Choosing how to buy your first home is a significant decision, and understanding your options is crucial. Two common pathways onto the property ladder are the government-backed Shared Ownership scheme and buying a property outright on the open market. Making the right choice involves comparing Shared Ownership vs Buying Outright based on your financial situation, long-term aspirations, and affordability.
This guide breaks down the essential differences, pros, cons, and suitability of each method to help you determine the best fit for your journey to homeownership.
Guinness Homes is proud to provide award-winning Shared Ownership and private sale homes in areas you want to live.
What is the Shared Ownership Scheme?
Shared Ownership is a government initiative designed specifically to make homeownership more accessible, particularly for those who might find buying outright currently out of reach.
- How Shared Ownership Works: You purchase a percentage share of a property (typically starting between 10% and 75% of its full market value). You then pay regulated rent on the remaining share, which is owned by a housing association (like Guinness Homes).
- Mortgage Requirements: You’ll usually need a specialised Shared Ownership mortgage to finance your share purchase. The required deposit is calculated based on the value of the share you are buying, not the full property value, making it significantly lower than buying outright.
- Ongoing Costs: Monthly outgoings include your mortgage payment on the share you own, rent on the share you don’t own, and usually a service charge (especially for apartments or houses on managed estates).
- Increasing Your Ownership (Staircasing): A key feature is ‘staircasing’. This allows you to buy additional shares in your property over time, gradually reducing the rent you pay. In most cases, you can staircase up to 100% ownership, at which point rent payments typically cease.
What Does Buying Outright Mean?
Buying outright, often referred to as purchasing on the open market, is the traditional way of buying a home where you purchase 100% of the property from the start.
- How Buying Outright Works: You acquire full ownership of the property immediately upon completion of the sale.
- Mortgage Requirements: Unless you are a cash buyer, you will need a standard residential mortgage to cover a large portion of the property’s full purchase price.
- Deposit Requirements: A substantial deposit is necessary, typically at least 5-10% of the full property value. Larger deposits often unlock more favourable mortgage interest rates.
- Full Ownership & Responsibility: You own the entire property (legally, subject to the mortgage lender’s charge until the loan is repaid) and are solely responsible for all associated costs, including maintenance, repairs, and insurance.
Shared Ownership Pros and Cons
Pros:
- Lower Entry Barrier: Significantly smaller deposit makes getting on the ladder easier.
- Increased Affordability: Allows access to homes or areas that might be unaffordable otherwise.
- Manageable Mortgage: Initial borrowing is lower, potentially leading to smaller mortgage payments (though offset by rent).
- Path to Full Ownership: Staircasing offers a structured way to eventually own 100%.
- Modern Properties: Often available on new-build developments with potential energy efficiencies.
Cons:
- Combined Costs: You pay both a mortgage and rent simultaneously.
- Leasehold Structure: Most Shared Ownership properties are leasehold, involving service charges and potentially ground rent (often peppercorn on new leases). Understanding the lease is crucial.
- Staircasing Expenses: Purchasing additional shares incurs valuation, legal, and potentially mortgage fees.
- Potential Restrictions: Leases may have rules regarding subletting, pets, or significant alterations.
- Selling Process: Can involve the housing association having a nomination period to find a buyer first.
Buying Outright Pros and Cons
Pros:
- Complete Ownership: You own 100% from the start, giving you full equity benefits.
- No Rent Payments: Your main housing cost is the mortgage (plus any service charges/ground rent if applicable).
- Total Freedom: Full autonomy over renovations, decorating, letting, and selling decisions.
- Unrestricted Market Choice: Access to all types of properties (new, old, freehold, leasehold) across all locations.
- Full Equity Growth: You benefit entirely from any appreciation in the property’s value over time.
Cons:
- Significant Upfront Costs: Requires a much larger deposit, plus funds for Stamp Duty Land Tax (SDLT) above the threshold.
- Higher Borrowing: A larger mortgage generally means higher monthly repayments and stricter lender affordability tests.
- Sole Responsibility: You bear the full cost and responsibility for all property maintenance and repairs.
- Full Market Exposure: You directly absorb the impact of any potential decreases in property market values.
Who is Shared Ownership Best For?
Shared Ownership is often an excellent option for:
- First-time buyers struggling to save a large deposit.
- Individuals or couples with moderate household incomes (below the scheme’s maximum threshold, which varies by region).
- People aiming to live in areas where buying outright is financially prohibitive.
- Those comfortable with partial ownership initially but aiming for full ownership later via staircasing.
- You must meet the specific eligibility criteria for the scheme.
Who is Buying Outright Best For?
Buying outright is generally more suitable for:
- Individuals or households with substantial savings for a larger deposit and associated purchasing costs (like Stamp Duty).
- Those with higher incomes who can comfortably afford larger mortgage repayments and pass stricter affordability checks.
- Buyers who prioritise having full control and ownership of their property from day one.
- People who want the widest possible choice of property types and locations.
Shared Ownership or Buying Outright?
Choosing between Shared Ownership vs Buying Outright requires careful consideration:
- Analyse Your Finances: Get a clear picture of your savings, income, outgoings, and borrowing capacity. Speak to a mortgage advisor specialising in both standard and Shared Ownership mortgages.
- Define Your Priorities: What matters most? Lower initial cost? Full ownership immediately? Location flexibility? Long-term investment potential?
- Check Eligibility: If leaning towards Shared Ownership, verify you meet the income caps and other criteria for your desired area.
- Calculate ALL Costs: Compare the total estimated monthly costs (mortgage, rent, service charges) and upfront costs (deposit, legal fees, valuation, Stamp Duty) for both scenarios.
- Research Locations & Property Types: Explore what’s available through both routes in your preferred areas. Does Shared Ownership offer viable options where outright purchase doesn’t, or vice versa?
Frequently Asked Questions (FAQ) about Shared Ownership vs Buying Outright
Is Shared Ownership cheaper overall than buying outright?
Initially, Shared Ownership has lower upfront costs (deposit). Monthly costs can sometimes be lower initially than a mortgage on 100% of the property, but this depends heavily on rent levels, mortgage rates, and service charges. Over the long term, if you don’t staircase, you continue paying rent, whereas an outright owner eventually pays off their mortgage.
Can I get a mortgage easily for Shared Ownership?
Yes, many lenders offer specific Shared Ownership mortgages. The affordability criteria are based on your share purchase plus the rent payments. It’s advisable to speak to a broker familiar with the scheme.
What happens when I want to sell a Shared Ownership property?
You sell your share. The process usually involves getting a valuation and informing the housing association, who typically has a nomination period (e.g., 4-8 weeks) to find an eligible buyer. If they can’t, you can usually sell your share on the open market.
Are there hidden costs with Shared Ownership?
Costs to be aware of include service charges (which can increase), potential ground rent (though often minimal on new leases), and the costs associated with staircasing (valuations, legal fees, mortgage fees). Always review the lease details thoroughly.
Final Thoughts
Both Shared Ownership and buying outright have clear advantages and disadvantages. Your personal circumstances will determine which is better for you. Shared Ownership offers an affordable first step onto the property ladder. Buying outright provides more freedom and control.
Consider your financial situation carefully. Think about both short-term affordability and long-term goals. Seek advice from mortgage brokers who understand both options. Talk to financial advisors about the best choice for your situation.
Remember that property ownership, in any form, is a significant commitment. Make sure you understand all costs involved before proceeding. The right choice will depend on your income, savings, and future plans.