Is Shared Ownership A Good Way To Get On The Property Ladder?

 

For many first-time buyers, getting onto the property ladder can feel increasingly difficult. Saving for a deposit, understanding how much you may be able to borrow, and working out what your monthly mortgage payments could look like are all important parts of the process.

Shared ownership can offer a more affordable route into homeownership for some buyers. It allows you to buy a share of a property rather than the full amount, while paying rent on the remaining share. For those who are keen to stop renting but are not yet able to buy outright, it can be a useful stepping stone.

At Quealy & Co Financial Services LTD., our advisers can help you understand whether shared ownership could work for your circumstances, including your mortgage options, affordability and longer-term plans.

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What Is Shared Ownership?

Shared ownership is a scheme that allows eligible buyers to purchase a percentage of a property, rather than buying the whole property outright.

In many cases, buyers purchase an initial share of between 10% and 75% of the property’s market value. You then pay a mortgage on the share you own and rent to the housing association or landlord on the remaining share.

Because your deposit is based on the share you are buying rather than the full value of the property, the upfront cost can be significantly lower than buying a home on the open market.

For example, if a property is worth £200,000 and you buy a 25% share, your purchase is based on £50,000. A 5% deposit on that share would be £2,500, compared with £10,000 if you were buying the full property value with a 5% deposit.

This lower initial deposit is one of the reasons shared ownership can appeal to first-time buyers and those with smaller savings.

How Does Shared Ownership Work?

With shared ownership, you usually need a mortgage for the share you are buying, unless you can purchase that share in cash. You will then pay rent on the percentage of the property you do not own.

Your monthly costs may include:

• Mortgage repayments on your share
• Rent on the remaining share
• Service charges
• Buildings insurance contributions
• Maintenance costs
• Ground rent, depending on the property and lease terms

Many shared ownership schemes also give you the option to increase your share over time. This is known as staircasing. Depending on the terms of your lease, you may be able to buy further shares until you eventually own the property outright.

This can be appealing, but it is important to remember that staircasing usually comes with additional costs, including valuation fees, legal fees and mortgage arrangement costs.

The Benefits Of Shared Ownership

A Lower Deposit

One of the biggest advantages of shared ownership is that it can reduce the amount you need to save before buying.

As your deposit is calculated on the share you are purchasing, not the full value of the property, it can make buying a home feel more achievable. This can be especially helpful for first-time buyers who have a steady income but are finding it difficult to save a large deposit while renting.

A Step Onto The Property Ladder

Shared ownership can help some buyers move from renting into owning part of their home. While you will still pay rent on the share you do not own, you are also building equity in the percentage you have purchased.

For buyers who may otherwise have to wait several more years to buy, this can be an attractive option.

The Option To Buy More Over Time

The ability to staircase can give you more flexibility. Rather than taking on a larger mortgage from the start, you may be able to buy a smaller share initially and increase your ownership as your income or savings improve.

This can give buyers a way to work towards full ownership gradually.

Access To Homes That May Otherwise Be Out Of Reach

In some cases, shared ownership can help buyers access homes in locations or developments that may not be affordable through a traditional purchase.

This can include new-build homes, apartments or properties in desirable areas where buying outright may be beyond budget.

For buyers looking in Kent, where affordability can vary widely depending on location, this may open up more options.

The Drawbacks Of Shared Ownership

While shared ownership can be a helpful route into buying, it is not right for everyone. Before committing, it is essential to look carefully at the costs, restrictions and long-term implications.

You Will Still Have Ongoing Rent To Pay

Although you own part of the property, you will pay rent on the share you do not own. This means your monthly outgoings may include both mortgage payments and rent.

You may also need to pay service charges, maintenance contributions and other fees. These costs can increase over time, so it is important to understand not only what you will pay now, but what you may pay in future.

There May Be Restrictions On What You Can Do

Because you do not fully own the property, there may be limits on what changes you can make.

Major alterations, extensions or renovations will often need permission from the housing association or landlord. In some cases, even smaller changes may require approval.

This can feel restrictive if you are hoping to put your own stamp on the property.

Staircasing Can Be Expensive

Buying more shares in your home may sound straightforward, but there are costs involved each time. You may need to pay for a valuation, legal work and even stamp duty  depending on your circumstances.

If property prices rise, the cost of buying further shares may also increase. While that can mean the share you already own has grown in value, it can also make full ownership more expensive to reach.

Selling Can Be More Complicated

Selling a shared ownership property is usually more involved than selling a home you own outright.

Some schemes require you to offer the property back to the housing association first, giving them a period of time to find a buyer. There may also be restrictions on who can purchase the property, such as eligibility rules for shared ownership buyers.

This can mean the sale takes longer or involves more steps than a standard property sale.

The Hidden Risks To Consider

Before buying through shared ownership, it is important to think beyond the initial affordability.

Property values can go up or down. If prices rise, buying more shares may become more expensive. If prices fall, the value of the share you own could reduce, which may affect your equity when you come to sell.

Most shared ownership homes are also leasehold. This means you should pay close attention to the length of the lease, ground rent terms, service charges and any future costs. A short lease can affect the property’s value and may make it harder to secure a mortgage. Extending a lease can also be costly.

As with any property purchase, clear advice at the start can help you avoid expensive surprises later.

Can You Get A Mortgage For Shared Ownership?

Yes, many buyers use a mortgage to purchase their share of a shared ownership property. However, not every lender offers mortgages for shared ownership, and some may have specific requirements.

For example, a lender may require you to buy a minimum share of the property, such as 25%, before they will consider your application. Others may have different affordability criteria depending on the rent and service charges you will also need to pay.

The good news is that shared ownership buyers may still be able to access competitive mortgage rates, depending on their circumstances. Speaking to a mortgage advisor can help you understand which lenders may be suitable and what your monthly costs could look like.

Is Shared Ownership Right For You?

Shared ownership can be a useful option for buyers who want to get onto the property ladder but are not yet able to buy a home outright. It can reduce the deposit needed, provide access to a wider choice of homes, and offer the chance to increase ownership over time.

However, it is not a shortcut to homeownership without costs or restrictions. Rent, service charges, leasehold terms, staircasing costs and resale rules all need to be considered carefully.

The right decision will depend on your income, savings, long-term plans and the property itself.

Thinking About Buying A Shared Ownership Property?

If you are considering shared ownership, speaking to a mortgage adviser early can make the process much clearer. At Quealy & Co Financial Services LTD., our advisers can help you understand how much you may be able to borrow, which lenders consider shared ownership applications, and how your mortgage, rent and service charges could affect your monthly budget.

We can also talk you through the different rate options available and help you decide whether shared ownership is the right route for your circumstances and long-term plans.

Call Quealy & Co Financial Services Ltd. on 01795 505761
Email mortgages@quealy.co.uk

Quealy & Co Financial Services Ltd. is authorised and regulated by the Financial Conduct Authority No. 919693.

*Please note your home may be repossessed is you do not keep up with repayments*