Shared Ownership gets a mixed press: a lot of people think it’s great, but some don’t. Like any home buying scheme, it doesn’t work for everyone, and it’s important to understand potential benefits and pitfalls of the Shared Ownership scheme in order to get the most out of it.

In this feature, we’ll talk through some of the things you should consider if you’re thinking about moving into a Shared Ownership property.

Access and outcomes

Access

One of the selling points of Shared Ownership is that you need a smaller mortgage deposit than if you were buying a home on the open market. For example, if you buy a 50%, share you only need half the mortgage deposit you would otherwise require. For this reason, Shared Ownership is often described as a way of providing ‘access’ to home ownership, in the form of a ‘foot on the property ladder’.

Outcomes

‘Outcomes’ is another way of saying the way things work out over the longer term. Do things tend to work out for shared owners the way they hoped, or not? Who does Shared Ownership work best for?

Achieving full home ownership via staircasing to 100%

Who does staircasing to 100% work for?

Shared Ownership probably works best for shared owners whose household income is likely to increase fairly substantially after purchasing their initial share. Whether because of a promotion or rapid career development, a single person meeting a significant other who then contributes to housing costs, or an inheritance providing a handy cash injection.

The scheme is also likely to work best for shared owners who can afford to staircase to 100% in one go. This is due to unavoidable valuation, legal and administrative costs associated with each staircasing transaction.

Who doesn’t staircasing to 100% work for?

Unfortunately, staircasing to 100% isn’t guaranteed. The Law Commission said in 2020: ‘The vast majority of shared ownership leaseholders will never staircase to 100%’. House prices tend to rise faster than wages, meaning that shared owners can find themselves priced out of staircasing.

Achieving full home ownership via a gain on sale

Who does achieving full home ownership via a gain on sale work best for?

Shared owners hoping to staircase to 100% need property markets not to rise too quickly. However, if you are hoping to make a gain on sale, you are dependent on rising property markets.

Achieving full ownership via a gain on sale may work best if you are moving from a relatively high value area to a lower value area, or if you are downsizing from a larger property to a smaller home.

It may be easier to sell your share if affordable housing is scarce in your area than if you live somewhere with a large number of Shared Ownership homes on the market.

Who doesn’t achieving full home ownership via a gain on sale work for?

The idea behind getting a ‘foot on the property ladder’ is that you make a gain on a ‘starter home’ which then allows you to purchase a better or larger home second time around. But it’s more challenging for shared owners. You need to make sufficient gain - on a part-share - despite paying all the selling costs.

Some shared owners report concerns about selling shares over 50%. People who can afford a larger share may prefer to purchase on the open market, or not meet eligibility criteria.

New-builds tend to attract a high premium, meaning your home could be worth less as soon as you’ve bought it - until the market catches up.

Timing is key. If you wait too long you could find, for example, that the number of years remaining on your lease puts off potential buyers.

If you can only find a buyer at a price below the RICS valuation you may be required to take on the full shortfall. Some Housing Associations have a policy of requiring shared owners to take on the loss on the landlord’s share, as well as their own.

Shared owners whose homes are affected by building safety issues may face increased difficulty in selling on.

Shared Ownership as a more secure form of renting

Who does Shared Ownership as a more secure form or renting work best for?

Perhaps you are happy to rent, but don’t want the insecurity that comes with renting privately. Some shared owners purchase their initial share outright, perhaps with cash from an inheritance or a divorce agreement, and pay rent without the worry of a mortgage. Some rely on Universal Credit to cover rent, whether due to a disability which prevents them from working or to top up a low wage.

Whilst it may not have been the original intention of the scheme – conceived as a ‘realistic pathway to full home ownership’ – Shared Ownership as an alternative to renting privately might well work for some people. Though read on for some potential hazards.

Who doesn’t Shared Ownership as a more secure form or renting work for?

A study carried out in 2016 by Sheffield Hallam University found that: ‘Shared ownership tenants were statistically more likely to have unaffordable rent compared to social and market rent tenants.’ But the same study found that: ‘‘Tenants on Housing Benefit were statistically less likely to have unaffordable rent compared to tenants who did not receive Housing Benefit.’ So the jury is still out on whether Shared Ownership works for shared owners in receipt of benefits such as Universal Credit.

It’s worth considering what might happen down the line if your intention is to become a permanent partial shared owner. How would you pay the difference if benefits, or pension payments, were capped below the amount of rent you pay?

Don’t take our word for it!

Unfortunately there is a lack of national data when it comes to outcomes for shared owners, and who Shared Ownership works best for. That isn’t to say there isn’t any research at all, though! In the next section we list a couple of reports you could take a look at if you want to dig a bit deeper into some facts and figures.

Additional resources

Parliamentary briefing - Shared Ownership (England): the fourth tenure‍

How affordable is affordable housing? (Sheffield Hallam University)