Shared Ownership: Is It Right for You?
For many first-time buyers, the biggest obstacle to buying a home isn't necessarily the monthly mortgage payment.
It is getting onto the property ladder in the first place.
You might have a good income, a stable job and enough savings for a deposit, but when you look at property prices in your area, buying a home outright can still seem out of reach.
This is where Shared Ownership can potentially provide another route into homeownership.
But Shared Ownership is often misunderstood.
Some people think you are simply "renting part of a house". Others believe you can never fully own the property. There are also questions around rent, service charges, deposits, mortgages and what happens if you want to sell.
So, how does Shared Ownership actually work, and is it right for you?
What is Shared Ownership?
Shared Ownership is a government-backed affordable home ownership scheme available in England.
The basic idea is relatively straightforward.
Instead of buying 100% of a property, you purchase a percentage of it and pay rent to a housing association, council or other registered provider on the portion you don't own.
For example, imagine a property is valued at £300,000.
You might purchase a 40% share, worth £120,000, using a combination of your deposit and mortgage.
The housing provider owns the remaining 60%, worth £180,000.
You then pay your mortgage on the £120,000 you have purchased, together with rent on the £180,000 you don't own.
You may also have service charges and other property-related costs.
The important point is that you own the share you have purchased. You are not simply a tenant of the entire property.
Under the current Shared Ownership arrangements, the initial share can generally be between 10% and 75%, although the precise minimum share available depends on the property and scheme. You normally need a deposit, usually around 5% to 10% of the share you are purchasing rather than 5% to 10% of the property's entire value.
That distinction can make a significant difference.
Why would someone choose Shared Ownership?
The obvious attraction is affordability.
Let's say you want to buy a £300,000 home.
Buying the whole property with a 10% deposit would mean finding £30,000 before considering the other costs involved in buying.
With Shared Ownership, if you purchase a 40% share, your share is worth £120,000.
A 10% deposit on that share would be £12,000.
The mortgage would then potentially be based on the remaining £108,000, subject to lender affordability and criteria.
Suddenly, the deposit required to get started can be considerably lower.
That doesn't mean Shared Ownership is automatically cheaper overall. It means the initial barrier to buying can be lower.
For someone who can comfortably afford the ongoing costs but cannot raise a large enough deposit to buy 100% of a property, this can be an important distinction.
But you don't just pay the mortgage
This is one of the most important things to understand before considering Shared Ownership.
Your monthly housing costs can consist of several different elements.
You could have:
Mortgage payment + rent + service charge + other property charges
The mortgage relates to the share you own.
The rent relates to the share owned by the housing provider.
The service charge can cover things such as maintenance of communal areas, management costs and, depending on the property, other shared expenses.
There can also be estate charges, management fees or contributions towards a repairs reserve fund.
The exact costs vary from property to property, which is why looking only at the advertised mortgage payment can give you an incomplete picture.
Before committing to a Shared Ownership property, you should understand the total monthly cost, not just the mortgage.
What about the rent?
You pay rent on the proportion of the property you don't own.
For example, if you own 40%, you pay rent on the remaining 60%.
As you increase your ownership percentage, the amount of rent you pay should reduce because the housing provider owns a smaller share.
For new-build Shared Ownership properties, the initial rent on the landlord's share is generally capped at 3%, with most landlords charging 2.75%. Rent can then be reviewed according to the terms of the lease.
This is an important consideration when assessing affordability.
You aren't simply comparing a Shared Ownership mortgage payment with the rent you currently pay.
You need to consider the mortgage, rent and service charges together.
What is "staircasing"?
One of the most common misconceptions about Shared Ownership is that you are permanently stuck owning the percentage you initially purchased.
That's not necessarily the case.
You can usually purchase additional shares in the property over time. This is known as staircasing.
For example, you might initially purchase 40%.
Several years later, you could purchase another 10%, taking your ownership to 50%.
You could potentially continue increasing your share until you own 100%, subject to the specific rules applying to your property.
Under newer Shared Ownership arrangements, standard staircasing can generally involve purchasing additional shares of 5% or more. Some properties also allow eligible owners to purchase 1% each year for the first 15 years. Older leases can have different rules, so it is essential to check the specific lease and key information document before buying.
Does staircasing always make financial sense?
Not necessarily.
This is where things become more complicated.
When you staircase, the price of the additional share is generally based on the property's value at the time you purchase it.
Imagine you bought a 40% share of a £300,000 property.
Your initial share was worth £120,000.
Five years later, suppose the property is worth £350,000.
A further 10% share would be based on the property's current value.
Ten percent of £350,000 is £35,000.
You therefore need to consider how property values have changed before deciding when and how much to staircase.
There can also be valuation, legal and administration costs associated with purchasing additional shares.
This is why staircasing should be considered as part of a longer-term financial plan rather than simply assuming that buying more shares is always the right decision.
One of the biggest misconceptions: "I don't really own the property"
You do own the share you purchase.
However, Shared Ownership properties are generally leasehold properties, and the housing provider retains ownership of the remaining share.
Your rights and responsibilities are governed by the lease.
This is why it is important to understand exactly what you are buying.
The lease can contain provisions relating to:
Selling the property
Subletting
Making alterations
Staircasing
Service charges
Repairs and maintenance
These rules can vary, so never assume that every Shared Ownership property works in exactly the same way.
What happens if the property increases in value?
This is another area where people sometimes misunderstand Shared Ownership.
If the property increases in value, the value of your share can increase too.
Using our previous example, suppose you own 40% of a £300,000 property.
Your share is worth £120,000.
If the property later increases to £350,000, your 40% share would be worth £140,000.
You therefore participate in the change in value of the share that you own.
However, the reverse is also true.
If property values fall, the value of your share can fall.
Shared Ownership does not remove you from the normal risks associated with owning property.
What are the advantages?
For the right buyer, Shared Ownership can be an extremely useful route into homeownership.
The biggest advantage is that it can reduce the amount of money needed to purchase a property.
Instead of needing a deposit based on the entire value of the property, your deposit is generally calculated against the share you are buying.
It can therefore make homeownership achievable sooner for people who would otherwise struggle to raise a sufficient deposit.
You also have the opportunity to increase your ownership over time.
And, unlike renting, you are building equity in the share you own.
For some buyers, that combination can make Shared Ownership an attractive alternative to continuing to rent while saving for a larger deposit.
What are the disadvantages?
Shared Ownership isn't right for everyone.
The biggest consideration is that you have multiple monthly costs.
You may have a mortgage, rent and service charge, and these need to be assessed together.
Service charges can also vary significantly depending on the property.
Another consideration is that you are purchasing a leasehold property, so there are rules governing how the property can be used and sold.
Staircasing can also involve additional costs.
And while you own a percentage of the property, you remain exposed to changes in the property's value.
For these reasons, Shared Ownership should not be viewed simply as "a cheaper mortgage".
It is a different way of structuring homeownership.
Can you sell a Shared Ownership property?
Yes, but the process can be different from selling a standard property.
Depending on the terms of your lease and the scheme under which the property was purchased, the housing provider may have certain rights when you decide to sell.
There may be a period during which the provider has the opportunity to find a buyer for the share before you can market it more widely.
The exact process depends on your lease and the specific Shared Ownership arrangements.
This is another reason why understanding the legal documentation before buying is so important.
Is Shared Ownership only for first-time buyers?
Not necessarily.
Eligibility depends on the particular Shared Ownership scheme and property.
Broadly, Shared Ownership is designed for people who cannot afford to purchase a suitable home outright.
Eligibility criteria can include household income, whether you are a first-time buyer, whether you currently own another property and your ability to afford the purchase.
The rules can differ between schemes, so it is important to check the current requirements rather than relying on information from older articles or social media posts.
For example, the separate Right to Shared Ownership scheme has its own eligibility requirements, including household income limits and requirements relating to social or affordable housing tenancy.
So, is Shared Ownership right for you?
That depends entirely on your circumstances.
Shared Ownership can be particularly interesting if you have a reasonable income and can afford the monthly costs of owning a home, but the deposit required to purchase 100% of a suitable property is currently beyond your reach.
However, it isn't simply a question of asking:
"Can I afford the mortgage?"
The better question is:
"Can I comfortably afford the total cost of owning this particular Shared Ownership property?"
That means looking at the mortgage, rent, service charges, insurance, maintenance and other household costs together.
You should also consider what happens if your circumstances change.
What if your income falls?
What if the service charge increases?
What if you want to move in five years?
What if you want to staircase?
What if the property value changes?
These questions don't necessarily mean Shared Ownership is a bad idea.
They mean it should be approached as a proper long-term financial decision.
The Mortgage Is Only One Part of the Picture
This is where getting professional advice can make a real difference.
Shared Ownership mortgages have their own considerations, and not every lender will necessarily offer the same terms for every Shared Ownership property.
The mortgage needs to work alongside the rent and other charges.
At Cambs Ely Mortgages, we can look at your circumstances as a whole rather than simply calculating how much you could borrow.
For a first-time buyer, the objective shouldn't just be to obtain the largest mortgage possible.
It should be to find a mortgage and property structure that is sustainable for you in the long term.
Final Thoughts
Shared Ownership isn't a magic shortcut to homeownership.
It isn't simply renting.
And it isn't necessarily the right option for everyone.
But for the right buyer, it can provide a valuable way of getting onto the property ladder sooner, particularly where the deposit required to purchase a home outright is the main obstacle.
The key is understanding exactly what you are buying and calculating the whole cost of ownership.
If the numbers work, the property suits your needs and you understand the lease and future options available to you, Shared Ownership can be a perfectly legitimate route towards homeownership.
And for many first-time buyers, that first step can be the beginning of something much bigger.
Thinking About Shared Ownership?
If you're considering a Shared Ownership property and aren't sure whether the numbers work, Cambs Ely Mortgages can help you understand your mortgage options.
We can look at your income, deposit, existing commitments and the specific Shared Ownership property you're considering, then assess the mortgage options available to you.
The aim isn't simply to get you approved.
It's to help you understand whether the overall commitment is affordable and sustainable.
Cambs Ely Mortgages – Building Blocks for a Brighter Future
Your home may be repossessed if you do not keep up repayments on your mortgage.
This article is for general information and educational purposes only. Shared Ownership rules, eligibility, rents, charges and lender criteria can change and vary by property and scheme. Information is correct at the time of writing. Always check the specific property's key information document and lease and obtain appropriate legal and financial advice before proceeding.