Shared Ownership properties have returned to the forefront of the property market in recent years with the increase in property value in England and Wales.

How Shared Ownership works

It is a government scheme that is generally aimed and subsequently marketed as “affordable housing” and as such, only eligible persons are able to benefit from it. The Shared Ownership eligibility UK criteria can be found at: Shared ownership homes: buying, improving and selling: Who can apply - GOV.UK.

The scheme is aimed at allowing first time buyers/people on low household incomes to put “a foot in the door” when it comes to property ownership. Those living in more affluent areas, where the property value is not directly proportional to the average household income, are most likely to benefit.

Ownership (commonly 50% by the buyer and 50% by a Housing Association) is more attributable to a hybrid of traditional renting, and a leasehold purchase. The owner will, alongside their mortgage, pay a “rent” to the Housing Association, resulting in them often paying above a market rate for technical ownership of the property.

In principle, the intention of the scheme was to allow a property owner to carry out “interim-staircasing”, to increase their stake in the property over time.

The consequence of heavy short-term rental combined with mortgage payments is that, in reality, homeowners struggle to set aside funds to purchase further equity in their property.

Staircasing shared ownership

No, this is not the process of improving the decorum or image of a property’s amenities (as some have mentioned to me over the years!). It is the legal process of acquiring further shares in the property from the Housing Association.

How to buy more shares in shared ownership

One will pay a staircasing premium to acquire further shares, and these premiums are based on “market value”; the defined term of which varies between leases.

It was better defined in the model leases post-2010; but for those of whose intention it is to carry out interim staircasing, it is usually based on a percentage of a valuation obtained at the discretion of the Housing Association.

The ‘Memorandum of Staircasing’ is the legal document to evidence the process of full, or interim staircasing. It is often overlooked when the property is being registered with HM Land Registry. It is important for anyone to understand the exact standing of the property they are looking at, as the readily available information at HM Land Registry will not necessarily speak for itself.

Model Leases

The Shared Ownership Model Lease has undergone several key changes over the years. Therefore, it is important to know what year model you are dealing with.

Terminology pre-model 2010 was drafted in such a way that it was often open to interpretation and, as such, opened the door to potential legal issues, costing homeowners and lenders thousands of pounds.

The current Model Lease, being last revised in 2023 - has changed the scheme considerably, putting it back in line with the original intention.

It is now possible for homeowners to conduct interim-staircasing in 1% increments, instead of the previous low-cap of 10%. This is great news for those looking to purchase through the scheme, as it offers a better pathway to full ownership of their property.

The reality remains that although the pathway exists, there is still a lengthy and costly legal process for it to be accurately reflected at HM Land Registry, if that purchaser is unsure as to what they are doing.

Marketability

One for the Estate Agents! It is an unfortunate truth that a Shared Ownership property held at a percentage less than 100% limits your pool of buyers because of the eligibility criteria referred to earlier in this article.

One can carry out staircasing to 100% during a transaction, which can be finalised on completion meaning that you can advertise the property to a wider demographic and not be hindered by the specific nature of the eligibility criteria. This results in a better sale price.

This is desirable only if it increases the demand for the property, as the amount being paid to conduct final staircasing is directly proportional to the value of the property being sold.

For example: If you have a full property value at £500,000.00 and it is owned 50% by the seller, you will go to market for £250,000.00. The property may become less desirable to the pool of buyers, and you may only be able to achieve, say, a sale price of £230,000.00.

If you were to proceed to market at 100% ownership, you can sell at the full valuation of £500,000.00. You would need to send the Housing Association £250,000.00 on completion, but you would still net an additional £20,000.00, all things remaining equal, because of the increased desirability. You could take the point of view that it would further increase the demand, and the net-gap would widen even further. This example is highly dependent on your local market and is not the case for all scheme-affected properties.

This should be referred to a legal adviser to confirm, but most of the time it should be the case.

Higher net-sale proceeds can only be achieved so long as there is a disproportionate demand of 100% share-owned properties, as compared to selling the property for the portioned percentage, in favour of full ownership purchase.

Is Shared Ownership a good idea?

Although it does provide an alternative form of finance for those individuals looking to get on the property ladder, largely it may be viewed as not being worth it, aside from limited circumstances.

The added short-term cost to a homeowner for rent alongside mortgage payments increases a household’s expenditure more than necessary to the received benefit from the scheme.

In communities however where property values have skyrocketed disproportionately to local income, it does offer a lifeline for those people looking to acquire property assets.

In a time of increasing expenditure through a cost-of-living crisis, those who are looking to benefit from the scheme should think to the position it will afford them in the longer term, and whether measures that present less risk, - like traditional renting - better fit their financial situation.