How does shared ownership work and is it right for me?
Many people find shared ownership to be a great option when buying a home, but what does it really involve?
Key takeaways:
- Shared ownership lets you buy a share of a property (typically 25%-75%) and rent the rest, making homeownership more accessible.
- Staircasing allows you to gradually increase ownership over time at your own pace.
- Benefits include lower upfront costs, affordable payments and building equity in your home.
Use the links below to jump to the topics that matter most:
How does shared ownership work?
What are the benefits of shared ownership?
Is shared ownership better than renting?
Do you pay stamp duty on shared ownership?
How does shared ownership work?
Shared ownership is a simple, flexible scheme designed for those who may find it challenging to afford a home on the open market. It offers the opportunity to purchase a share of a property (usually between 25% and 75%) while paying rent on the remaining portion, which is owned by a housing association or developer.
This means you only need to secure a mortgage for the portion you own, making the initial steps towards owning a home more accessible. Plus, you only need 5% of the deposit for the share you are purchasing, meaning you’ll be putting down a lower deposit than you would if you bought outright.
We know exploring ways to help you buy can be daunting. In this guide, we'll look at the process of shared ownership and help you decide if this approach is right for you.
What is staircasing?
Staircasing is the flexible process of gradually increasing the percentage of your property ownership. This allows you to tailor your journey towards full ownership as your financial circumstances change. There is no fixed timeline, giving you the freedom to invest in your home at a pace that works for you.
The cost of staircasing is based on the current market value of the property at the time you choose to increase the percentage you own of the property.
If the value of the property has risen, the cost to increase your share in the property may be higher than when you first purchased. However, staircasing is still a great way to incrementally build equity, eventually owning your home outright.
What are the benefits of shared ownership?
Shared ownership offers a host of brilliant benefits, making it an ideal option for those seeking an easier, more affordable way to own their dream home.
Here are just a few reasons why shared ownership is worth it:
- Lower initial cost: With shared ownership, you can buy a share of your home, making the upfront cost significantly lower than buying outright. This provides an exceptional opportunity to enter the property market without overstretching financially.
- Staircasing flexibility: As your financial situation improves, you can choose to increase your ownership stake at a time that's right for you. Whether you decide to gradually build equity or complete your purchase sooner, staircasing offers flexibility without pressure.
- More affordable monthly payments: Because you're only paying for the portion you own and the rent on the remaining equity that you don’t, monthly payments can be much lower.
A stepping stone for first-time buyers
Getting on the property ladder can feel out of reach, but shared ownership helps make it possible. It’s designed with first-time buyers in mind, offering a more manageable way to buy your first home.
You can start small, in a place of your own, and build up your ownership when the time’s right – all while putting down roots and planning for the future.
Shared ownership means you don’t need a large deposit or a large mortgage upfront, making it ideal if you’re balancing living costs. It gives you a sense of stability while keeping your options open, and lets you take that all-important first step into homeownership with more confidence.
Is shared ownership better than renting?
One of the questions asked most often is, 'Is shared ownership better than renting?' The answer can change based on your personal goals.
When renting, you are simply paying for the right to occupy a property. Your monthly rent doesn’t build equity or contribute to future ownership. On the flip side, shared ownership lets you invest in your home, with each payment helping you own more of it. You are not only finding your ideal home, but making a smart investment.
That said, shared ownership does come with responsibilities that renting does not, such as maintaining your property and managing service charges.
Do you pay stamp duty on shared ownership?
The answer depends on the portion you're buying. Those purchasing 80% or more of the property will have to pay the full stamp duty.
However, for smaller shares, stamp duty is calculated only on the percentage you’re purchasing. First-time buyers might not have to pay stamp duty on homes worth up to £300,000. This makes owning a home more affordable.
How to apply for shared ownership
Applying for shared ownership is a relatively simple process, but it does require you to meet certain criteria.
To begin, you must find a developer offering shared ownership homes, and apply through the relevant housing association or developer. If you're eligible, you'll need to secure financing for your share of the property, often through a mortgage.
It's always smart to consult a mortgage advisor or broker to ensure that you're fully informed about the process.
Is it hard to sell a shared ownership property?
Selling a shared ownership property can be a little more complex than selling a fully owned home. Since you only own part of the property, you'll need to find an eligible buyer to purchase your share. This process can sometimes take longer, as there are fewer buyers looking for shared ownership properties.
However, the more of the property you own, the easier it can be to sell. If you've completed some staircasing and own a larger share, your property may appeal to a bigger range of buyers, making the process of selling your home smoother and more efficient.
Final thoughts
Shared ownership is a perfect opportunity to own a home at a pace that works for you. With its flexibility, low payments and the chance to build equity, it’s a great choice for many looking to own their dream house.
Click the button below to learn more about Persimmon's Staircase shared ownership scheme. You could be closer to getting on the property ladder than you think.
