What are the different types of Shared Ownership?
If you’re struggling to save a deposit big enough to buy a home, a Shared Ownership scheme or home purchase plan could be the answer. Rather than buying a home in the traditional way (with just a deposit and mortgage), you’ll buy a portion of the property and then pay rent on the rest.
Since you’re only buying a percentage of the property, you can get away with saving a much smaller deposit and taking out a smaller mortgage, too. In some cases, you might not need a mortgage at all!
Shared ownership schemes can vary depending on which one you choose. The government started its own Shared Ownership scheme back in the 1980s but since then a number of private companies have created similar alternatives. But what are the different types of Shared Ownership and which one is right for you?
Government Shared Ownership
The government’s Shared Ownership scheme lets you purchase a share of a property using a small deposit and mortgage while paying rent to a housing association on the remaining share. Over time, you can ‘staircase’ your way to full ownership by buying more of the property, in increments of 10% or more. In the meantime, you’ll pay rent on the portion that you don’t own to a housing association.
To qualify, you must have a household income of £80,000 or less (£90,000 if you’re buying a property in London) and choose a property that qualifies for the scheme.
Private Shared Ownership
Private Shared Ownership schemes are similar to the government’s scheme, except they are run by private providers. This means while they follow a similar principle, there are differences between how they work like the minimum share you need to buy, how you buy more of the property over time and whether there’s any mortgage involved.
One of the best things about private shared ownership schemes is that some of them are Sharia-compliant. So if you’re looking for a Islamic mortgage alternative, one of the options below could be your answer.
Learn more: What is an Islamic mortgage?
If you’re struggling to get a mortgage big enough for the home you really want, Your Home can help. You won’t have to postpone homeownership until you’ve saved a massive deposit or increased your salary. Instead, Your Home lets you get your keys in the door sooner by allowing you to buy a portion of your chosen property and pay rent on the rest.
Important to know
If you are buying without a mortgage, you are likely going to have to put down a larger deposit as you’ll need to be able to buy your share outright.
One of the downsides of the government’s Shared Ownership scheme is that only certain properties are included. Your Home offers a solution here, working in partnership with estate agents across England to turn existing properties that are up for sale into part buy, part rent homes.
Here’s how it works:
- Choose a share you can afford to buy (between 25% and 75% of the property’s price)
- Pay a deposit of at least 25% of the property’s price in cash
- Pay rent on the part you don’t buy
For example: If you wanted to buy a 50% share of a £200,000 home, you’d need a minimum deposit of at least £50,000. The remaining £50,000 can then be purchased with or without a mortgage. You’d then pay £408 a month in rent on the share you haven’t bought.
Wayhome lets you buy a home worth up to 10x your income with just a 5% deposit through their gradual homeownership scheme. Unlike some shared ownership schemes, you don’t need to take out a mortgage or worry about interest. This means it’s completely Sharia-compliant.
Here’s how it works:
- You put down a minimum deposit of at least 5%
- Wayhome will buy the remaining amount of the property
- You’ll pay rent on the portion of the property purchased by Wayhome
- You’ll have the option to buy a bigger share over time, either with regular payments or the occasional lump sum
To qualify, you’ll need to have a household income of at least £24,000 and a deposit of at least £7,500. The property must also meet Wayhome’s requirements, for example you cannot use their scheme to buy new builds, homes in need of structural renovations or buy-to-let properties.
Another important thing to note is that once a year your rent will go up at the rate of inflation, which is set by the government. The good news is, your rent can also go down when you buy more of your home.
StrideUp’s home purchase plan lets you borrow up to 6.5x your income to buy a share of a home and pay rent on the rest. With most traditional lenders offering loans of just 4.5x the borrower’s income, StrideUp can be an affordable way to boost your borrowing potential.
It works by StrideUp co-purchasing the home with you and granting you a lease to live there. You’ll then pay rent on the portion of the property you don’t own at an initial rate of 7.29%. Because you’ll buy your share outright, so there’s no need for a mortgage or interest payments, making it a Sharia-compliant option, too.
To qualify, you’ll need a deposit of at least 15%. Over the term of the arrangement, you’ll gradually grow your own share to 80%, with StrideUp retaining 20% as an equity share. If you want to, you can also make overpayments to reduce their share and eventually get to 100% ownership.
You’ll also need to earn a minimum income of £30,000, or £50,000 jointly to qualify for StrideUp's scheme. Plus, if you're self-employed they'll need to see 2-years worth of accounts.
Another benefit of StrideUp is even though they buy part of the property with you initially, any profit from the house price going up belongs to you. This means that you'll never have to pay more than the initial sold price to buy the property back from them.
You might like: How to get a shared ownership mortgage
Rent to Own
If you want to buy a home but you’re struggling to save a deposit, the No deposit Rent to Own scheme may be the answer! This scheme acts as an alternative to traditional renting that lets you build up equity in a home without needing any deposit at all.
The provider will buy the home on your behalf, which you’ll then rent from them for a fixed amount over a set number of year (normally 3-7 years). Your monthly payments will be made up of rent (charged at market rates of around 6-7%) along with an additional 1.5% which will be put towards paying off the property. Plus, you can choose to buy more of the property at any time at the original property price
At the end of your lease, you can choose to buy the home off the provider or extend your lease to continue renting. The buy-back price will be based on what the provider paid for the property originally (plus any costs they incurred buying it) minus all the money you've put towards the property each month.
Which shared ownership scheme is right for you?
The quickest way to see which part buy, part rent scheme is right for you is to create a free Tembo plan. It only takes 10 minutes to complete, and at the end you’ll get a personalised recommendation of all the ways you could get on the ladder, including any shared ownership options you’re eligible for.
You can then book in a free, no-obligation call with one of our award-winning team to talk through your options and work out which part buy, part rent scheme is best for you.
Let’s make home happen
Get the ball rolling on your journey to homeownership by creating your own Tembo plan. Our smart tech will show you all the buying schemes you’re eligible for, including shared ownership options.