Shared Ownership Pros & Cons
Shared Ownership Rent & Service Charges
With Shared Ownership, you buy a percentage of a property, then pay rent on the remaining portion, with the option to increase your share at a later date. The key advantages of Shared Ownership are that you generally pay less each month than you would privately renting or paying a traditional mortgage, and you still have the opportunity to own the entire property as your circumstances change.
Here we look at some of the key advantages and disadvantages of Shared Ownership and renting.
Shared Ownership: pros
● Shared Ownership could be ideal for people who cannot afford an entire home.
● You only need a mortgage for your share of the property.
● The deposit is based on your share, not the entire property – so it is generally much smaller compared to a traditional mortgage.
● You’ll pay less rent compared to regular renting. The bigger your share, the lower your rent.
● You’ll have more freedom to make modifications, redecorate etc, compared to if you were just renting from a landlord.
● You can increase your share at any time, so you can end up fully owning your own home.
● Since most Shared Ownership properties are new, fixtures and fittings should not need much work/maintenance and may still be in warranty.
● It is your home, you decide when and if you want to move so there is no risk of your landlord terminating your tenancy meaning you have to move home
Shared Ownership – cons/pitfalls
● You may be required to pay Stamp Duty. You can opt to pay this in one lump sum based on the full market value of your property, or you can pay it off in stages. Your solicitor can advise the best route for your circumstances as you go through the purchase.
● You will be required to pay legal conveyancing fees.
● There are only a certain number of Shared Ownership properties in the UK – so you could be restricted in terms of choice.
● You will need to find the cash for things like home contents insurance and repairs and maintenance costs. These costs will be unaffected by the size of your share.
● All Shared Ownership homes are leasehold properties, which will involve certain restrictions and requirements – eg. having to pay a service charge. Generally, if you own a house, however, these become freehold once you own 100%.
● If you choose to buy a bigger share of your home, the cost of doing so could fluctuate depending on the market value at the time. There are also legal and valuation costs to pay when you purchase additional shares, though your rent does reduce of course!
● Sub-letting the property you part own is not permitted.
Renting – pros
● Flexibility: You won’t be tied to one property forever – you can leave a tenancy (in line with the agreement) if the property or area doesn’t suit you.
● By renting a place short term, you can see how it suits you for work, school, recreation etc., before committing to a longer lease (or moving elsewhere).
● A rental property may well come fully furnished, unlike Shared Ownership properties.
● You won’t have to pay for maintenance and repair costs within the home.
● Renting may improve your credit score.
Renting – cons
● By paying rent you are not investing in a home so any property price increases that the home may be seeing you will not benefit from.
● Your landlord may be slow or even reluctant to make necessary repairs to your rental home.
● You will have to pay a large deposit before you move in. And of course, you’ll need to pay this every time you move into a new rental property.
● Your landlord may decide to increase your rent.
● Your landlord may decide to sell the property and terminate your tenancy.
Can you rent out a Shared Ownership property/home/house/flat?
Sub-letting your property to someone else is not allowed under a Shared Ownership lease. However, letting out a room to a lodger is usually permitted, and it brings in extra income, although you will need to be able to afford the home without the income of a lodger.
Can I rent a Shared Ownership house/flat/property?
If you see a Shared Ownership property available for rent, be advised that Shared Ownership leases do not allow sub-letting. While there would be consequences for the person who signed the Shared Ownership agreement – including potentially losing their home – you as a renter may need to ﬁnd somewhere else to live if a contract breach is discovered.
Is Shared Ownership better than renting?
As explained above, there are pros and cons to both Shared Ownership and renting. Ultimately, Shared Ownership presents a path to owning your own home while generally paying less than you would for a fully rented property – since you only pay rent on the portion of the property you don’t own.
Do you pay ground rent on Shared Ownership? Some Shared Ownership properties require you to pay ground rent. If applicable, this is billed alongside the service charges to the Registered Provider.