A Guide to How Shared Ownership Works

Getting on the housing ladder takes a lot of work.

Saving up for a deposit is hard, and property is expensive.

Shared ownership is an excellent way to overcome these challenges.

It could be the first step in the journey to full ownership.

What is shared ownership?

Shared ownership is a home ownership model in which people buy a share in a property (usually between 25% and 75%).

It means you pay rent on the remainder of the property, usually to a housing association.

Most – but not all – shared ownership properties are new builds.

It helps people get onto the housing ladder. In other words, if you cannot afford the full price of a house, shared ownership gets you part of the way there.

1. Check you meet the criteria

The first step in entering a shared ownership scheme is to find a suitable property.

Certain eligibility requirements apply. Most importantly, your salary should be below a set threshold.

See below (‘Is everyone applicable for shared ownership?‘) for more information on the criteria.

2. Find shared ownership properties

You can find shared ownership properties listed on Rightmove and Zoopla.

They usually have a specific tag highlighting that they fit into this category.

Or you could also ask local estate agents to point you towards shared ownership properties in the area.

3. Putt down a deposit

Once you have found the right property, you must make at least a 10% deposit.

4. Make payments over time

You can then build up your equity in the house as time passes. This process is known as ‘staircasing‘ (see below). But there is no requirement to buy more.

The amount you pay does not include electricity or gas bills. You may also need permission for major changes to the property.

If you want to repaint or redecorate, you can do this yourself, without permission.

What is staircasing?

Staircasing is when someone with a shared ownership property increases their stake in the house.

It is often done in 1% steps over a 15-year period.

But it can be done in larger increases (5%, 10%, or more) over shorter time periods. You’ll need the funds upfront to do this.

As your share of the property increases, your rent decreases. Instead, a greater percentage of your payments will go towards your mortgage.

You can build your share up to 100% of the property.

Adjustments made when you buy more shares

When you want to buy more shares, your housing association will revalue your property.

This new valuation is used to price the new shares, not the initial price you bought it for.

Stamp duty implications

If you decide to staircase, you may need to pay more stamp duty later. This mainly applies if you staircase to 80% ownership or more.

What is the relationship between shared ownership and help to buy?

Help to buy is a government-led scheme that complements shared ownership purchases.

It allows buyers to borrow up to 20% (40% in London) of the property’s purchase price.

This reduces the amount buyers need to borrow from mortgage lenders.

So, shared ownership makes some property more affordable, whilst help to buy makes it easier to get mortgages.

There are also alternatives to help to buy to consider.

Is everyone applicable for shared ownership?

No, not everyone is applicable for shared ownership.

Firstly, as mentioned above, your annual income should be below a certain threshold (usually £80,000, but this can vary in different areas).

Secondly, you must be unable to afford all the deposit and mortgage payments for a house that meets your needs.

Thirdly, at least one of the following should also be true:

You are a first-time buyer
You once owned a home but cannot afford it now
You are forming a new household – e.g. after a break-up
You are an existing shared owner, and you want to move
You own a home and want to move but cannot afford a new home that meets your needs

Finally, some housing associations have specific rules required for their shared ownership.

For example, you must sometimes demonstrate your connection to the local area. This could include:

Working there
Living there at the time
Having family members there.

Annual income criteria

For most people in the UK, an annual salary above £80,000 disqualifies them from being eligible for shared ownership schemes.

The criteria change in different parts of the country.

For example, in London, it cannot be higher than £90,000. And in Wales it must be a maximum of £60,000.

How do shared ownership rules differ in each country of the UK?

The biggest differences in shared ownership rules typically occur in different parts of the UK.

Wales

In Wales, your initial purchase must be between 25% to 75%.

It can be anywhere in this gap – so odd numbers such as 43%, 71% or any other percentage are acceptable.

You cannot sub-let any part of the home being bought through the scheme.

Scotland

In Scotland, you can buy a 25%, 50% or 75% share of a home. The rent you pay on top of this is known as an ‘occupancy charge’.

Priority is given to many of the same criteria in England.

However, some groups have priority for shared ownership, including:

Veterans
Serving armed forces members
Widows
People with disabilities.

Northern Ireland

In Northern Ireland, the maximum property valuation must be £195,000.

The property does not qualify for shared ownership if it is higher than this.

You usually need a minimum 50% stake in the house, although this depends on the housing association. You can also typically only staircase in at least 5% increments.

Yes, you can sell your share of a shared ownership house.

However, many owners first buy the remaining property share from the housing association.

This means they own 100% of the property before selling it.

Advantages of shared ownership

Shared ownership enables you to get onto the property ladder sooner.

This means you can build equity in a house with a smaller deposit than you would otherwise need.

Staircasing makes full ownership more accessible.

Disadvantages of shared ownership

Shared ownership properties tend to be leasehold.

This means that you don’t own the land underneath your house. You’ll typically still need to pay ground rent and a service charge.

(However, it should be noted that leasehold properties can still increase in value).

It is not accessible to people with relatively low or high incomes. There are deposit amounts and other criteria to meet.

Staircasing is difficult when you have a mortgage payment and rent payment simultaneously. You may only be able to use it if your savings or salary increases.

Not all housing associations allow 1% increments. You may also need a solicitor’s support to achieve this, which will increase your costs in the short term.