What is shared ownership?
Shared ownership is a government backed initiative that helps people buy a home who can't afford to do so on the open market. Often referred to as part buy part rent, shared ownership is one of the most affordable home ownership options.
Shared ownership offers the chance to purchase a share of a property, usually between 25% and 75%, while paying a subsidised rent on the remainder. This rent is usually set at 2.75% (per annum) of the share you don’t buy; this is broken down into 12 monthly payments and called rent.
Shared ownership is a form of leasehold ownership where you own the share that you buy, and the remainder belongs to Moat. You’ll have a lease for the property, which is a legal contract between us and you, that will outline your rights and responsibilities as a shared owner. The original lease length will usually be for 99, 125 or 990 years.
You will be able to sell your home to a new buyer (usually at the share amount you currently own) whenever you want and further shares can be purchased at any time; this is known as staircasing.
The monthly mortgage payment, rent and service charge can sometimes work out to be cheaper than privately renting and shared ownership offers the long term security of owning a home. It is a good idea to work out your own calculations and comparisons depending on where you wish to live. A mortgage advisor can help you work through these calculations and suggest what share to buy based on your income, outgoings and the amount you have in savings to be used as a deposit.
A 5% - 10% mortgage lender deposit is required for the share value being purchased which, in the current market, makes it possible to own a home through shared ownership. This is because deposit amounts for shared ownership are much lower than those required on the open market. Shared ownership deposits are based on the share of the home being purchased rather than the full market value.
For more information about shared ownership, please see our buyer’s guide.
Moat has apartments and houses for shared ownership across the south-east, including London, Kent, Sussex and Essex.
How affordable is shared ownership?
If you’re struggling to find a home you can afford or you just don’t have enough money saved to put down as a deposit to buy a home, shared ownership might be the solution.
It helps to reduce one of the biggest obstacles facing most first time buyers: the need to raise a large enough deposit.
For many people, shared ownership can, and has done for many people for many years, provide a stepping-stone out of renting (or living with family) and onto the property ladder. It can also set you on the path for full home ownership which remains an aspiration for lots of people.
The main advantage of shared ownership is that it can make achieving home ownership much easier and far more achievable; the deposits are smaller and, generally speaking, so are the mortgage amounts borrowed. Shared ownership is often seen as preferable to renting as you own a portion of the home which can grow in value if the property prices rise. If this happens, you’ll have some equity that will help you take your next step on the property ladder if this is what you want to do.
Who is eligible for shared ownership?
To buy a shared ownership home, there are some general requirements you must meet:
- You must be 18 years old
- You must have a household income of less than £80,000 per year (or £90,000 per year in London)
- Shared ownership buyers are typically first time buyers but if you do own another home, you must sell this before completing on shared ownership purchase
- You must be unable to afford to buy a suitable home outright on the open market
- You must be a British Citizen or have indefinite leave to remain in the UK
- You cannot have any outstanding credit issues such as County Court Judgements (CCJs) or bankruptcy
There are many costs and fees associated with buying a home, so it is essential that you have access to the relevant funds for this. We suggest around £5,000 to cover these costs as a guideline amount. This is in addition to any amount you have in savings or are receiving as a gift to put towards your mortgage deposit. Sorting out your finances and understanding what is expected of you during the sales process is pivotal in ensuring you have a smooth purchase with us. We are on hand to help you every step of the way but it is important you seek independent financial advice.
As part of the home buying process, here are 10 top things to know before getting a mortgage:
- Your credit score matters
- The starting point is doing your own sums
- You'll be better off in the same job
- Debts don't help
- You'll need proof of income
- Or accounts if you are self employed
- The bigger the deposit, the better
- Buying with someone else can be easier
- You shouldn't chop and change your mortgage application
- It pays to get help from a mortgage broker
What are the advantages of shared ownership?
- Those on low or modest incomes are more likely to be approved for a mortgage. This is because the amount being borrowed is usually a lot less than the banks would have to lend on an open market sale purchase.
- The monthly mortgage, rent and service charge payments on shared ownership can work out to be less than the costs of privately renting.
- You can choose how you pay Stamp Duty Land Tax, so it's nice to know there are options open to you for this.
- The share you own can be sold at any time; you don't have to live in the home you buy for a certain period of time before you can sell your share. There is always lots of demand for shared ownership homes and Moat will help you find a buyer for the share you own when you come to sell.
- You can buy more shares in your home at any time you want. If you decide to staircase up to 100%, you will own your home outright.
- You don't have to staircase if you don't want to; deciding not to staircase can mean you are less vulnerable to volatility in the housing market.
- In some cases, if you buy a brand new shared ownership home there is a 10 year repair period during which some repairs and maintenance costs will be covered.
What are the disadvantages of shared ownership?
- Shared ownership homes are always leasehold (regardless of whether you buy a flat or an apartment), so there will be service charges to pay and also, in some cases, ground rent. You must pay this no matter what the share value you own is.
- The smaller the share you own, the less you will benefit from increases in house prices. Your equity is based on your share value.
- There are costs associated with buying more shares and each time you buy more shares, you will have to cover these costs. This includes legal costs and mortgage fees as well as an administration fee payable to Moat.
- If you decide to buy more shares in your home, the price you pay for additional shares depends on an independent valuation. In the current climate, house prices are rising more quickly than most people's income, therefore, the longer you wait to staircase, the harder it might be to do this.
- Selling a shared ownership home can be a little more complicated than selling on the open market. You will need to allow Moat the opportunity (usually around 4 weeks) to find someone who wishes to buy the share you currently own.
Is shared ownership a good idea?
It is important to think carefully and to do your own research to decide if shared ownership is right for you.
There are things that you should take into consideration when deciding whether or not to buy a shared ownership home:
- Shared ownership homes are always leasehold, so be sure to check that you understand what this means and if it suits your needs.
- There can be different rules relating to who has priority for a shared ownership home. Generally speaking, military personnel will be given priority over anyone else but in some areas, local people or people with a local connection also take priority.
- Check how many times you can staircase as sometimes this is limited and sometimes, although not very often, staircasing can be capped at 80% ownership.
Shared ownership offers a great way to get onto the housing ladder without having to save up a large deposit or being restricted by mortgage lending on the open market because of your income. It is really important that you do your own research, budget both the short term and long term costs and be sure that it is the right option for you.