Posted Jun 27, 2023
Is shared ownership better than renting? Well, that’s subjective, like asking about your preference for chocolate flavours! To help unravel this question, our article explores the pros and cons of shared ownership vs renting.
Navigating the property market can often feel challenging, especially for first-time buyers. The dream to buy a home and get on the property ladder may seem distant and difficult to achieve, with rising prices and daunting deposit requirements.
Shared Ownership could offer an alternative to outright ownership or renting. It involves buying a share of a home and paying rent on the rest, bridging the gap between renting and full ownership. While it’s seen as more than just ‘renting with bells on’, it’s not always clear whether this option is better than traditional renting.
We’ll cover aspects such as financial implications, flexibility, security, and potential for investment growth.
Pros of Shared Ownership
Affordability and Accessibility
Shared Ownership may bridge the gap for those who might find it challenging to afford an entire home on their own. It could ease financial strain and be able to secure a smaller mortgage. The deposit only applies to your portion of the property and may help reduce monthly repayments.
Lower Deposits and Rent
Deposits are easier to manage under this scheme. They’re calculated based on the share purchased, not the full property price. This could make them more affordable. Plus, you could pay lower rent to the housing provider compared with standard rentals. When you increase your share, your rental payments decrease.
New Properties with Less Maintenance
Many Shared Ownership homes are new builds. This could mean fewer worries about fixing old fittings or dealing with significant maintenance tasks right after moving in.
New builds will come with a 10-year warranty.
Personalisation and Stability
This scheme empowers individuals with a sense of home ownership that traditional renting lacks.
You have greater freedom for modifications or redecoration efforts, transforming it into a space that reflects you.
You will be without a landlord to end a tenancy with little notice. There’s no fear of sudden displacement.
Cons of Shared Ownership
Stamp Duty and Legal Fees
Alongside the benefits come certain financial obligations like Stamp Duty and legal conveyancing fees. The former could be required in either a lump sum or staged payments over time based on the property’s full value - professional advice from a solicitor can guide this process.
Fluctuation
If buying additional shares in the future entices you, remember that costs could fluctuate based on market conditions. Legal and valuation costs also apply during this process.
Subletting Restrictions
Sub-letting isn’t permitted under shared ownership schemes. It is something worth considering if you had potential plans to let out part of your property.
Additional Costs Unaffected by Equity Size
Costs such as home contents insurance and repair expenses will need covering in full regardless of equity size. This means essential outgoings remain constant no matter what percentage of the property is owned.
Limited Choice and Leasehold Restrictions
The number of Shared Ownership properties across the UK can be limited depending on where you want to locate. This might restrict choice significantly when house hunting.
Also worth noting is that all such homes start off as leasehold properties. This could entail certain restrictions like service charges until you completely own them.
Pros of Renting a Property
Furnishing and Maintenance
A key perk of renting is that some properties come furnished. This means less worry about buying new furniture or lugging old ones around during a move.
You don’t have to bear the burden of maintenance costs or repairs within their homes. These are usually taken care of by landlords, which significantly reduces the stress associated with building upkeep.
Flexibility and Commitment
When you rent a home, you have the freedom to change where you live without too much hassle. If you realise your place or the neighbourhood isn’t what you hoped for, all you need to do is follow the rules in your rent agreement to move out. This is even easier with short-term rentals if your circumstances change. They are like a trial run where you can check if the home is close enough to work, schools, or places of leisure, before deciding on staying there for longer.
Effect on Credit Score
If you pay your rent on time every month, it could increase your credit score. This could help when requesting credit in the future.
Cons of Renting a Property
No investment
You don’t own any part of the home when renting. This means that if the prices of houses increase, only the person who owns your home (your landlord) benefits.
Deposits and Rent Increases
Landlords normally ask for a large amount of money called a deposit before letting you move into their property. The deposit covers costs if something gets damaged or if there’s unpaid rent or fees. You would need to give this amount each time when moving into a new rental property.
Landlords sometimes decide to increase rent prices. This can happen every year or when it’s time to renew leases because of changes in market prices or increased values of properties.
Delays in Repairs
Sometimes having things fixed could take some time when renting. Some landlords or estate agencies are slow at dealing with repairs because they want to save money or they don’t see them as very important.
Instability
Another downside of renting is facing possible instability. The landlord could sell the property during your tenancy period.
This could lead to termination of your lease agreement prematurely, causing unwanted stress. Relocation can be a hassle, especially when there is a high demand for properties in some areas.
Is shared ownership better than renting?
In summary, shared ownership can be a beneficial option for those struggling with the financial demands of full home ownership. This approach allows you to purchase part of a property with lower deposits calculated based on your share. It could make it potentially more affordable than traditional renting or buying.
Many shared ownership properties are new builds too, meaning less maintenance stress. It’s important to weigh up the pros and cons to see if shared ownership is the right path for you in your homeownership journey.