Pros and Cons: Shared Ownership Schemes for First Time Homebuyers Explained

For most people, paying a massive sum as rental to their landlord every month is not a feasible long-term solution. For those people, buying a home to call their very own is the dream. While this dream is costly and might almost seem impossible, there is always an option of shared ownership. Think of shared ownership as the middle ground between renting a place and owning a residence. If you’re a first-time buyer looking to invest in property using the shared ownership scheme, then you should get in touch with your real estate agent right away, be it estate agents in Orpington or anywhere else in the UK. But, before you start the process of house hunting, it is essential to understand exactly what a shared ownership scheme is and what are the pros and cons of the same.

What is the shared ownership scheme?

Usually, shared ownership schemes are only open to first-time buyers. These schemes allow you to take out a mortgage only on a particular portion of your house, which could range from 25 per cent to 75 per cent of the property. As for the remaining percentage of the property, you just have to pay rent. In more technical terms, a purchaser will only have to take out a mortgage on the ratio of the share that they own. For the remaining stake, the purchaser will have to pay below market value rent to a housing association.

What are the pros of shared ownership?

Lower deposits

The deposit that a purchaser needs to pay is much lower because they only need to pay a deposit based on the percentage of the property that they want to own, which could range from 25 per cent to 75 per cent. Since the mortgage is lower, the deposit will also be much lower.

Cheaper rent

For the remaining percentage of the property, the purchaser needs to pay rent. These rents are usually much lower than the average market value, which means it is much more affordable to pay this rent as opposed to renting privately.

Easy sale of shares

The shares that you own in the property can be sold at any time. Unlike the process of buying a home, where you need to find a new buyer who is willing to pay the mortgage to sell your home, with shared ownership, you are free to sell your shares at any given point.

Better than renting

Without a doubt, shared ownership is better than renting because you have a property that you can call your own. Also, in the long run, as the property market booms, the value of your property will continue to rise, which is advantageous to you as a first-time property owner.

Moving up the property ladder

With shared ownership, you can move up the property ladder at your own pace. You can buy 100 per cent shares of the property, i.e. you can own the whole property with a concept called staircasing. For example, if you own 25 per cent of the property, you can staircase to 50 per cent and then 70 per cent and eventually a full 100 per cent.

Your own home

This whole home is your own. You can decorate it the way you want, you can live the way you want, and you can call it your very own home, even the percentage of the property that you are paying rent for is yours. The standard rules for renting and redecorating do not apply here.

What are the cons of shared ownership?

Ground rent and service charge

No matter how little or how big your share in the property is, you still need to pay 100 per cent of the ground rent and services charges that are levied by the housing association. In the long run, this could be a pretty substantial lump sum.

Stamp duty

As a part of the shared ownership scheme, purchasers do have to pay stamp duty. At the same time, most first time buyers are exempted from stamp duty, which is not always the case with the shared ownership scheme. However, you do have a choice of paying the stamp duty in one go or instalments.

Smaller shares, smaller benefits

The smaller your share in the property, the lesser you will benefit when the value of the property rises. However, the more significant the stake, the more you will benefit.

The cost of staircasing

Every time you want to up your share in the property through the process of staircasing, you will have to pay legal fees, mortgage fees, property valuation fees and so on. Usually, when you’re buying a new home, you only need to pay these fees once.

Price of a share depends on market value

When you want to increase your share in the property, you will have to buy that percentage of the property at the current property price, not the price that you purchased the initial shares at. The longer you take to staircase, the higher the cost of the shares.