Shared ownership explained as house buying scheme expanded
The UK government has announced a shakeup of the shared ownership scheme in England, in a drive to help more households buy their own homes.
Plans unveiled on Tuesday will see more first-time buyers and social housing tenants able to part-buy their homes, as well as a wave of new homes, with some properties available for shared ownership.
The changes affect shared ownership in England, with different rules in Scotland, Wales, and Northern Ireland as housing policy is devolved.
What is shared ownership?
Shared ownership schemes involve buying a share of a property with a mortgage or lump sum, and paying rent for the rest to the owner of the remaining share.
Most shared ownership homes are part-owned by housing associations, but some councils and private developers also run similar schemes.
Around 157,000 households are reported to live in shared ownership homes in England, representing less than 1% of all households.
How is shared ownership changing?
Buyers have to be able to afford at least 25% of a home to be eligible for the scheme in England. The government now plans to reduce the minimum stake to 10%, as the current rules mean even part-ownership remains unaffordable for many households.
Other changes should make it easier for current part-owners to buy more of their homes, in a process known as “staircasing.”
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They will be able to buy additional shares in 1% instalments, rather than 10%, and fees will be cut.
New shared owners will also see the landlord cover the cost of repairs and maintenance for the first 10 years.
What are the pros of shared ownership?
Such part-buy, part-rent arrangements make it easier for people to get on the housing ladder, as the deposit and mortgage payments needed are much lower than a standard purchase with a mortgage.
The buyer’s payments every month will include rent and interest fees if they buy with a repayment mortgage, but they will also include repaying the loan—gradually building up their stake in the property. This stake can be increased further by buying additional shares.
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Properties are leasehold so may require the freeholder’s consent for alterations, but buyers are more likely to be able to renovate and make their homes their own than renters.
What are the cons?
Research by House of Commons staff earlier this year noted shared ownership is complex for buyers, lenders and providers to understand.
It also said mortgage availability is “limited,” increasing a part-owner’s stake is costly, and re-sale can be difficult.
Housing charity Shelter says the UK government should prioritise building genuinely affordable social housing, warning many renters have no savings and cannot afford even part-ownership.
Who can apply for shared ownership?
The government rules mean shared ownership is available only for households with a total income under £80,000 a year, or £90,000 in London.
Applicants have to be either first-time buyers, former home owners who now cannot afford to buy, or existing shared owners.
Dedicated shared ownership schemes with different rules exist for people aged 55 and over, and for disabled people.
Where can I find out more and apply for shared ownership?
The government encourages potential applicants to contact the official Help to Buy agent in their area.
You can apply and see available properties on the three agents’ websites for northern England, the Midlands and London, and the rest of southern England.
Can social housing tenants buy their homes through shared ownership?
The scheme currently only operates for new homes and homes being re-sold by housing associations through the Help to Buy scheme. But the government is planning to give more social housing tenants a new right to shared ownership.
The right will apply to the “majority” of new affordable homes built by government in the early 2020s, but tenants will not be able to part-buy straightaway.
Applicants must have lived in the new property for at least a year, have been a social housing tenant for at least three years, meet the income rules outlined above, not face bankruptcy proceedings, and show they can “afford and sustain” home-ownership.
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New homes built by councils, co-operative housing associations, and community land trusts will also be exempt, as well as properties in designated protected areas and rural exception sites.
Meanwhile the latest announcement gave no further details on what shared ownership will be made available in existing social housing.
The government hopes shared ownership will be extended “as widely as possible,” but has left it up to individual housing associations to decide whether to part-sell homes to existing tenants.