Shared ownership can help you get on to the property ladder and a new code aims to make it even easier. Ginetta Vedrickas explains.
Spiralling house prices have priced numerous first time buyers out of the market but shared ownership, SO, has helped many get a foothold on the property ladder. Introduced in 1980, today over 200,000 households live in an SO home. But, despite its growing popularity, there are still misconceptions about how the scheme works, who can use it and how much money you need.
Positives
SO is a form of homeownership, where you buy a share of a property and pay rent on the remaining share. Its chief advantage is that it reduces the substantial initial costs to getting on to the property ladder, namely the size of deposit needed, and the mortgage borrowing burden. Kevin Sims, Director at SO Resi, explains how buyers who don’t earn enough to be able to buy a typical property in their area can afford to by using SO. “Buyers only need a deposit, which can be as low as 5%, of the share of the property they are buying, not the full value, and then a mortgage for the percentage share they are buying, less the deposit.” Sims describes it as a “step up from renting” as there is no risk that a landlord could end your tenancy, and you can treat and decorate your SO home as you like. The money you pay towards your mortgage is equity gained and, as you earn more, you can buy more shares of your property, a system known as “staircasing” which then reduces your rent payments.
Potential downsides
Unlike renting, where a landlord is responsible for upkeep, shared owners have similar rights and responsibilities as any other homeowner, which means they are responsible for the upkeep and maintenance of their own home, and for the building and communal areas if they live in an apartment. This means that they also pay a service charge to cover the costs of maintaining where they live. Shared owners sign a lease that sets out the obligations of the landlord, and their obligations as a leaseholder. The housing provider, typically a housing association, should provide clear up-front information to buyers before they commit, explains Sims. “Shared owners should also be aware that rent payments increase over time, though this figure is capped at either the Retail Price Index + 0.5% or Consumer Price Index +1%, depending on the property, to ensure that the increases remain at an affordable level. The overall cost of homeownership may go up over time, if mortgage rates or service charges increase.”
ROLE OF The Shared Ownership Council
SO has helped many on to the property ladder, but consultation found that a Code of Good Practice is now needed to drive up standards and reform the system. The Code is particularly timely as first time buyers get little direct help thanks to the end of Help to Buy and the loss of Stamp Duty exemptions which come into force this April. The Shared Ownership Council, a voluntary cross-industry body set up to drive improvements to the shared owner experience and unlock a better and bigger shared ownership market, carried out the research and has devised the new Code. The Council had over 1,700 responses to the consumer consultation, of which 65% were current or former shared owners. So far, 27 housing providers and financial institutions have backed the Council, including Lloyds Bank, Leeds Building Society and Newbury Building Society, along with housing associations and shared ownership specialists including L&Q, LiveWest, Platform, Legal & General Affordable Homes, Heylo and Clarion.
Key findings from the survey
The survey found that only 37% of shared owners and former shared owners said they were satisfied, a much lower figure than in a previous report for 2023-2024 which reported that 49.5% of shared owners were satisfied. Satisfaction declines over time, with 59% satisfied in the first year, dropping to just 28% in five years. Those living in houses, 45%, were more satisfied than in flats, 28%. Shared owners were more dissatisfied in London, 61%, compared to 51% outside.
The Council found that half of those surveyed believe a Code would improve things for shared owners as dissatisfaction arose from a range of negative experiences. Some respondents reported that they could no longer afford their homes, with some reporting that they could not afford to staircase, and they were unable to sell so felt stuck. Positive responses included respondents saying that they felt safe as they were in control as their homes are affordable and permanent.
What will the new Code include?
The Code aims to improve practice across the industry and give SO buyers a better experience. Currently being tested during a pilot phase with eight housing providers including Clarion, Heylo, L&Q, LiveWest and SNG, it is intended to be “the first step in the journey to make shared ownership better and fairer to all by setting the minimum standard and building on the best practice we know is out there”.
It acknowledges that, while shared ownership works well for some, there have been cases where people felt misinformed about the product, or where fees and charges have left them struggling. It hopes to improve transparency from lenders and housing providers and look at issues such as the sales process, clarity of information, service charges and lease extensions. The Council will work closely in partnership with the pilot’s participants to fine-tune implementation, paving the way for an official launch in the spring.
Mortgages and lending for shared ownership
This year the Council will also launch a specific Code for lenders and mortgage intermediaries. Specialist lender Together recently conducted research which found that in the last year, only 19% of mortgage applicants buying via a SO scheme were successful (up from 9% in 2022). It found, however, that SO is growing in popularity and success.
Around 30 lenders currently offer mortgages for SO, but Together’s CEO of Personal Finance, John Barker, says that despite the improvements, many applicants still find it hard to get mortgages from mainstream banks. “With these applicants, specialist lenders like Together can really help. We take a common-sense approach, looking at the full financial picture of each applicant to see how we can help them achieve their homeownership ambitions.” He warns that SO is more complex as they are usually leasehold, but he is optimistic: “We hope that with changes to the law through the Leasehold and Freehold Reform Act we will see more transparency around charges levied by landlords.”
New shared ownership homes for sale
Moonhill Rise in Exeter, Devon, has 33 energy-efficient homes ranging from two to four bedrooms. Prices start from £138,000 for a 40% share. sovereignliving.org.uk
Crescent Gardens in Croydon has 79 apartments by Latimer, part of the Clarion Housing Group. Prices for two bedroom apartments start from £109,375 for a 25% share with a full market value of £437,500. Latimer at One Goodmayes in Ilford has 90 SO homes. Prices start from £106,500 for a 30% share of a two bedroom apartment with the full market value £355,000. latimerhomes.com
At Square Roots Hendon in Barnet, SO buyers will be offered up to £3,500 in John Lewis or IKEA vouchers. Studio, one, two and three bedroom apartments start from £95,000 for a 25% share of a one bedroom. Award-winning Square Roots Lewisham has SO homes available from £103,125 for a 25% minimum share. For a guide to shared ownership which explains how it works, how to calculate what you can afford and how to increase your share go to squareroots.co.uk/shared-ownership
In Tottenham, Sage Homes is selling two bedroom apartments where buyers can purchase a share between 25% and 75%. Prices start from £121,250 for a 25% share of a two bedroom apartment, with a full market price of £485,000, with a deposit of £6,063. sagehomes.co.uk/sales/listing/heart-of-hale
Legal & General has a range of SO homes in and around London and Kent. At Cavalier Court, Chatham, Gillingham, Kent, prices start at £53,750 for a minimum 25% share. landgah.com/shared-ownership/properties/cavalier-court
First Time Buyer is an exciting bi-monthly glossy which takes a stylish and comprehensive look at all the options available, setting them out in an entertaining and informative way, and helping potential customers navigate their way through what is often a daunting and complex process. We dispel the myths, reinforce the facts and arm the reader with the tools necessary to make their homeownership dreams a reality.
