Introduction:
Shared ownership involves paying a portion of rent every month, so is shared ownership really better than renting a home?
The short answer is, YES. It brings you the privilege of getting a home for yourself, and means you don’t need a higher income to afford an expensive mortgage. Before buying any shared ownership home through a housing association, you must look for the ideal location and the type of neighbourhood you prefer.
Renting:
Renting a home is more practical for many than buying shared ownership because it doesn’t involve a large deposit. Renting does bring you many benefits and is a good option if you want to try out some time in a city. And while being on the tenancy agreement, you can always take advantage of exploring new areas and neighbourhoods. After your tenancy agreement expires, you can move to another place conveniently.
Pros of Renting:
Maintenance and Cost
The homeowner covers the maintenance of the home, so you will not be required to pay for the oven that’s malfunctioned or a leak from a pipe. The landlord is responsible for the property and the repairs, assuming you take good care of it.
The tenant also doesn’t have to pay any service charge bills.
Free Amenities
In a rented home, you can take advantage of the amenities that are included. You are not charged additionally for these because it is already covered in the tenancy agreement.This might include a garden, function room or even a cinema. The new build to rent sector in the UK is bringing high quality living to long term renters. These amenities can be quite expensive to have in the UK if you were not renting them.
No property taxes
A tenant doesn’t pay any stamp duty when renting a property, as it is the homeowner’s responsibility.
Fixed Rent Period
Renters pay a fixed amount until their tenancy ends, which means that the market rate does not affect their tenancy agreement, and they can move after this. For many renters this is useful to know that the level of rent will not quickly change if interest rates go up.
Cons of Renting
Paying Mortgage of Others
One of the biggest flaws of renting is that if the property is mortgaged by the landlord you are paying someone else’s mortgage. This means you are effectively transferring wealth to someone else’s pocket.
Insecurity
The eviction of tenants can cause a big problem for renters. The government has considered banning no-fault evictions (where tenants are given an eviction notice by their landlord when they report a problem with the property) but this has still not happened.
The homeless charity Shelter has confirmed over 220,000 people have been served with no fault eviction notices over a three year period.
Structural Changes Restricted
While being on tenancy, you cannot decorate or make any structural changes in the home. As for even hanging a painting, you will need to ask the homeowner. They will probably want you to make good any damage you do to the property when you leave.
Some landlords simply refuse permission entirely.
Change in Rent
When a fixed term tenancy completes the landlord is able to increase rent on the tenants. This can create problems for them as they are faced with the prospect of paying more of their salary or moving somewhere else.
Shared ownership provides you with the benefit of having one’s own home.
In shared ownership, you are in a contract with the housing association and have bought part of the home. The remainder of the property that you did not buy is subject to a rent.
So instead of paying for a large mortgage you instead pay a small mortgage plus rent.
Lower Deposit
Shared ownership benefits you as you pay the rent and a smaller mortgage together. This means you can get on the housing ladder quicker instead of waiting to pay a large a deposit to get a hold of your first own home (which may take many more years).
The sooner you start paying a mortgage, the quicker it is to pay off!
Easier to get a mortgage
Shared ownership can make it easier for the person to get the mortgage from the bank at an affordable rate. Buyers can buy as little as 10% of a property’s value. Getting a mortgage on 10% of the value of a home is easier than getting one for 70%.
But it’s worth bearing in mind that only certain lenders will lend on shared ownership homes. For them a shared ownership home is more risky than a standard home as there are more restrictions in the lease.
Security
Shared ownership provides you with security, and you do not need to worry about eviction as you will be the part owner until further notice. This does require you to pay the rent and service charges on time though.
Staircasing to Full Ownership
Staircasing is the method through which you can increase your share in the property. By staircasing up you can in theory purchase the entire property one day.
Staircase gets affected by the market price
A staircase increases your potential to increase your property share, but it is affected by the market price. Each time you decid to staircase, the market value of the property has to be determined. Your new share will cost the current market price instead of the price you bought your old share at, and so it may become more expensive in future if you want to purchase more of the home.
Rent Might Increase
Most shared ownership properties allow the landlord to increase rents in future periods. Sometimes this will be in line with inflation or even higher. This means that although your mortgage payments might remain fixed for a few years, rent is still likely to increase.
Still a Tenant
In shared ownership, you are in a strange legal position. Although it is your name on the deeds for the property, you are still ‘technically’ a tenant until you purchase the full property. This menas that you could technically be evicted for not paying rent or service charges, but this would be a last resort by the housing association.
You Need to Cover Maintenance
As the new owner of the property, you will need to cover any repair costs that are needed. However, as you are also a tenant you will still need to pay rent for your share that you haven’t purchased yet. This can be expensive. Normally a tenant only has to pay rent and repairs are covered by the landlord, however in this case you need to pay rent and maintain the property.
Restrictions On Subletting
Subletting is generally not allowed with a shared ownership property. These types of properties have some element of public money to fund them, and the government does not want the system to be exploited by buy to let landlords.
Charges for selling
Most housing associations make you pay fees for valuing a property before it can be sold. You normally have to follow a set process that they have in place, which includes appraising and marketing the property through them. Not only does this cost fees, but it can also take time for a housing association to do.
Final Thoughts
Having a permanent place to live is great for your mental health, and if shared ownership makes this possible then it is certainly something for you to consider. A home gives you a sense of security, and you know that the money you have invested is not going to be wasted. You always have the option to sell the property, which eventually benefits you. Shared ownership gives people the ability to have a small part of a property instead of having no part, so sometimes shared ownership is better than renting.
But if you’re looking to stay in a place short term without having to take on much responsibility, renting might be a better option. Your situation will change over your life too, so it’s important to reassess at each stage.