Shared Ownership Houses: A Property Investor's Guide

Shared ownership can be an accessible way for beginners to enter the world of property investment, enabling budding investors to buy a stake in a property with minimal funds. While there are many advantages to shared ownership, there are some challenges that you should carefully consider before investing in a shared ownership property. I will discuss everything you need to know about shared ownership as a property investor, mortgage considerations, pros and cons, and more.

Table of Contents

What is Shared Ownership?
What is Staircasing?
How Does Shared Ownership Work as an Investment?
Shared Ownership Mortgages
Pros and Cons of Shared Ownership for Property Investors

What is Shared Ownership?

Shared ownership allows homebuyers to buy a portion of a property, usually 25% – 75%, and rent the remaining share. This is good for first-time buyers who otherwise would find it hard to buy a home outright. For property investors, shared property ownership could be split between other investors, a mortgage provider, or an investment company that specialises in shared ownership property investment. You could also enter into a shared ownership investment with some like-minded investor friends and share the profits. Shared ownership also provides the possibility of acquiring a larger share of the property over time, which is known as staircasing.

Not all shared ownership properties can be bought by investors who plan to rent out the property – some housing associations only offer shared ownership to people who have a low household income and who are going to be living there. The shared ownership scheme was intended to provide affordable housing to locals and help first-time buyers get onto the property ladder.

What is Staircasing?

Increasing the portion of a shared property that you own is known as staircasing. For example, if you originally purchased 40% of a property, but then increased your share to 50% over time. This is favoured by property owners who live in the property and pay the rent on the share they don’t own to a housing association or bank. Often they are offered the chance to incrementally increase their share by 1% at a time after they have lived there for a predetermined period. For property investors, staircasing could mean gradually buying shares in the property from other inventors or from the company they neutered into the shared ownership with. The larger the share you have in the property, the more rent you earn from it.

How Does Shared Ownership Work as an Investment?

Rather than buying a shared ownership property to live in, property investors would buy a share in a property, rent it out to tenants, and keep a share of the profits proportional to their share. Some companies offer this as an investment option, although they do take a cut, reducing your profits. Investing in a shared property with other investors is a good way for people with limited liquid funds to start their property investment journey, and potentially offers the chance to buy and sell their property share to suit their financial situation and investment goals.

Owning a shared property with other investors will either require you to provide cash to pay for your portion of the property, or obtain a mortgage either separately or jointly.

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Shared Ownership Mortgages

Many mortgage providers offer a mortgage product for shared ownership. They often have certain criteria that the buyer must fulfil to access this type of mortgage. As with housing association requirements, these mortgages are commonly only for people with a combined household income of less than £80,000 per year (or £90,000 in London). They may also need to be a first-time buyer, forming a new household after the breakdown of a relationship, or someone who owns a home already but it doesn’t meet their needs, e.g. it’s not large enough for their family. As with most mortgages, the provider will need information about your income, savings, and credit history before offering pre-approval on a shared ownership mortgage.

Some mortgage providers are willing to offer a mortgage for property investors who want to buy a share in a house with other investors and rent out the property, but not all will offer this option. For this reason, many property investors choose to use their liquid cash to buy a portion of a shared ownership property with other investors rather than depend on a mortgage.

Pros and Cons of Shared Ownership for Property Investors

There are several advantages and disadvantages that you should know about shared ownership properties as an investor.

Pros of Shared Ownership for Property Investors

A lower initial investment is required for a shared ownership property, making property investment more accessible when compared to full ownership.

Only owning a portion of the property reduces the financial risk of investing. If property prices fall, then the loss is proportionately smaller.

Having a partial investment in a rental property provides a steady income stream, and the responsibility of being a landlord is shared between the other investors.

The property value can increase over time, providing capital growth.

It can be easier to sell a share of a property than sell the entire property, especially if tenants are in situ, offering a ready-made income stream.

Cons of Shared Ownership for Property Investors

As a partial investor, you will not have full control over the property, making it harder to manage the property or sell it.

Shared ownership of a property offers lower rental yields than full ownership of a buy-to-let property.

The capital appreciation upon selling the property will be limited to your share, so you would again have to split the profits of the sale with other investors.
The other parties may make poor decisions that will impact your profits, or even fail to make mortgage payments, putting your investment in jeopardy.

Shared ownership can be a great way for those with limited funds to access the property investment market, although would-be investors should always do extensive research and consider the above pros and cons before investing. There are other ways for people with a limited budget to start investing in property without shared ownership, such as joint venture funding, no money down investment techniques and 100% mortgages.

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