Now the fuss over onerous leasehold clauses and Help to Buy mortgage "prisoners" has abated, the spotlight is starting to shift to shared ownership. Described by housebuilder and landlord Aster as the "poor relation" to Help to Buy, due to its lack of government funding, shared ownership is another scheme designed to help people buy property. It was introduced in the early 1980s, but many people don't know what it is or assume it's unavailable to them.
With shared ownership, you can buy between 25% and 75% of a home from a housing association, using cash or a mortgage. In England, all homes under the scheme are sold on a leasehold basis elsewhere in the UK the rules differ. Typically, you only need a deposit of between 5% and 10%. You then pay the housing association rent on the remaining portion of the value, as well as any service charge and ground rent. The rent will be less than the open-market rate typically up to 3% of the value of the remaining portion. You can also usually defer paying stamp duty until your share of the property reaches 80%.
How it began
Shared ownership started out as a way to help "key workers," such as nurses and firefighters, to buy in their local areas, which could be why many don't think it applies to them. Now, only army personnel are given priority, although housing associations can operate different selection criteria and may prioritise families over single people, for instance. To be eligible, you must be a first-time buyer, a former homeowner who can no longer afford to buy, or an existing shared owner. You must also have a maximum household income of £80,000 if you live outside London or £90,000 if buying in London.
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With shared ownership, you are not limited to new-build properties and can buy any home that has been built for the purpose. There is also no upper limit on the value of the house you can buy. Crucially, you can accumulate equity in your home by buying further shares in it. Every time you do this it's known as "staircasing" you have to pay valuation and legal fees. The housing association will also have first refusal on your share when you want to sell up.
What to look out for
As with most of the government's housing market interventions, the scheme has its problems. Most homes bought via shared ownership are in London and Milton Keynes, according to Savills. Given how much house prices have risen in the south of England, this will have made it harder for people to buy further shares in their houses. Of the 205 people surveyed by Aster, only 10% had bought more equity (The Sunday Times puts this figure at 5%). It's also worth noting that in the event of rent arrears, shared-ownership owners are treated as being on an assured shorthold tenancy and can be evicted accordingly.
Finally, The Sunday Times notes there is evidence of widespread quality problems affecting thousands of shared-ownership leaseholders. Internet forums and social media have been "flooded with criticisms of housing associations", with complaints ranging from poor-quality construction to a lack of maintenance. There is also a general theme that it can be difficult to get housing associations to resolve issues.
Social-media buzz like this pushed leasehold into the public eye. It wouldn't be a surprise if shared ownership is similarly scrutinised in the next year or so.
Sarah is MoneyWeek's investment editor. She graduated from the University of Southampton with a BA in English and History, before going on to complete a graduate diploma in law at the College of Law in Guildford. She joined MoneyWeek in 2014 and writes on funds, personal finance, pensions and property.
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