If you’re looking into shared ownership as a way of getting onto the property ladder, the below will dive into the pro’s and con’s of doing so.
Firstly, what is shared ownership?
Shared ownership was set up as a way to help first time buyers (but not limited to) get their first step on the property ladder. It allows a buyer to purchase a share of the property rather than own it 100% and then ‘staircase’ if needed, i.e by more shares bit by bit until you eventually get to 100%. Now, for the shares that you don’t own you will be required to pay rent on it but we will go into more detail below.
Let’s look into the positives of purchasing a property using the shared ownership schemes.
shared ownership allows you to get your foot on the property ladder without over-stretching as much as you would if you were to put a deposit down to purchase a flat the traditional way.
Shared ownership is applicable to many new build flats, so it allows you to purchase in an area that you may not have been able to afford otherwise. For example, many people who purchase using shared ownership do so, because they want to live in a city which otherwise would be too expensive.
The scheme provides the option to purchase more shares as and when you can so that you can eventually get to 100% if desired.
It allows you to live in a new build flat which is usually quite modern, as opposed to if you were to lease the traditional way, you may have to lease something older.
The majority of lenders do offer a mortgage on a shared ownership property.
There are shared ownership schemes available for those with a disability as well as older people.
We’ve considered the positives so let’s look into the negatives of purchasing using shared ownership.
It doesn’t matter how low your share is, you have to pay rent on the shares that you don’t own, as well as mortgage repayments, and 100% of the service charge and ground rent – and let’s not forget stamp duty too. As you can see, it can be quite expensive.
Service charge can already be quite expensive if you’re leasing traditionally but with all the other expenses added in too, this can make the service charge extremely unaffordable.
Although you’re free to decorate internally, there may be some restrictions on what home improvements you can do. You may need to ask for permission from the housing provider before making any structural changes and that’s before obtaining the planning permission from your local authority.
All shared ownership properties start as being leasehold and continue unless agreed otherwise by the housing provider. Some housing providers allow you to hold the property as a freehold once you have purchased 100% of the shares.
If you decide you want to sell the property, it can be quite complicated. You will need to give formal notice to your housing provider that you intend to sell (this can also be the case if you have bought 100%), the housing provider usually gets first refusal and will try and sell your share of the property, if the housing association can’t sell the property the responsibility reverts back to you. This adds quite a lot of time to your moving ambitions.
As you can see, there are pro’s and con’s to both, so it just depends on the circumstance that you as an individual are in but being aware of the potential negatives is a good starting point in helping you decide.
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