What shared ownership is
With shared ownership you buy a share of a home, usually between 10% and 75%, and pay rent to a housing provider, usually a housing association, on the share you do not own. You take out a mortgage for your share, so the deposit and loan are much smaller than buying the whole home.
You can buy more shares later, a process called staircasing, often up to 100%. Shared ownership homes are almost always leasehold, so you also pay a service charge and must follow the terms of the lease.
Who can apply
In England you can usually buy through shared ownership if your household income is:
- £80,000 a year or less outside London, or
- £90,000 a year or less in London,
and one of these applies:
- you are a first-time buyer;
- you used to own a home but cannot afford to buy one now; or
- you already own a shared ownership home and want to move.
Providers also check that you can afford the costs and cannot afford to buy a suitable home outright. Some homes give priority to local people, key workers or members of the armed forces.
Your monthly costs
Each month you usually pay three things:
- Mortgage on the share you buy.
- Rent on the share you do not own, often around 2.75% of its value a year for new homes.
- Service charge and ground rent for the building, insurance and management.
Only the mortgage builds equity you own. The rent and service charge are housing costs, much like renting. Lenders include all three in their affordability check.
A worked example
A 40% share of a £300,000 flat, with a 10% deposit, a 4.75% mortgage over 30 years and a £150 monthly service charge:
- Share price40% of £300,000£120,000
- Deposit10% of the share£12,000
- Mortgage payment£108,000 at 4.75% over 30 years£563.38
- Rent2.75% of £180,000, divided by 12£412.50
- Service charge£150.00
The calculator lets you change every one of these, including the rent percentage and service charge in your provider's key information document.
Against buying outright
With the same £12,000 deposit, buying the whole £300,000 home would need a £288,000 mortgage, a 96% loan-to-value that most lenders will not offer. Even if you could, the mortgage would cost about £1,502 a month, plus the same service charge: £1,652 in total.
- Deposit
- £12,000
- Mortgage
- £108,000
- Monthly cost
- £1,126
- You own
- 40%
- Deposit
- £15,000 or more (5%)
- Mortgage
- Up to £285,000
- Monthly cost
- About £1,637
- You own
- 100%
Shared ownership is cheaper to get into and often cheaper each month. Buying outright builds equity in the whole home and avoids rent rises and lease restrictions. If you can afford to buy outright, it is usually the better long-term choice.
Rent and rent increases
Your rent is set as a percentage of the value of the share you do not own when you buy. It then rises each year by a formula in your lease. Many older leases use RPI inflation plus 0.5%; newer leases are often linked to CPI inflation plus 1%.
| Year | Rent a month | Rent a year |
|---|---|---|
| 1 | £412.50 | £4,950 |
| 3 | £437.62 | £5,251 |
| 5 | £464.27 | £5,571 |
| 10 | £538.22 | £6,459 |
Rent rises even if prices fall
Rent increases follow inflation, not house prices. Staircasing is the main way to reduce your rent.
Service charges and repairs
Most shared ownership homes are flats or houses on managed estates with a service charge for building insurance, cleaning, gardening, lifts and a reserve fund for major works. Service charges can rise significantly and are payable in full whatever share you own.
On newer leases the provider helps with some essential repairs during the first 10 years. Otherwise, and after that period, you are usually responsible for all repairs and maintenance inside your home, even though you own only part of it.
Staircasing
Staircasing means buying more shares. You pay the market value of the share at the time, based on a RICS valuation, plus fees. If prices have risen, the extra share costs more than it would have at the start.
- Value today£300,000
- Value after 5 years at 3% a year£347,782
- Cost of 35% more£121,724
- Rent before£478.20 a month
- Rent after£199.25 a month
Buying the remaining 60% at the same point would cost £208,669 and end the rent entirely. Many newer leases also let you buy 1% at a time for the first 15 years with reduced fees.
- 1Tell your provider
Ask for a staircasing pack and how much you can buy.
- 2Get a valuation
A RICS surveyor values the home. The valuation is usually valid for 3 months.
- 3Arrange the money
Usually by remortgaging or a further advance from your lender.
- 4Complete
Your solicitor completes the purchase and your rent is reduced.
Stamp Duty
In England and Northern Ireland you choose how to pay Stamp Duty when you first buy:
- Now
- Tax on the share price
- Staircasing
- Tax may be due once you own more than 80%
- Best if
- You may not staircase much
- Now
- Tax on the full value
- Staircasing
- No more Stamp Duty
- Best if
- The full value is below the tax threshold
First-time buyer relief can apply either way if the full market value is £500,000 or less. For a first-time buyer on a £300,000 home, both options cost £0. For a home mover buying 40% of £450,000, paying on the share costs £1,100, while paying on the full value costs £12,500 but nothing more later.
Selling your home
When you sell, your provider usually has the first chance to find a buyer for your share, for a set period. If it cannot, you can sell on the open market. You sell at the current market value, so you benefit from any rise in value on your share, and lose if prices fall.
If you have staircased to 100%, you can usually sell like any other home, though leasehold terms may still apply.
Mortgages and deposits
Fewer lenders offer shared ownership mortgages, so rates can be slightly higher. Deposits are usually 5% to 10% of the share price, not of the whole home. Some buyers use savings to buy their share outright, with no mortgage.
Lenders check affordability on the mortgage, rent and service charge together. Our affordability calculator gives a first estimate of what you could borrow.
Pros and cons
- Deposit
- Much smaller
- Mortgage
- Smaller and easier to get
- Monthly cost
- Often below buying outright
- Security
- Long lease, not a tenancy
- Rent
- Rises every year
- Repairs
- Usually yours in full
- Selling
- Can be slower
- Lease
- Restrictions on letting and changes
Outside England
Scotland, Wales and Northern Ireland run their own schemes. Scotland mainly uses shared equity schemes, where you own the whole home but the government holds a stake and you pay no rent. Wales has its own shared ownership and Homebuy schemes, and Northern Ireland has Co-Ownership. Rules and costs differ, so check the scheme in your nation.
Costs when you buy
On top of your deposit, budget for:
- Legal fees, often a little higher than for a normal purchase because of the lease.
- Stamp Duty, if any is due on your share or the full value.
- Mortgage fees, such as an arrangement fee and valuation.
- A reservation fee to the provider, often a few hundred pounds, usually taken off the price at completion.
- A survey, if you want one. New-build homes usually come with a warranty instead.
Your provider gives you a key information document before you reserve. It sets out the rent, service charge, rent increase formula, staircasing rules and resale terms. Read it carefully, and ask your solicitor to explain anything unclear.
Staircasing ready reckoner
Starting with 40% of a £300,000 home, if prices rise 3% a year, the home is worth about £347,782 after 5 years. Here is what buying more would cost then, and what it would do to the rent:
| Buy | Cost | You own | Rent after |
|---|---|---|---|
| 10% more | £34,778 | 50% | £398.50 |
| 25% more | £86,946 | 65% | £278.95 |
| 35% more | £121,724 | 75% | £199.25 |
| 60% more | £208,669 | 100% | £0 |
If prices fall, staircasing gets cheaper. If they rise faster than your savings grow, each share becomes harder to afford, which is one reason many owners never reach 100%.
Against renting
Compared with renting privately, shared ownership usually offers more security, a long lease rather than a tenancy, and a share of any rise in the home's value. Your monthly cost may be similar to or lower than local rents, especially in expensive areas.
But you also take on costs a tenant does not: repairs, a service charge that can rise, and the cost and time of selling. If you may move within a few years, the buying and selling costs can outweigh any gain. Our rent versus buy calculator can help you compare.
Older buyers and disabled buyers
Older People's Shared Ownership is for people aged 55 or over. It works like standard shared ownership, but you can only buy up to 75%, and once you own 75% you pay no rent on the rest.
Home Ownership for people with Long-term Disabilities (HOLD) helps people with a long-term disability buy a home that meets their needs, if the homes available through standard shared ownership do not.
Both schemes have the same income limits and most of the same rules as standard shared ownership. Ask providers in your area which homes are available.