How does a shared ownership scheme work when it comes to buying a property?

In order to make homeownership more affordable, the UK government came up with a shared ownership scheme. Seeing how the prices of property have been rising significantly in the past year in the UK, it makes a lot of sense for first-time buyers and potential buyers to make use of the shared ownership scheme. Essentially, the shared ownership scheme is a way for more individuals to climb the property ladder and enter the UK property market. If you’ve been thinking about buying a property, you might want to consider using the shared ownership scheme to your advantage. Here is everything that first-time buyers and potential buyers need to know about buying a property using the shared ownership scheme. 

What is the shared ownership scheme?

In simple words, the shared ownership scheme is an alternative to homeownership. Under this scheme, first-time buyers or individuals who already have a house to their name but cannot afford to buy a new home can purchase a property. However, as the name suggests, under the ‘shared ownership’ scheme,  buyers can purchase a share in a property or a new build. 

How does the shared ownership scheme work?

Think of the shared ownership scheme as a part rent and part buy system of purchasing a property. Basically, a first-time buyer who is using this scheme can purchase anywhere between 25 per cent to 75 per cent of the property, while paying rent for the remaining part of the property. The potential buyer can purchase their share of the property from a housing association or through a mortgage. The buyer will also have to pay rent on the remaining part of the property – this rent is paid to the housing association from which he or she has bought the property. Keep in mind that the buyer will only pay the mortgage on the part of the property that they own while paying rent on the remaining part of the property, thus making the purchase process more affordable. 

For instance, say a first-time buyer is looking to purchase a property that costs around £200,000. The buyer can purchase 25 per cent of the property, 50 percent or even 75 percent, depending on their budget. If the buyer decides to purchase 25 per cent of the property, his or her share of the property will amount to £50,000. The buyer will need to put down a deposit of 5 percent, which is a mere £2,500. For the remaining part of the property, he or she will have to pay an annual rent, which is typically around 2.75 per cent of the value of the remaining property which amounts to £4,125 for the year.

Who is eligible for shared ownership?

First-time buyers are eligible for the shared ownership scheme. You can purchase a property through the shared ownership scheme if your household earns £80,000 a year, or lesser. You are also eligible for this scheme if you cannot afford to pay the deposit and the mortgage payments on a home that meets your needs and requirements. 

Also, it is important to note that the shared ownership scheme is not only limited to first-time buyers. If you already own a house but cannot afford to buy a new one as per your needs and requirements, then you can use the shared ownership scheme to your advantage. Also, if you own a house and want to move but cannot afford to, you can use the shared ownership scheme. And lastly, if you’re forming a new household then you can use the shared ownership scheme to purchase a part of a property.

How can I purchase more shares under the shared ownership scheme?

You can purchase additional shares of your own property through the process of buying out. You also have an option to buy more shares in your property through the process of ‘staircase’. For instance, if you own 25 per cent of a property, you can buy another 25 per cent thus making your share 50 per cent of the property. Now, you will pay the mortgage for 50 per cent of the property while paying rent on the remaining 50 per cent. Through this method of staircasing, you can increase your property shares to a 100 per cent. Once you reach 100 per cent, you will just have to pay off the mortgage like any regular property buyer without paying any annual rent. Most properties have no restrictions on the staircasing limit, but it is always a good idea to find out the terms and conditions from the housing association you are purchasing from.

What are the advantages of the shared ownership scheme?

For one, the shared ownership scheme allows you to climb onto the property ladder and it is much more affordable than buying a house on the market. Also, buyers only need to put down a 5 per cent deposit under the shared ownership scheme; in the open market, the deposit can range from 5 per cent to 20 per cent. The shared ownership scheme makes mortgage payments more affordable, which is convenient for low-income buyers. Also, the annual rental payments that the buyer needs to make are much cheaper than renting in the open market. 

Unlike in private rentals, you have security under the shared ownership scheme. Usually, the lease on a shared ownership property is 99 years or 125 years. So, as long as you are paying the monthly mortgage and the rent, you have the security of tenure. Most importantly, the process of staircasing allows you to buy more shares in the property. So, as per your budget and your timeline, you can become the owner of the property without working about hefty mortgage payments, massive deposits and high rates of interest. 

Basically, the shared ownership scheme is an easy and affordable way for potential buyers to enter the property market without saving for years on end. Also, it provides financial flexibility and security, both of which are important for first-time buyers. Lastly, the shared ownership scheme allows full ownership at your own pace, budget and time, which is beneficial for new buyers.

Written by Julie Hanson

Julie is passionate about property – development, investment and portfolio planning. Along with husband Alec, Julie is actively building a property portfolio while helping others to do the same.

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