Shared ownership is a government-backed scheme that allows individuals to part-buy and part-rent a property. It is a popular choice among first-time buyers who cannot afford the full cost of a property but still wish to enter the housing market. It’s also an increasingly popular way to pay into a property that you’ll eventually own, rather than paying exorbitant rent prices that don’t go towards anything. So in this article, we’ll learn more about shared ownership and find out how much rent you pay with this scheme.
What is Shared Ownership?
Shared ownership is a government-backed scheme that allows home buyers to buy a share of the value of a property and pay subsidised rent on the remaining portion. In shared ownership, you have the option to increase your equity over time, sometimes owning up to 100% of the property. However, this depends on both the developer and development you are buying on. The share that you do not own is typically held by a housing association, and this is the share on which you have to pay rent.
Unlike traditional renting, shared ownership uses your rental payments to go towards the increased ownership of the property in a process known as staircasing. What’s more, as the rent is subsidised by your share of the property, you won’t have to pay the high rental costs you’d find on the rental market. Renting is growing more expensive by the day, with the added negative of never owning the property you’re paying for. Shared ownership is a way to circumvent this problem.
Calculating Shared Ownership Rent Payments
Rent in a shared ownership scheme is not calculated the same way as traditional renting. It is based on the share of the property that you do not own. Let's break down the calculations step by step:
• Determining the Share: First, identify the share of the property that you own and the share that you rent. For example, if you own 40% of the property, you rent the remaining 60%.
• Market Value: The rent is typically calculated as a percentage of the market value of the share owned by the landlord. Most landlords typically charge 2.75 % but the limit is 3 %.
Benefits of Shared Ownership
While shared ownership comes with rent and other costs, there are also many myths surrounding this scheme. It’s an incredibly useful scheme for many prospective homeowners - not just first time buyers - and offers a number of benefits, such as:
• Lower Upfront Costs: The initial deposit required is only for the share of the property you are buying, making it more affordable than buying the entire property.
• Lower Rental Payments: The rental property market tends to be more expensive when compared to shared ownership, and your money will go straight into the landlord's pocket rather than towards a home you can build equity in.
• Option to Increase Equity: You can buy additional shares in the property over time, reducing your rent and increasing your equity. Not all developers offer 100% ownership and there may be caps, so make sure you find out what your long-term options are.
• Stability: Unlike renting, shared ownership gives you a stake in the property and the stability that comes with homeownership.
Is Shared Ownership Right for You?
Shared ownership is a great home buying option for those who can't afford the full cost of a property. The rent you pay on the shared portion of the property is calculated based on the market value of the share you do not own. Although shared ownership comes with rent and other costs, it provides the opportunity to build equity and enjoy the stability of homeownership and you won’t face increasingly higher rent from landlords.
If you’re interested in learning more about shared ownership, or would like help finding a suitable property, get in touch with our sales advisors at Sanctuary today.