Shared Ownership:
The Way to Affordable HomeOwnership
Youssef Hammouda
Trainee Solicitor
1. Historical Background
The Shared ownership scheme (also known as part buy, part rent) was introduced in the 1980s via the Housing Act 1980 “the Act”, with the purpose of helping people who were in housing need and could not afford to buy one, people who have owned a home before but can’t afford to buy one now, and those whose household income is £80,000 or less outside of London, or £90,000 or less within London.
At first the scheme provided the right to purchase a share of the property (typically between 25% and 75%). Later on in 2021, the government reduced the lower end decreased to 10%. In addition, the government introduced a 10-year period during which your housing provider will be required to support you with the cost of essential maintenance and repairs to your home.[1]
It is worth mentioning that there are different rules on shared ownership in England, Wales, Scotland, and Northern Ireland. In this blog we focus on Shared Ownership in England. Thus, you may need to check the rules before deciding where you want to buy a home.
[1] Shared ownership (England): the fourth tenure? Available at: https://commonslibrary.parliament.uk/research-briefings/cbp-8828/
2. How Does Shared Ownership Scheme Work?
2.1 Buying a Share:
Under the scheme, you purchase a share of the property, this can be as low as 10% and as high as 75%. You will need a mortgage to buy the portion you can afford, and a deposit, which is calculated based on the value of the share, not the full property price. For instance, if you’re buying 25% of a £200,000 home, your mortgage and deposit will be based on £50,000 rather than the full £200,000.
2.2 Paying Rent:
You will pay rent on the remaining share of the property which is owned by either a housing association or private developer. The rent is typically lower than market rent and calculated at around 2.75% of the value of the unsold share annually.
2.3 Staircasing:
Over time, you can choose to increase your share in the property by buying more shares. This process is known as staircasing. The more you own, the less rent you pay. In many cases, you can eventually staircase up to 100%, meaning you will own the property outright and no longer pay rent. One of the things that government introduced in 2021, is a new form of staircasing that allows you to purchase an extra 1% of your home every year.
3. Key Benefits of the Shared Ownership Scheme:
3.1 Lower Entry Costs:
The key advantage of shared ownership is the reduced initial cost of buying a home. Because you are only buying a portion of the property, your mortgage and deposit requirements are much lower than they would be if you were purchasing the home outright.
3.2 Opportunity to Own More Shares:
Unlike renting, where your monthly payments do not contribute to ownership, shared ownership gives you a path to gradually own more of your home over time.
3.3 Renting at Below Market Rates:
As mentioned, the rent you pay on the unsold share is often below market rent, helping to ease your monthly financial burden, especially in high-cost areas.
3.4 Security and Stability:
Shared ownership gives you the security of owning a stake in your home, unlike renting, where you could face uncertain tenancy agreements or rising rental prices.
4. Considerations and Disadvantages
While shared ownership offers an affordable route to homeownership, there are some important factors to consider:
4.1 Additional Costs:
Like any leasehold, shared ownership homes come with extra costs such as service charges and ground rent. These costs are payable even after you own 100% of the property.
4.2 Limited Flexibility:
Staircasing can be expensive since every time you buy a larger share, you may need to pay for additional legal fees, property valuations, and possibly Stamp Duty Land Tax (SDLT). Additionally, not all properties allow you to staircase to 100%, so make sure to check these terms before buying.
4.3 Selling Your Home:
Selling a shared ownership property can be more complex than selling a fully owned home. The housing association usually has the right to find a buyer for your share for a limited period before you can sell it on the open market.
5. How Large is the Shared Ownership Sector?
From 1 April 2023 to 31 March 2024 a total of 18,324 shared ownership sales were completed by private registered providers and local authorities. Of those reported, an estimated 76% of the sales were to first time buyers and 32% of those sales were by buyers under age of 30.[1]
In the same year, 67% of the shared ownership sales were freehold properties and 33% were leasehold properties.[2]
These figures show that shared ownership remains an important route into homeownership, especially for people who might otherwise be priced out of the housing market. With 76% of sales going to first-time buyers, it is clear that this scheme is fulfilling its main purpose which is helping new entrants onto the property ladder.
[1] Social housing sales and demolitions 2023-24: Shared ownership. Available at: https://www.gov.uk/government/statistics/social-housing-sales-and-demolitions-2023-24-england/social-housing-sales-and-demolitions-2023-24-shared-ownership
[2] Live tables on social housing sales. Available at: https://www.gov.uk/government/statistical-data-sets/live-tables-on-social-housing-sales
The fact that 32% of these buyers were under 30 also suggests that shared ownership is appealing to young professionals, who often face affordability challenges in the housing market.
Meanwhile, the higher proportion of freehold 67% compared to leasehold 33% properties may indicate a shift toward more permanent and secure forms of ownership, giving buyers greater control and long-term stability over their homes.
6. Is Shared Ownership the Right Move?
Shared ownership can be a strategic way to make homeownership more affordable, especially if you are finding it difficult to save for a large deposit or secure a mortgage for the full price of a home. However, it is important to fully understand the financial implications, including ongoing costs like rent and service charges, as well as the complexities involved in staircasing or selling the property.
For specialist advice and support. Please get in touch with our corporate solicitors in London by contacting the GOOD LAW INTL office.
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