Getting on the property ladder is difficult, especially for first-time buyers. The ever-increasing prices of properties combined with increasingly-frozen wages means owning your own home can sometimes feel like an unreachable dream.
There are ways to get on the property ladder if your financial circumstances mean you’re unlikely to be offered a mortgage to cover the cost of a new home though. One of those ways is shared ownership, and I’ll have a look at the pros and cons of shared ownership below.
What is shared ownership?
First of all, you may be wondering what shared ownership actually is. Shared ownership is a government-backed scheme run by housing associations, such as Peabody, that allows would-be homeowners to part-buy/part-rent a new home.
What this means is you can buy an initial share of between 25% and 75% of the value of a property and then pay a subsidised rent on the remaining share. This doesn’t mean you’ll only ever own a share of the property – you’ll be able to buy further shares, known as ‘staircasing’ as your finances allow, for example if you start to earn more or you’re able to save a bigger deposit.
Pros and cons of shared ownership
Does shared ownership sound good to you? It does? Great! Hang on a minute though, before you rush into sending off your application, there are some pros and cons of shared ownership you’ll need to take into consideration first.
Advantages of shared ownership
- Shared ownership makes it easier to get on the property ladder
- You’ll have a smaller mortgage and will therefore only need a smaller deposit
- It’s preferable to renting, even if you only own a small percentage to start with
- You’ll be able to live in your new home for as long as the lease allows – usually 99 to 250 years
- You’re still classed as an owner-occupier, even though you rent some of your home
- Even if you start off with only a few shares, you can buy more as your finances improve until you own 100%
Disadvantages of shared ownership
- If you want to buy more shares, there will be a new valuation and if house prices have risen since you first bought, the cost of shares will also go up
- Also, if you buy new shares, you’ll have to pay fees again for the valuation, mortgage, survey and legal services
- Most shared ownership properties are leasehold, meaning there may be restrictions on what home improvements you can do
- There will also be other restrictions such as not being allowed to sub-let the property (although you’ll be allowed to rent a room out as long as you’re still living there)
- You can be evicted if you fail to pay the rent and if this happens, you’ll possibly also lose the share you’ve bought
- With a leasehold property, you’ll pay 100% of the ground rent and service charge, no matter what percentage of the property you own
As you can see, there are advantages and disadvantages to shared ownership. At the end of the day though, shared ownership means you can get your foot on the property ladder and that’s got to be a good thing.
