Shared ownership is gathering a lot of traction in the housing market as of late, largely because people see it as a potential way of getting on the property ladder. It’s a scheme you may or may not have heard of before – most likely, your first encounter came when searching for homes to buy on the market. You came across some that said “shared ownership” and wondered what on earth that meant.
The default reaction is to assume you buy the house and share the ownership with someone else. That’s sort of true – but it’s more to do with buying a share in the property. All shall be explained in this neat guide to help you learn more about shared ownership and whether it’s right for you.
How Does Shared Ownership Work
The idea of shared ownership works on a fairly simple principle: rather than buying a house outright, you purchase a share of the house for less money. Instead of paying £400,000 for a home, you buy a 30% share, meaning you spend £120,000.
You can already see how this makes home ownership more accessible and affordable – but there’s more to it.
What happens to the remaining shares of that house? The company running the shared ownership scheme will own the rest of the property and charge you rent against it. This will usually be way lower than paying rent on the same property if it were a rental, though you may have mortgage repayments to pay as well.
From there, two things can happen:
- You continue to own part of the house and can pocket your percentage if you decide to sell
- You buy more shares over time until you own 100% of the property
Most people opt for the second option because it allows them to gradually work their way up and get on the property ladder. It can be more affordable – your rent drops when you own more shares – and lets you own 100% of the home eventually.
How Much Will Shared Ownership Cost
This is the big question that, ultimately, determines if it’s the right approach for you. In some cases, shared ownership can be more affordable than buying the full house with a mortgage. It all depends on the combination of your mortgage repayments and monthly rent – plus other things like stamp duty, the initial deposit, etc. Thankfully, you can figure all of this out with a shared ownership calculator to understand what you’ll pay each month.
For example, using our £400,000 30% share example, you’ll pay around £1,220 per month in total.
Is This The Right Way To Buy Your First Home?
Yes and no – it all depends on the individual and how keen you are to invest in real estate. If you’re desperate to get a foot on the property ladder, but can’t afford the outright price of a house at the moment, then shared ownership makes a lot of sense. You can slowly climb your way onto the ladder by increasing your shares in the home until you no longer pay any rent.
On the other hand, if you can afford a mortgage on a house in full, then that will always be a smarter way of buying your first home. Not everyone is privileged enough to be in that position, which is why shared ownership has become a popular and viable alternative.
Add Comment