Shared ownership – What are the pros and cons for first-time buyers?

Are you looking to take the first step onto the housing ladder? Struggling to put together a large deposit? For those with a lower deposit, shared ownership provides an affordable solution for purchasing your first property. In this blog, we’ll look at some of the advantages and disadvantages of buying a shared ownership property.

What is shared ownership?

Shared ownership is a government run and backed scheme to help people to get onto the property ladder if they have a low deposit and can’t afford high monthly mortgage payments. With a shared ownership property, you own a share of a property typically between 25% and 75% and a housing association owns the remaining share. You pay mortgage repayments on your share of the property, meaning you need a lower mortgage and then pay rent on the remainder to the housing association.

Who can buy a shared ownership property?

To be eligible to buy a shared ownership house you must meet a few requirements which are:

Be aged over 18
Have an annual household income of less that £80,000 (£90,000 in London)
Be unable to afford to buy a suitable home on the open market
Not already own a home
Be able to prove you’ll be able to afford the monthly rent and mortgage payments

There may be other rules that you need to comply with, so it is always worth checking the terms of any housing scheme you are considering.

What are the biggest advantages?

One of the biggest advantages of purchasing a property through a shared ownership scheme is that you need a much lower mortgage and deposit compared with buying a traditional property. In addition to lower mortgage payments other benefits include:

Lower rent payments than private renting, typically 2.75% of the property value
Much higher change of acceptance for low-income earners
Ability to staircase and own a bigger share in the property over time
You can share your property share at any time
Repair and property maintenance costs are covered by the landlord or housing association in the first 10 years.

Are there any disadvantages to shared ownership?

While shared ownership schemes offer buyers a way onto the property ladder there are a few potential disadvantages that you need to consider. These are:

Your capital investment only grows if the property increases in value, the smaller your share, the smaller the increase
Shared ownership properties are leasehold so you may need to pay ground rent in addition to service charges
There are fewer mortgage lenders to choose from for shared ownership properties
Some housing associations place restrictions on what alterations can be carried out on a property
When selling a shared ownership property, you need to offer the housing association a chance to find a buyer before being able to market the property yourself

Is shared ownership the right option?

As we have shown there are many benefits of buying a property through the government’s shared ownership scheme but it important to do your own research and consider if it is the right option for your circumstances. Before taking the next steps it may be worth getting professional advice and seeking legal help to understand the conveyancing costs involved in a shared ownership property as well as any restrictions that you might not have been aware of.