Getting on the property ladder – Shared ownership could be an option

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The price of properties, including so-called ‘first-time homes’, continues to be out of proportion to the average income. Saving for a deposit fora first home now takes years longer than previously. The ‘Bank of Mum and Dad’ may be accessible to those struggling to get the funds together but, if that is not an option, shared ownership provides another way to get your foot on the first rung of the property ladder.

Shared ownership properties are only available through housing associations and involves buying a stake in a property of between 25-75%. A deposit and a mortgage are still required but, depending on the size of stake purchased, that will be considerably less for an outright purchase.

The housing association continues to own the property and you pay ‘rent’ on the remaining percentage of the property owned by the housing association. A fixed rent is charged which is based on the value of the property, up to 3%. For example, if you have a 40% share in a house worth £150,000 (£60,000), then you would pay the rentable value on the remaining £90,000 at a rate of 3%. Therefore, your rent would be around £2,700 a year, or approximately £225/month. That’s far, far less than you would pay in normal private rented accommodation.

Who can apply for shared ownership?

Technically, anyone who is a first-time buyer can apply for shared ownership. If you have previously owned a property, then you may apply for shared ownership. However, be aware that first-time buyers are more likely to be accepted. Military personnel and other “key workers” get priority treatment.

If your household income is less than £80,000 a year (or less than £90,000 in London), then you’re eligible to apply for a shared ownership home. You can also sell your ‘share’ of the property at any time.

Staircasing – climbing the property ladder to full ownership

At any stage during your time in the property you can buy a larger percentage, increasing your opportunity to own the property outright at a later stage. This is called ‘staircasing’. The cost will entirely depend on the value of the property at the time you decided to staircase, and not the original value when you first agreed to a shared ownership deal.

It varies but, generally, you must purchase a minimum of 10% each time you staircase up to a maximum of three times. Some housing associations only allow you to make a third staircase purchase if you intend to go for 100% ownership and buy the property outright.

Is it a good idea?

Shared ownership is a great idea if you’re desperate to get onto the property ladder but are unable to fund an outright purchase. It’s generally cheaper than private renting and you can sell your share in the property at any time.

However, you’re limited to where you can buy shared ownership properties, so if you have a preferred location it’s worth conducting some initial research to see if shared ownership properties are available. It is also useful to check whether local residents who already live in the area have priority, as can be the case in more rural locations.

Staircasing means you can decide when (and if) you want to make a block payment towards owning the property outright, which will decrease your rent and increase your share in the house. But it can be difficult and expensive, as the percentage will be based on the current value of the property rather than the original purchase price. You’ll also have to pay service charges, especially if the property is on a leasehold agreement.

As with any property purchase, it’s important to have your finance in place before you begin house hunting. You’ll still need both a deposit and a mortgage to buy into a shared ownership property.

Get some legal expertise

The intricacies of shared ownership mean that it’s essential to consult a legal expert who can guide you through the process. They’ll be able to advise you on whether shared ownership is right for you and, if you decide to staircase, they can help to sort out the paperwork too.