Shared ownership is a housing scheme that was set up by the government to help those that can not afford to buy a home outright. Instead, the scheme enables you to buy a share of a home and pay rent on the remaining share. Known also as the 'part buy part rent' scheme, shared ownership allows you to buy a share of a home between 25 and 75 percent of the full property value. The bigger the share that you purchase, the less rent you will have to pay on the remaining share.
The common confusion...
With the various housing schemes available to home buyers there is often confusion between the shared ownership scheme and other similar schemes. Such schemes include:
- Shared Equity - This is a scheme offered by new home builders. In most cases you will take out a mortgage between 85% and 90% of the value of a new home and the builder will take care of the rest. You are required to put down a 5% deposit to qualify. You will own 100% of the home and you can simply pay back the builder when you sell the home, though it can be paid off before.
Find shared equity homes throughout the UK here.
- FirstBuy - This is a government equity loan scheme to help first time buyers purchase a brand new home. To qualify for FirstBuy your household income must be less than £60,000 a year and you will need to raise a deposit of 5%. In most cases the house builder will lend you 10% and the government 10% - this becomes the equity loan. You will then need to raise a mortgage for the remaining amount. Once purchased, you will own 100% of your home.
- Find FirstBuy homes throughout the UK here.
Many people will consider both of the above to be 'shared ownership' schemes however as we have already learnt, shared ownership is a scheme in itself.
So how does the shared ownership scheme work?
The scheme is provided by HomeBuy agents throughout the UK. These agents are housing associations that will decide whether you are eligible to buy a new home under the scheme. They will:
- Handle your application
- Decide whether you qualify for the scheme
- Provide information on the houses in your area that the scheme is applicable to
- Pass on your application to other agents that may have alternative homes for sale
Shared ownership homes are always leasehold homes. This means that you own the home for a fixed period of time, normally 99 years. When you buy the home, you become the owner of the lease.
Buying more shares
When you can afford to do so, you can buy more shares in your home until you own it outright. This is a process known as 'staircasing'. The cost of your new share will depend upon how much your home is worth. If the property prices in your area have gone up, you will pay more than your first share. If the value of your home has dropped since the initial purchase, your new share will be cheaper. The housing association will arrange for a valuation of your home and let you know the cost of the new share.
Shared Ownership Scheme example and costs
|Example||Cost||Share of home|
|Property purchase price||£100,000|
|Your share of the value||£50,000||50 percent|
|Housing association share||£50,000||50 percent|
|Mortgage payments at 6 per cent interest over 25 years||£322|
|Rent at 3 per cent of £50,000 (£1,500 over 12 months)||£125|
|Total monthly payment||£447|