Shared ownership: everything you need to know abut how it works - including how much deposit you'll need, what to watch out for and how to 'staircase'

What exactly is shared ownership?

It’s a property partnership between a first-time buyer and a housing association. The buyer purchases a stake in a new-build home, usually between 25 per cent and 75 per cent of the property, and the association owns the rest. The buyer pays rent to the association on the share they don’t own.

Is it cheaper than renting?

Usually. Housing associations study local average rent levels when they are deciding what proportion of a flat to sell and how much rents will be, to make sure shared owners aren’t worse off than local renters.

“We always aim to make it cheaper than equivalent private rental properties in the area,” says Kush Rawal, sales and marketing director at Thames Valley Housing. “The whole point of shared ownership is to give people a viable alternative to renting.”

Whether shared ownership is cheaper than buying outright is a moot point. Deposit and stamp duty are certainly lower. But while interest rates are rock bottom outright buyers with sizeable deposits may well be better off each month than shared owners.

Remember, too, that shared owners pay 100 per cent of the service charge for their development, though they only own a proportion of the property.

How much deposit will I need?

Most associations ask for 10 per cent —but only of the share of the home you are buying, not 10 per cent of its full market value. So, if you were buying 25 per cent of a home worth £400,000, your deposit would be £10,000 and you’d need a mortgage of £90,000.

Any other advantages?

As well as the potential for capital growth, shared owners can stay in a property as long as they like, and do what they want to its décor with no landlord breathing down their neck. On the downside of this, if the washing machine expires, there will be no landlord to pay for a new one.

Do I qualify?

If you are a first-time buyer and your household income is less than £90,000, then yes. Most current shared-ownership schemes prioritise people already living or working within the same borough as the development.

Applicants must also have a minimum income to qualify — this varies depending on the price of the homes on offer, as the associations have to be as sure as they can that buyers can afford their properties.

At Drummond House (nhillsales.com), part of the £1.5 billion Royal Arsenal Riverside development zone, one-bedroom flats are priced from £85,625 for a 25 per cent share and applicants must have an income, or joint income, of at least £50,709. They will need to be able to raise an £8,562 deposit, and monthly costs include mortgage in the region of £450, rent of £407, and £163 service charge.

Where do I find out about what’s on offer?

Julie Stafford, head of sales and marketing for The Guinness Partnership, recommends the Government’s sharetobuy.com website, with its listings of all shared-ownership schemes on offer in London and beyond. “If a canny purchaser has seen a site where homes are being built they should keep an eye on the signage and as soon as a telephone number goes up get in touch with the association and register their interest,” she adds.

Is shared ownership only really for singles and couples? What if you have children?

The vast majority of shared-ownership homes in London are one- or two-bedroom flats, so unless your family is small, you are in trouble. Some schemes do have three-bedroom flats, if you are prepared to give up the dream of a back garden with a trampoline and football nets. But developers are getting more geared up to the needs of families on their sites, with on-site play areas, buggy storage facilities, and even schools.

What bureaucracy do I have to plough through?

You will need to prove you have local connections, so make sure you are on the electoral roll. For information, visit gov.uk/get-on-electoral-register. You should also have proof of your address and your work address, whichever is near the development — a utility bill in your name or a payslip would be ideal.
Julie Stafford recommends getting a mortgage in place in advance, and also instructing a solicitor. “Shared-ownership properties can go in a day or two and they will go to the buyers who are the best prepared.” You may also have to be on your local council’s housing register, so get this out of the way. Most councils have online forms.

What is the situation re mortgages?

Most high street lenders are now up to speed with shared ownership. The Government’s sharetobuy.com website has a handy mortgage calculator. According to its information a typical Londoner earning £40,000 and looking to buy 25 per cent of a £500,000 flat with a £12,500 deposit would currently have nine mortgage options, with interest rates from a reasonably competitive 3.55 per cent. Shop around, as moneysupermarket.com also has information on shared-ownership mortgages. Whoever you borrow with, administration and valuation fees will likely add about £1,000 to your start-up costs.

What should I look out for if I want to make a profit when I come to sell?

Whether you buy a whole property or a share in one, there is never a guarantee you will make money. The London market is slow and cautious right now, so don’t expect to be sitting on a huge paper profit by next Christmas.

Otherwise the advice is the same as it would be to any buyer: smart-looking homes close to good facilities and good transport links — or those where transport is due to improve soon, such as around Crossrail stations — will be the easiest to sell on. Chiswick Gate (tvhsales.co.uk/schemes/chiswickgate) ticks these boxes, with its good location near Chiswick station, for commuters, and Chiswick High Road, for shops, restaurants and bars. A 30 per cent share of a one-bedroom flat is £159,000.

Are there any rules after moving in?

You will be a leaseholder, and your lease will be full of legal jargon and rules, which apply to all buyers, about things like property maintenance, pets, and making major alterations to the property. Your solicitor will study the lease for you and will explain — in plain English — the extent of your responsibilities.

One controversial topic is communal facilities. Many schemes are sold on the basis of their glitzy sky lounges, gyms, pools, cinemas and so on. But shared owners are often excluded from using them.

It’s a good idea to check with the association what facilities you will and will not be able to take advantage of, to avoid a nasty shock further down the line.

Can I sub-let?

Once you are in situ you can take in a lodger if you like — although you may have to pay tax on the proceeds — and you are also legally allowed to let the property out on holiday lettings sites such as Airbnb, but for no more than 90 days per year. What you can’t automatically do is rent out the whole property without the permission of the housing association.

Thames Valley Housing’s Kush Rawal said he tends to take an ad hoc view of this sort of request. For example, if a shared owner is in financial difficulties or wants to go travelling they will tend to be allowed to sublet their home for a fixed term.

Can I buy out the housing association?

You can buy a larger share of your property from the housing association in a process known as “staircasing”.

Kush Rawal says buyers need to wait for at least a year before they can start to staircase, and they can buy a minimum of 10 per cent at a time. If they have the resources to buy the property outright, they can do that, too.

You can staircase if you get a sudden cash windfall, or if the property rises in value and you are able to increase the size of your mortgage.

Shared owners can staircase up to three times, although there are costs involved each time. A solicitor will need to be instructed, stamp duty might have to be paid, and if a shared owner is upping their mortgage, the lender will also charge.

Each time they staircase, shared owners will also need to pay for a valuation of the property, at a cost of about £150 to £200. This is because buyers who staircase must pay for an extra share of the current value of the property — not what they paid initially. So if property values have increased it is great news in many ways, but it will mean that upping a share in a property will be more expensive.