Shared Ownership Explained

Shared ownership is a government-backed scheme that allows you to buy a share of a property (between 25% and 75%) and pay rent on the remaining share. It is designed to help people who cannot afford to buy a home outright on the open market. The scheme is available on both new-build properties and some resale properties, and is administered by housing associations across England.

You take out a mortgage on the share you buy, and pay a subsidised rent to the housing association on the share they retain. Over time, you can buy additional shares (a process called "staircasing") until you eventually own the property outright, if you choose to. Shared ownership properties are sold on a leasehold basis, even if the property is a house.

To be eligible for shared ownership in England, you must meet the following criteria:

Your household income must be £80,000 a year or less (£90,000 or less in London). You must be a first-time buyer, or a previous homeowner who cannot afford to buy now, or an existing shared owner looking to move. You must not own another property at the time of purchasing (unless you are selling it).

The scheme is also available to people with long-term disabilities under the Home Ownership for People with Long-Term Disabilities (HOLD) scheme, and to older people (55 and over) under the Older People's Shared Ownership (OPSO) scheme, where the maximum share you can buy is 75% and no rent is charged once you reach that level.

Priority is often given to military personnel and existing social housing tenants. Housing associations may also have their own additional criteria, so check with the specific provider for the property you are interested in.

The costs of shared ownership include a mortgage on your share, rent on the housing association's share, and a service charge. Here is how each element works:

Deposit: You need a deposit of 5% to 10% of the share you are buying, not the full property value. For example, if the property is worth £300,000 and you are buying a 40% share (£120,000), a 5% deposit would be just £6,000. This makes shared ownership significantly more accessible than buying on the open market.

Mortgage: You take out a mortgage on the share you are purchasing. Not all lenders offer shared ownership mortgages, but the number has grown significantly in recent years. Your mortgage broker can advise on available products.

Rent: You pay rent on the housing association's share, typically set at 2.75% of the value of the unsold share per year. Using the example above, rent on the remaining 60% (£180,000) would be approximately £4,950 per year, or £412.50 per month. Rent increases are usually capped at RPI plus 0.5% or CPI plus 1% per year.

Service charge: If the property is a flat or part of a managed development, you will pay a service charge covering maintenance of communal areas, buildings insurance, and management fees. This varies widely but is typically £1,000 to £3,000 per year for a flat.

Staircasing is the process of buying additional shares in your shared ownership property. You can usually staircase in increments of 10% or more at a time. When you staircase, the additional share is valued at the current market value, not the original purchase price. This means if the property has increased in value, you will pay more for additional shares; if it has fallen, you will pay less.

Each time you staircase, you will need a RICS valuation (typically £200 to £400) to determine the current market value. You will also need to pay solicitor fees for each transaction. Once you own 100%, you own the property outright. For houses, you may also be able to acquire the freehold at this point.

Under the new model lease, you can staircase in smaller increments of 1% at a time during the first 15 years, up to a maximum of 15% purchased this way. This makes gradual ownership more accessible and avoids the need for a formal valuation each time (the value is based on the original price adjusted by the House Price Index).

Selling a shared ownership property works differently from selling on the open market. The housing association usually has a "nomination period" (typically 8 to 12 weeks) during which they have the right to find a buyer from their waiting list. If they cannot find a buyer within this period, you can sell on the open market.

If you own less than 100%, the buyer must also meet the shared ownership eligibility criteria. If you have staircased to 100%, you can sell to anyone on the open market without restriction. Bear in mind that selling a shared ownership property can take longer than a standard sale due to the nomination period and the need for the buyer to be approved by the housing association.

The main advantages include a lower deposit requirement, making homeownership accessible to those who cannot save a large deposit. Monthly costs can be lower than renting privately in the same area. You build equity in the property as you pay off your mortgage and can benefit from house price increases on the share you own. You have the security and stability of owning your own home, including the right to decorate and make improvements (with permission for structural changes).

Shared ownership is not without its downsides. Rent increases can erode affordability over time, and you are paying both rent and a mortgage, which is a dual financial commitment. Service charges on some developments can be high and may increase significantly. Because shared ownership properties are leasehold, you may face restrictions on alterations and subletting.

Selling can be more complex and slower than selling a standard property. If house prices rise, staircasing to 100% becomes more expensive. If prices fall, you could find yourself in negative equity on your share while still paying rent on the housing association's share. Not all mortgage lenders offer shared ownership products, which can limit your options and potentially result in higher interest rates.