A new focus is now directed to using shared ownership schemes as the most preferred method in the property market, especially with first time property buyers in the UK. These schemes offer an opportunity to acquire ownership of a portion of the housing property and leasing the remaining portion until one can raise enough money to purchase an entire building. Therefore, home ownership becomes more accessible as it has become shared and joint, but in this article, estate agents in Cumbria consider a few advantages and disadvantages of it.
What is Shared Ownership?
Shared ownership is a government-backed initiative designed to help people who can’t afford to buy a home outright. You buy a part of a property (usually between 25% and 75%) and pay rent on the balance of the value, which will be owned by a local authority or a housing association Over time, you can buy additional shares (a process known as “staircasing”) until you potentially own the property outright.
The Pros of Shared Ownership
- Lower Initial Costs
One of the most significant advantages of shared ownership is the lower initial cost. Since you only need to purchase a portion of the property, the deposit and mortgage required are much smaller compared to buying a property outright. This makes it more accessible for first-time buyers and those with limited savings.
- Reduced Monthly Payments
With shared ownership, your monthly payments are divided between the mortgage on the share you own and rent on the share you don’t. Often, this combined cost is less than renting a similar property on the open market or paying a full mortgage, making it an affordable option for many.
- Gradual Ownership
Shared ownership allows you to gradually increase your stake in the property through staircasing. This can be done in increments, making it easier to manage financially. Over time, you have the potential to own the property outright, giving you full control and eliminating rent payments.
- Property Maintenance and Management
Many shared ownership properties are new builds, which often means lower maintenance costs in the initial years. Additionally, housing associations usually manage the properties, taking care of communal areas and significant repairs, providing peace of mind for the owners.
- Security of Tenure
Shared ownership offers more stability compared to renting privately. As long as you adhere to the terms of your lease and mortgage, you have the security of a long-term home, reducing the uncertainty often associated with renting.
- Access to Better Properties
Shared ownership can provide access to better properties and desirable locations that might otherwise be unaffordable. This allows buyers to live in areas with good amenities, schools, and transport links.
The Cons of Shared Ownership
- Rent and Service Charges
While the initial costs are lower, shared ownership requires you to pay rent on the portion of the property you don’t own. Additionally, there are often service charges for maintenance of communal areas and building insurance, which can add to your monthly expenses.
- Staircasing Costs
Although staircasing allows you to increase your ownership share, each increment involves additional costs, such as valuation fees, legal fees, and potentially higher mortgage rates. These costs can add up, making the process more expensive than anticipated.
- Selling Complications
Selling a shared ownership property can be more complicated than selling a fully owned home. The housing association usually has the first right to find a buyer, and the property can only be sold to someone who meets the shared ownership eligibility criteria. This can limit your market and potentially delay the sale.
- Limited Control
As a shared owner, you might have limited control over certain aspects of your property. For example, making significant alterations or improvements usually requires the housing association’s approval. This can be frustrating for those who want to customise their home.
- Potential for Negative Equity
If property prices fall, there’s a risk of negative equity, where the value of your share is less than the mortgage owed. This can make it challenging to sell the property or staircase further, potentially trapping you in a financial bind.
- Leasehold Issues
Most shared ownership properties are leasehold, meaning you don’t own the land the property is on. Leasehold properties come with additional costs and complexities, such as ground rent and the need to renew the lease. Lease lengths can also impact the property’s value and mortgage availability.
Is Shared Ownership Right for You?
Deciding whether shared ownership is the right choice depends on your financial situation, long-term goals, and personal preferences. Here are some questions to consider:
- Can You Afford the Costs?
– Assess your ability to cover the deposit, monthly mortgage, rent payments, service charges, and potential staircasing costs.
- What Are Your Long-Term Goals?
– Consider if you plan to staircase to full ownership eventually or if you see shared ownership as a stepping stone to another property.
- Are You Comfortable with Leasehold?
– Understand the implications of leasehold ownership, including lease length, ground rent, and service charges.
- Do You Need Flexibility?
– Think about your need for flexibility in terms of property alterations and the ability to sell quickly if your circumstances change.
These schemes afford choice for people who cannot afford or access a full mortgage for a house. The lower initial costs, as well as the possibility of progressing to partial ownership, can make it more advantageous. But it is wise to consider the advantages and disadvantages of conversion and understand such factors as the cost after the initial works have been completed, stair casing and selling issues and the fact that leasehold properties have many restrictions.
