What is shared ownership? A myth-busting guide

Shared ownership (SO) is when a buyer purchases a share of a new build property and pays rent and a service charge to a housing association on the remainder.

The advantages are that you can get on the property ladder with a much smaller deposit (it only needs to be a percentage of the share you’re buying, rather than the entire property), plus, as and when you’re able, there’s the option to “staircase” — buying extra equity and increasing the percentage that you own.

If the property increases in value, so will the equity you have, but the reverse is also true and a decrease in value will reduce your equity share.

In 2020, the English Housing Survey estimated that there were around 202,000 households living in shared ownership properties in England, representing approximately 1% of homeowners, but, as property prices increase and mortgage rates rise, this number is expected to grow.

If you’re thinking of investing in shared ownership, it’s important to understand what it involves, how it’s different to buying a property "the normal way", and what your obligations are. We spoke to a number of property and shared ownership experts about the myths surrounding shared ownership.

Shared ownership is only for first-time buyers: MYTH

While the majority who use the shared ownership scheme are first-time buyers, you can have owned a property previously — just not currently.

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“Shared ownership is most commonly used by first-time buyers, but can also be used by home movers, downsizers, and people returning to the property ladder after a period of renting,” says Kevin Sims of SO Resi.

That said, Mark Humphrey of MHC Mortgages flags: “[You should] see the shared ownership scheme as a stepping stone, not a long-term solution... It can suit those on a career pathway, expecting a significant rise in income in the future to enable them to buy the remaining share or buy a property through standard channels.”

To be eligible for shared ownership, you need to meet certain criteria: TRUTH

To take advantage of shared ownership, your household income must be £80,000 a year or less (£90,000 a year in London) and you must not be able to purchase a property via traditional methods, due to income or deposit constraints.

Shared ownership properties are only found in cities: MYTH

While most shared ownership properties are in cities and the lion’s share are in and around London, you can now find them across England in coastal resorts, villages and commuter towns.

As well as flats, shared ownership properties include townhouses, so there’s plenty of options to choose from.

You pay the percentage service charge that you purchase: MYTH

Much of the negative press around shared ownership properties centres on the service charge.

Shared ownership involves you buying a lease in the property and, as such, you must pay a service charge for the upkeep of the building and its communal areas.

While you might only buy a percentage of the property, for example 25%, you still pay 100% of the service charge. This can increase over time so it’s important to get clarity on how these rises will be calculated before you buy.

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Outside of the service charge, “you may also be required to contribute to maintenance and repair work”, flags Humphrey.

Mortgage products are different with shared ownership properties: TRUTH

While many high street providers offer mortgages for shared ownership properties, they are niche products and may come with a higher interest rate.

“There are currently 30 dedicated shared ownership lenders in the market. It’s always best to appoint a shared ownership-savvy broker to ensure you are getting the best mortgage deal for you,” says Sims.

“Not every lender will consider shared ownership properties,” says Humphrey. “It’s also worth knowing that future options at the end of your initial rate can be very limited unless you’re buying the full remaining share/staircase up to 100% ownership.”

You can only staircase in increments of 10% at a time: MYTH

Previously, you could only staircase by a minimum of 10% but, in 2021, the government introduced a new scheme as part of its Affordable Homes Programme that allowed new leases to staircase by 1% a year, up to 15%.

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“Our staircasing programme is a simple process and all our residents have the option to buy more shares in their home if they choose to,” says Stuart Hensby, Sales and Marketing Director at Abri. “If you bought a home as part of the Affordable Homes Programme 2021-26, you’ll be able to staircase 1% each year (for up to 15 years), with no administration fees, solicitors or RICS survey.”

If you are staircasing by more than this amount, or bought before 2021, Katrina Horstead, of The Mortgage Mum, points out: “Staircasing costs i.e. buying additional shares in the property (staircasing) involves legal and valuation fees, which can be costly.”

You can’t rent out shared ownership properties: TRUTH

Unless there are extenuating circumstances, most housing associations won’t allow you to rent a property out.

“You’re generally not able to take on a tenant in a spare bedroom or a lodger,” says Hensby.

This means you need to think medium-to-long term before committing to purchase a property under the scheme. If your circumstances change, you want to move in with a partner or your job moves elsewhere, you need to be prepared to sell.

You need permission to make significant home improvements: TRUTH

“While we encourage everyone to make your house a home, tenants do have to ask before making any significant home improvements, such as replacing the kitchen or extending the property,” says Hensby.

It’s also worth noting that while you will pay 100% of the cost of improving your home, you will only receive back the percentage value that you own if and when you decide to sell.

Shared ownership offers a security that you don’t get from renting: TRUTH

Many shared owners choose the scheme because it offers more secure accommodation than renting. “Shared ownership is a step up from renting — the property is yours, there isn’t the worry that your landlord could end your tenancy, and you can treat and decorate it as such,” says Sims.

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“Unlike renting, shared ownership provides the security of owning a stake in the property, offering stability and control over one's living situation,” says Horstead.

Your rent and service charge will increase over time: TRUTH

Unless you staircase and buy extra equity, the amount you pay in rent will go up.

“Shared owners should be aware that rent payments increase over time, though this figure is capped at either the Retail Price Index + 0.5% or Consumer Price Index +1%, depending on the property, to ensure that the increases remain at an affordable level,” says Sims.

Service charges will also increase.

There is a different process for selling a shared ownership property: TRUTH

Unless you have staircased and own 100% of the property, you can’t sell a shared ownership property on the open market initially.

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“When you sell a SO property, there is a longer process to follow. This often comes as a surprise to many who hadn’t fully appreciated this at the start,” says Humphrey.

“You’ll need to arrange and pay for a RICS survey to confirm the property’s current value and sale price. You’ll also have to contact your housing association, who have a ‘nomination period’, usually 8 or 12 weeks, to find a buyer, after which, if they’re unsuccessful, you can put your property on the open market as you would do with a standard sale.”

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