Navigating the property market as a first-time buyer can be daunting, especially in expensive areas like London. Shared Ownership schemes offer an alternative that helps first-time buyers and renters get onto the property ladder with lower deposits and more manageable financial terms. This guide explains how Shared Ownership works, its benefits, eligibility requirements, and the process involved.
What is a Shared Ownership Scheme?
A Shared Ownership scheme allows you to buy a share of a property, typically between 25% and 75%, while paying rent on the remaining portion. Over time, you can increase your share until you own the property outright. This process is known as “staircasing.”
For first-time buyers, Shared Ownership can be a practical solution to entering the housing market when full property ownership may not be affordable. In addition to requiring a smaller deposit compared to buying a home outright, this option provides greater flexibility in terms of finances and housing.
How Do Shared Ownership Schemes Work?
Shared Ownership lets you purchase a portion of a property with a mortgage. For the remainder of the property, you pay rent to a housing association. The beauty of this scheme lies in its ability to help first-time buyers and those with lower incomes get onto the property ladder.
The rent you pay is typically lower than what you would pay for a standard rental property, and you only need a smaller deposit. As your circumstances improve, you can buy more shares, and eventually, you can own 100% of the property.
Benefits of Shared Ownership Schemes for First-Time Buyers
There are several advantages to using a shared ownership scheme for first-time buyers:
Lower Deposit Requirements
One of the most significant benefits of shared ownership is the reduced deposit required compared to traditional home purchases. Because you are only purchasing a share of the property, lenders will require a smaller deposit, making home ownership more accessible to those with limited savings.
Affordable Rent Payments
The rent you pay for the portion of the property you don’t own is typically set below the market rate, which helps to keep monthly payments lower than what you would pay if you were renting a property on the open market.
The Ability to “Staircase”
The ability to gradually increase your ownership in a property through “staircasing” gives you flexibility and allows you to buy more of your home as your financial situation improves. This makes it easier to move toward full home ownership over time.
Eligibility for First-Time Buyers
Shared ownership is specifically designed to assist first-time buyers who are unable to afford a full mortgage. If you are a first-time buyer with a lower income, shared ownership could be an ideal way to enter the housing market and secure a home for the future.
Shared Ownership Homes in the UK
Shared ownership homes are typically newly built or resale properties offered by housing associations in desirable locations. In recent years, the government has increased its efforts to make shared ownership homes available in areas where housing demand is high, such as London and other major urban centers.
While the shared ownership model is available across the UK, eligibility criteria can vary by region. In London, the income limit for shared ownership schemes is higher than in other parts of the country, with a combined household income cap of £90,000. Elsewhere in the UK, the income limit is typically set at £80,000.
Shared Ownership Scheme Eligibility
To qualify for a shared ownership scheme, you must meet certain eligibility criteria:
- First-Time Buyer: You must be a first-time buyer, someone who has previously owned a home but can’t afford to buy one now, or an existing shared owner.
- Income Limits: You must have a combined household income below £80,000 (£90,000 in London) to qualify for the scheme.
- Age Requirement: You must be over 18 years old.
In addition to these basic requirements, certain priority groups are given preference. For example, military personnel, those over 55 years old, and individuals with long-term disabilities may have priority when applying for shared ownership schemes.
How to Apply for a Shared Ownership Scheme
To apply for a shared ownership scheme, follow these steps:
Step 1: Check Eligibility
Ensure that you meet the eligibility criteria set by your local housing authority or housing association. This will typically include income checks and an assessment of your home ownership history.
Step 2: Contact a Housing Association
Reach out to a housing association or your local council’s housing team to check what shared ownership schemes are available in your area. They can provide you with a list of properties and help you understand the application process.
Step 3: Apply for a Mortgage
Shared ownership schemes are usually funded through a mortgage. You will need to check if you are eligible for a mortgage and apply to a lender who offers shared ownership mortgage products. Once you undergo affordability checks and are approved, you can proceed with the purchase.
Step 4: Pay a Deposit
Once your mortgage is approved, you will need to pay a deposit based on the percentage of the property share you are purchasing. This deposit is typically much smaller than the deposit required for a full property purchase.
Staircasing: Increasing Your Share in the Property
As you continue to live in your shared ownership property, you may decide to purchase additional shares in the property through the “staircasing” process. This allows you to gradually increase your stake in the property until you own 100% of it.
When you staircase, the value of the property is reassessed, and the cost of purchasing additional shares will be based on the current market value. If property prices have increased since your initial purchase, the cost of purchasing more shares will also rise. Conversely, if property prices have decreased, the cost will be lower.
Selling a Shared Ownership Property
If you decide to sell your shared ownership property before reaching 100% ownership, you can still sell your share. However, the housing association has a “right of first refusal,” meaning they have the first option to buy your share or find a buyer for you.
Once you own 100% of the property, you are free to sell it on the open market, without any interference from the housing association.
Conclusion
For first-time buyers, Shared Ownership presents an excellent opportunity to own a home, even if you can’t afford a full deposit or high property prices. It provides flexibility, lower costs, and a pathway to full ownership. If you’re ready to explore this option, check your eligibility, find available properties, and consult with housing associations or lenders to begin the process.
Frequently Asked Questions
To be eligible for a shared ownership scheme, you must be a first-time buyer or an existing shared owner, with a combined household income below £80,000 (or £90,000 in London).
Yes, you can gradually increase your share in the property through a process called “staircasing,” eventually reaching 100% ownership.
Shared ownership properties are typically newly built homes or older properties being resold by housing associations. They are available in various locations, including London and other areas with high housing demand.
Yes, you can sell your shared ownership property, but the housing association has the right of first refusal. Once you own 100% of the property, you can sell it on the open market without restrictions.