Shared ownership explained: buying, staircasing and selling

How shared ownership works

Shared ownership lets you buy a share of a home and pay rent on the rest. The landlord, usually a housing association or council, owns the remaining share. You can usually buy between 25% and 75% of the full market value, and on some homes as little as 10%.

Every shared ownership home is leasehold, meaning you own it for a fixed number of years under a lease, a legal agreement with the landlord, instead of outright. To be eligible in England you usually need a household income of £80,000 a year or less, or £90,000 or less in London, and you must be unable to afford a suitable home without the scheme. This guide describes the scheme in England, and other parts of the UK have their own schemes with different rules.

The lease: older and newer models

The lease sets out your rights and obligations, so your conveyancer (the solicitor or licensed conveyancer handling your legal work) will check it carefully. Many homes funded through government programmes from 2021 onwards use a newer model lease. Compared with older leases, it typically:

• allows a first share as low as 10%
• lets you buy further shares of 5% or more, and in many cases 1% a year for the first 15 years
• includes an initial repair period, usually 10 years, during which you can claim up to £500 a year from the landlord towards certain essential repairs
• runs for at least 990 years from new, while older leases were commonly 99 or 125 years
• gives the landlord 4 weeks to find a buyer when you sell, instead of 8 or 12

The landlord should give you a key information document, a plain English summary of the home and the lease. Read it alongside your conveyancer's report, because it shows which rules apply to you.

Rent, service charges and repairs

You pay rent to the landlord on the share you do not own. The lease sets out how the rent is calculated and how it rises, usually through a yearly review. For example, if you buy a 40% share, you pay rent on the other 60%, and the rent falls if you buy more shares later.

You will usually also pay a service charge, which covers cleaning, maintaining and often insuring the shared parts of a building or estate, and you normally pay it in full whatever share you own. You are responsible for repairs and maintenance inside your home, unless the lease or an initial repair period says otherwise. Ask for recent service charge figures and details of any planned major works before you commit, because these costs can rise.

Stamp duty: two ways to pay

For a shared ownership home in England, Stamp Duty Land Tax (the tax paid when buying property) works differently from an ordinary purchase. You choose between two options when you buy, and your conveyancer will explain them before completion (the day the money is paid and you get the keys).

• Market value election: you pay any tax upfront as if you were buying the whole home at its full market value, and no more tax when you buy further shares
• Paying in stages: you pay any tax due on the share you buy now, and in some cases on the rent, with nothing more to pay on further shares until your total share goes above 80%, when tax becomes due on that purchase and any later ones

As an illustration, take a home worth £300,000 where you buy a 40% share for £120,000. Paying in stages may mean no tax now, because £120,000 is below the starting threshold, while an election would be based on £300,000, which without first-time buyer relief (a reduced rate for people buying their first home) means £5,000 at current rates but nothing more later. First-time buyer relief can apply to either option where the full market value is £500,000 or less, and an election cannot be cancelled, so take your conveyancer's advice before deciding. HMRC's guidance explains the options, and Wales has its own property tax.

Getting a mortgage

You can buy your share with savings or a mortgage, and the deposit is usually 5% to 10% of the share you are buying, not of the whole home. Only some lenders offer shared ownership mortgages, each with its own criteria, so a mortgage broker who knows the scheme can save you time.

Your conveyancer must also be acceptable to your lender. Lenders keep panels, which are lists of law firms they will instruct, and some have extra requirements for shared ownership. When you ask to go ahead, Keyfolio takes your lender's panel into account when choosing a law firm to introduce, which helps avoid changing firms part way through.

Who does what when you buy

A shared ownership purchase involves the landlord as well as the seller, and on a new home they are often the same organisation. Here is how the work usually divides.

• You: apply to the landlord or its sales agent, pass its eligibility and affordability checks and pay any reservation fee (a fee to hold the home, which can be up to £500)
• You: arrange your mortgage and keep track of any deadline for exchange of contracts, the point where the purchase becomes legally binding
• You: read the key information document and ask about rent, service charges and restrictions, for example on subletting
• Your conveyancer: reviews the lease and the key information document and reports anything unusual
• Your conveyancer: carries out searches, checks the lender's conditions and explains the stamp duty options
• Your conveyancer: deals with the landlord's solicitor, arranges exchange and completion and registers your lease

Staircasing: buying more shares

Staircasing means buying more shares in your home, which reduces the rent you pay. You can usually buy shares of 10% or more at any time, although some older leases set a minimum of 25% and some newer ones allow 5%. On most homes you can eventually own 100%, but in some designated protected areas, which are typically rural, the maximum is 80%, and on homes for older people it is 75%.

The price of each new share depends on what your home is worth at the time. For example, if a home bought at £200,000 is now worth £250,000, a further 25% share would cost £62,500. A surveyor registered with the Royal Institution of Chartered Surveyors (RICS) values the home for shares of 5% or more, you usually need to buy within three months of the valuation, and the landlord may charge an administration fee, often around £150 to £500.

If you are paying stamp duty in stages, a purchase that takes you above 80% can bring a tax bill, so check with your conveyancer first. Staircasing is a legal transaction in its own right and often involves a remortgage. When you reach 100% of a house, the freehold (outright ownership of the building and land) is often transferred to you.

Selling a shared ownership home

You can sell at any time, but if you own less than 100% you must first tell the landlord, which then has a set period to find a buyer for your share. This is called the nomination period, and it is 4, 8 or 12 weeks depending on your lease. The price is based on a valuation by a RICS-registered surveyor, which you usually pay for.

If the landlord does not find a buyer in time, you can usually sell your share on the open market, often through an estate agent, and the buyer will usually need to meet the scheme's eligibility rules. Some homes in protected areas have a lease that requires the landlord to buy the home back or find the buyer itself. If you own 100%, you can generally sell like any other homeowner, and in every case it is worth checking the lease for a landlord's selling fee.

Checklist before you commit

Before you reserve a shared ownership home, work through a few questions. Your conveyancer and mortgage broker can help with the answers.

• What share can you afford, and what will the mortgage, rent and service charge cost in total each month?
• How do rent reviews work, and could the service charge rise because of planned works?
• Which lease model applies, and what does the key information document say about repairs, staircasing and selling?
• How many years does the lease have left, and is that enough for lenders?
• Which stamp duty option suits you, and what would buying more shares cost later?
• Which lenders will lend on this home, and is your conveyancer on their panel?

Next steps

You can get an instant shared ownership purchase quote, which separates the legal fee, VAT, disbursements and an estimate of any stamp duty. If you already own a share, read about staircasing or selling a shared ownership home. Quotes are estimates, and the law firm you choose confirms its fees in writing before you instruct it.