Shared ownership and First Homes both turn up on new developments, and they are easy to blur together because both are aimed at people who cannot quite buy on the open market. They work in opposite ways. Shared ownership means you own part of the home and pay rent on the rest. First Homes means you own the whole home, at a discount that stays with the property. The eligibility rules, the running costs and the way you sell later are different enough that they need a proper look before you reserve.
Shared ownership: what you buy
You buy a share in a home and take a mortgage, if you need one, on that share. A landlord, often a housing association, owns the rest and charges you rent on it. You can usually buy further shares later, which is called staircasing, at the market value at the time. In England you can apply if your household income is £80,000 a year or less, or £90,000 in London, and you cannot afford the deposit and mortgage on a home that meets your needs. You might be a first-time buyer, someone who used to own, or someone whose household has changed.
The minimum share depends on the home. Some start at 10%, others higher. You should expect to pay a deposit on the share you are buying, solicitors’ fees, the mortgage, the rent, and the service charge or estate charge where there is one. Buildings insurance is arranged too. Stamp duty can be due, and a first-time buyer relief may be available when the market value is within the relief limit. Your solicitor explains whether you pay on the share now or on the full market value.
Rent, service charge and staircasing
The rent is on the share you do not own. The lease sets the starting rent and how it can change, often once a year. Buying a larger share reduces the rent. It does not, on a flat, remove the service charge. Government guidance for shared owners is clear that you can be responsible for the full service charge, repairs and reserve-fund contributions even though you own only part of the home. Ask for the current estimate and what it covers before you treat the monthly mortgage as the monthly cost.
Staircasing is priced off a valuation by a surveyor registered with RICS, which you pay for. You can often buy further shares of 5% or more. On newer leases there may also be a chance to buy 1% a year. The landlord can tell you which rule this lease uses, and whether you must wait before the first extra purchase. When you reach 100% on a house you may get the freehold. On a flat you usually remain a leaseholder, still paying the service charge, and the landlord keeps the freehold.
Selling a shared-ownership home
You cannot always put the home straight on the open market. The lease usually gives the landlord a period in which to find a buyer who meets the shared-ownership rules. The price comes from a RICS valuation, not from whatever figure you hope the market will pay. If no buyer is found in that period, you may be able to sell the share more widely.
That process protects the next eligible buyer and also limits you. Improvements you have made are not always reflected pound for pound in the valuation. Get the landlord’s permission before you alter the home, and ask, at the start, how a sale would actually run and what it costs.
First Homes: a discount that stays attached
A First Home in England is sold at a discount of at least 30% to market value. A council can require 40% or 50% across its area. After the discount, the first sale cannot be more than £250,000, or £420,000 in Greater London. You must be a first-time buyer, 18 or over, with a household income of no more than £80,000, or £90,000 in London, and a mortgage for at least half of the discounted price. Every joint buyer has to be a first-time buyer.
Councils can prioritise key workers, local people or lower local income caps for the first three months a home is on sale. Members of the armed forces and some of their families are exempt from the local-connection test. The percentage discount is registered on the title and passed on at the same rate to the next buyer. You own the whole home, so there is no rent on an unsold share. You do still pay a service charge if the home is a flat or sits on a managed estate. When you sell, you sell at the same percentage discount to the value at the time, to someone who also qualifies.
What to know
- Shared ownership is a share plus rent. First Homes is the whole home at a discount that carries on to the next buyer.
- In England both use household income caps of £80,000, or £90,000 in London. Shared ownership also requires that you cannot afford a suitable open-market home.
- On shared ownership, budget for rent and the full service charge, not just the mortgage on your share.
- A First Home discount of at least 30% is passed on when you sell. The first-sale price cap is £250,000, or £420,000 in Greater London.
Questions to ask the developer
- Is this home shared ownership or a First Home, and what is the exact share or discount?
- What will I pay each month in mortgage, rent and service charge, and how can those rise?
- When can I buy more shares, and what does a sale look like if I need to move?
- Do I meet the income, first-time buyer and local-connection rules for this particular home?
Sources
General information only, not financial or legal advice. Rules and offers change, so check the sources and your own adviser before you rely on a figure.