decisions about when and how much more ownership to buy.

Important Points to Consider

Whilst shared ownership has many benefits, there are things to consider. As a shared owner, you are responsible for all repairs and maintenance, even though you only own a portion of the property. You will also need to get permission from the housing association before making major changes or if you want to rent out the property.

When selling a shared ownership property, the housing association has the first option to buy during an initial period. After this time frame, if no buyer is found, you can sell on the open market. The rest of the proceeds from the sale are split proportionally between you and the housing association based on your respective ownership shares.

Final Thoughts

At Eden Hawk Financial Solutions, our experienced mortgage advisors in Cardiff help clients across South Wales and the UK decide if shared ownership is right for them. We take the time to understand your financial situation, household income and long-term goals before providing tailored advice on the best way to own a home.

Whether you are looking at shared ownership or other options to buy a home, our team can guide you through the whole process, from understanding what you can afford to completing your mortgage application. We work with mortgage lenders, representative of the whole of market, to find the most cost-effective solution for you.