What Is Shared Ownership? How It Works in England

Shared Ownership is one of several ways to buy a home when a full purchase is out of reach. This article explains how the scheme works, how much rent you pay, who can apply and what to weigh up before you buy. The rules described here apply to Shared Ownership in England. Scotland, Wales and Northern Ireland have their own schemes with different rules.

For many buyers, saving a deposit for a full purchase is one of the biggest hurdles, and it can take years. Buying a cheaper home is one option, but it can mean less space, a less convenient location or a property that needs work.

The deposit is not the only upfront cost. Depending on your purchase, other costs may include Stamp Duty Land Tax (in England and Northern Ireland; first-time buyers pay none on the first £300,000 and Shared Ownership has its own SDLT rules), conveyancing, a survey, insurance and, in some cases, a mortgage broker fee. You can read more in 7 Steps to Buying Property in the UK.

Borrowing enough can also be a challenge. Lenders assess income history, age at the end of the mortgage term and affordability case by case, so some buyers (for example on lower incomes, older buyers or the self-employed) may find it harder to borrow enough to buy outright.

What is Shared Ownership?

GOV.UK describes the scheme simply: when you buy a home through Shared Ownership, you buy a share of the property and pay rent on the rest.

The share you can buy is usually between 25% and 75% of the home’s value, and on some homes as little as 10%.

Source: Affordable home ownership schemes, GOV.UK

Shared Ownership therefore combines owning and renting, which has both advantages and disadvantages.

Why buy through Shared Ownership?

Shared Ownership can help if you cannot save a large enough deposit, or borrow enough, to buy a home outright. Your deposit and mortgage are based on the share you buy rather than the full value of the home, and you pay rent on the rest. Lenders will still check your affordability, including the rent.

Over time you may be able to buy more shares, which increases the part of the home you own and reduces your rent.

How is Shared Ownership different from renting?

With Shared Ownership you own a share of the home on a leasehold basis and pay rent to the landlord, usually a housing association or other registered provider, on the rest. Your rights and obligations are set out in your lease, and the rent is usually reviewed every year under the formula in your lease.

Unlike renting, part of your monthly payments goes towards a mortgage on the share you own, so you build equity in the home.

If you receive extra money, for example an inheritance or a work bonus, you can use it to buy more shares, which reduces your rent. Keep in mind that buying more shares costs money: you pay for the share itself and, normally, a valuation.

How much rent do you pay?

Rent is charged on the share you do not own. If you buy a new-build Shared Ownership home, it is limited to 3% a year of the value of the landlord’s share, and most landlords charge 2.75%. If you buy a resale home, your starting rent is what the previous owner was paying. As an illustration at 2.75%: if you own 50% of a home worth £300,000, the landlord’s share is worth £150,000 and the rent would be about £344 a month (£4,125 a year). On top of that, you pay your mortgage on your share and any service charges.

Who can apply for Shared Ownership?

In England, you can buy a home through Shared Ownership if your household income is £80,000 or less (£90,000 or less in London), you cannot afford all of the deposit and mortgage payments for a home that meets your needs, and at least one of the following applies:

• you are buying your first home (a first-time buyer);

• you used to own a home but cannot afford to buy one now;

• you own a home but want to move and cannot afford a new home that meets your needs;

• you are forming a new household, for example after a relationship breakdown;

• you already own a Shared Ownership home and want to move.

For some homes you may have to show that you live in, work in or have a connection to the area. If you are 55 or over, you can apply for Older Persons Shared Ownership, where you can buy up to 75%.

Some Shared Ownership homes are in designated protected areas. In designated protected areas you may only be able to buy a share of up to 80%. If your lease has a ‘designated protected area - mandatory buyback’ clause, you cannot sell on the open market: the landlord will buy the home or arrange for someone else to buy it.

You can find the full rules of the Shared Ownership scheme in England on GOV.UK.

Advantages and disadvantages

Advantages of Shared Ownership:

• Your deposit and mortgage are based on the share you buy, so they are smaller than for buying the whole home;

• Rent is usually reviewed once a year under the formula set out in your lease;

• Over time you can buy more shares, which reduces your rent.

Disadvantages of Shared Ownership:

• Lenders include your rent and service charges when assessing how much you can afford to borrow;

• You can usually rent out a room while you live in the home, but you cannot sublet the whole home unless you own a 100% share or have your landlord’s permission;

• For homes bought on or after 1 April 2021, you may be able to buy 1% shares each year for the first 15 years. You can usually also buy larger shares (usually 10% or more, depending on your lease) at any time. Each purchase costs money;

• When you buy more shares you normally pay for a valuation by a RICS-registered surveyor, and the purchase must usually complete within 3 months of the valuation.

When is Shared Ownership worth it?

Shared Ownership may suit you if you have limited savings or cannot borrow enough to buy outright, but want to settle in one place for a number of years.

On some homes you can buy a share as small as 10%. Buying a 10% share of a £300,000 home would mean rent of about £620 a month at 2.75%, plus mortgage payments on your £30,000 share (the amount depends on your rate and term) and any service charges. You can then buy more shares when you can afford to, which reduces your rent.

For buyers who cannot borrow enough for a full purchase, Shared Ownership can be a first step onto the property ladder.

If you could afford to buy outright, it is worth comparing the total costs of both options. Shared Ownership rent is usually reviewed every year and, depending on your lease, can rise by up to RPI + 0.5% or CPI + 1%, while mortgage payments depend on your interest rate.

Extend Finance offer

We are a licensed broker and provide comprehensive assistance in buying property in the UK. We will be happy to advise you and answer any questions, not only strictly related to credit matters. We can help compare the mortgage options available to us, taking account of costs and your circumstances. Approval and terms depend on the lender.

We hope that this article has made you already know what Shared Ownership is. If you are interested in this form of property purchase and our services, please contact us to schedule a free, no-obligation consultation.