Pros and Cons of Shared Ownership

Shared ownership is currently one of the most popular government home ownership schemes in the UK. The scheme aims to lower the entry point for homeowners by allowing for a smaller deposit whilst you pay both rent and mortgage for the property you are living in. In this blog post, we explore the pros and cons of shared ownership.

Pros of Shared Ownership

Lower barriers to entry

Shared ownership is prevalent in this era due to how it affords first-time buyers to get on the property ladder in an era where many struggle. Statistics reveal that the average first-time buyer in the UK is 33 years old and it rises to 35 if in London. People are buying their first property at an older age due to the difficulty of getting on the property ladder.

Shared ownership helps in this sense as it lowers the barrier to entry to get a property. The initial deposit you need to get a home with shared ownership will typically be lower than without this scheme. This is why it is a popular method for first-time buyers.

Staircasing

Although shared ownership means you will have to share ownership rights with the government, you can staircase (increasingly owning more of your property) as time passes. This means you can own a larger percentage over time compared to when you started and can even lead to you owning 100% of the property. Of course, there are caveats to consider with this before you decide to go with a shared ownership scheme.

Start your home ownership journey

Shared ownership can be a better option than renting and a good medium if you can’t afford full ownership yet. With renting, you have no ownership rights to the property you are living in. But shared ownership allows you to pay rent, and a mortgage whilst at least having some ownership of the property. It allows you to build equity on a property and increase its value whilst you pay to maintain it. 

Potential for first-time buyer relief

There is a way to experience first-time buyer relief on shared ownership properties if you decide to pay stamp duty on the full value of the home upfront. This first-time buyer exemption applies if the property’s market value is up to £425k and you can get a discount up to £625k.

Sell at any time

Shared ownership properties are flexible in the sense that there isn’t as much of a time cap as to when you can sell a property. You can sell at any time, although there are some restrictions on how you can sell. 

Cons

Extra conveyancing costs

Shared ownership properties require extra conveyancing costs which can range from £850 to £1500 depending on how complex the situation is. Because shared ownership is a scheme with the government there are typically more legal processes to go through than if it were just you owning the property alone. 

Responsibilities of a full homeowner

Even though you own part of the property, when it comes to taking care of it, you have full responsibility for that. So, for example, service charges, housing maintenance, insurance costs etc will be your responsibility completely.

Limitations with selling

Because you don’t have full ownership with shared ownership, there are limitations if you decide to sell the property. One example of this is that you have to let the housing association find a buyer before you put it on the open market. This means you will have less freedom with how and who you would like to sell your property to.

Stamp duty

the first-time buyer exemption. For example, if you choose to pay stamp duty just on the portion of the property you are buying, you will not be eligible for the first-time buyer exemption. If you choose this option, and your percentage share of the property increases to more than 80% you will have to pay out another stamp duty on this increased amount.

Leasehold

All shared ownership properties operate via leasehold and on a fairly short lease of under 80 years. This can make it harder to sell your property. Other leasehold limitations could mean you may have to pay ground rent and service charges which can be expensive. 

No subletting

If you needed a little cash to help keep up with bills and wanted to sublet your property, you would not be able to do this legally as subletting is banned in shared ownership properties. This again adds to the earlier point of you having full responsibility for managing a property, despite only having shared ownership.

If you want more insight into shared ownership and other government home ownership schemes, sign up for The Homebuyers Club which has a full detailed course on this.