Shared ownership can be a great way to take the first steps up onto the property ladder. Structured to help those who may be unable to afford a property outright, it offers an alternative route to homeownership with a smaller mortgage and without a large deposit.
This different pathway to owning a home means that there are, of course, some obstacles to overcome. Where a home you buy outright is yours to do what you want with, a shared ownership home is owned by you and another party. This means that certain changes, including letting it, are often forbidden.
So, in short, you can’t rent out shared ownership property, but as we’ll discover in this blog, there are occasions when it may be possible.
What is a shared ownership property?
- You own a share of the home (normally 25%, but could be 75% or more)
- A housing association owns the rest
- You pay a mortgage on the share you own
- You pay rent for the rest
- You remain liable for all maintenance and upkeep of the home
A shared ownership property is an ideal solution for those who can’t yet afford to buy a property outright. Instead, you purchase a percentage, often as little as 25%, while paying rent for the rest. This makes it easier to obtain a mortgage and requires a smaller deposit. Then, over time, if affordable and you meet the criteria, you can staircase all the way up to 100%. This is where you buy additional shares in the home, reducing your rent and increasing your ownership.
How does shared ownership work?
Shared ownership is not for everyone. Certain criteria mean that it is only open to specific households.
Shared ownership criteria
- Household income must not exceed £80,000 (£90,000 in London)
- You must not own another property in the UK or abroad
- Have a good credit history
- Have proof that the rental share and mortgage share are affordable
- Be able to afford a deposit of 5%-10% of the share you are purchasing
- You cannot afford a property outright
- Must be a first-time buyer OR, a former homeowner now unable to afford a new home, forming a new household after a relationship breakdown or other significant life event, you’re an existing shared owner and want to move, or you own a home but can’t afford a new home that meets your needs.
Shared ownership process
Working with a housing association, local council or via property builders, you’ll find a property that matches your needs. You then follow just a few simple steps:
- Apply for home ownership via the organisation selling the shared ownership properties
- Reserve the home by paying a fee (up to £500) to the landlord
- Appoint a solicitor to handle all legal aspects of the purchase
- Apply for a shared ownership mortgage for the percentage you are buying
- Exchange contracts
- Complete the sale
Can you rent out or sublet your shared ownership home?
Sometimes, even with the lower costs associated with shared ownership, things can become unaffordable. Perhaps a change in personal circumstances has reduced your earnings, or a rising cost of living has made it more difficult for your wages to cover your expenses. Some homeowners consider renting out a room or their property to help reduce the burden.
With a home you own outright, this is not normally a problem, but with shared ownership property, it is a little different.
Shared ownership homes are designed for you to live in, not rent out. So, in most circumstances, making them available for tenants is not allowed. You can, however, rent out a room as long as you remain living in the property.
This is where you take in a lodger, rather than subletting the property. A lodger will live in the home with you, while you remain the primary resident, whereas subletting involves you moving out and the whole property being occupied by tenants. Most shared ownership leases offer a degree of flexibility regarding lodgers and may be stricter on subletting, but you should always check before making a room or the property available.
When can you rent out a shared ownership property?
Certain circumstances allow you to rent out your shared ownership home, but these can vary by landlord. One housing association may grant permission where others do not. As a result, you must check with your landlord before even considering making a room or your property available to tenants.
Reasons landlords, or housing associations, often allow you to rent out a shared ownership home include:
- Military service
- Family emergencies
- Specific short-term work assignments
- Significant financial hardship
Whichever reason may apply, you will certainly need permission from your landlord and, in most cases, your mortgage lender, before being able to proceed. If they authorise the renting of your home, you’ll likely be given strict rules to follow regarding the length of time the home can be let and what tenancy is permitted.
If you have staircased to 100% ownership, the only permission you need to seek is from your mortgage lender.
Why can’t you let your shared ownership property?
As mentioned, you’ll need permission from your housing association/landlord to let your shared ownership home, and often, permission can be hard to get. Only exceptional circumstances, similar to those we listed earlier, will allow your home to be let to others. So, why do landlords often say no?
- Lease restrictions
- Mortgage conditions
- Conflict with the housing association’s interest
Leases on properties like these are designed for the home to be the primary residence, and not an investment or rental property. Because of this, there are often tight clauses within the agreements forbidding subletting.
Shared ownership mortgages also have strict conditions. They are offered on the understanding that you are living in the property and not renting it out. A breach of this could cancel your existing mortgage agreement and break the terms of your lease.
What happens if you rent out a shared ownership property without permission?
If you decide to rent out your shared ownership property without permission, there could be serious consequences. Subletting without consent is considered a severe breach of your agreement.
If the housing association establishes that you have broken the terms of the agreement, they may take legal action. This may begin initially with warnings but could escalate to the cancellation of the tenancy or the commencement of repossession proceedings.
There can also be implications for your mortgage. Letting a property without lender approval could violate your mortgage and result in legal action.
Renting out a shared ownership property checklist
If you decide to let your shared ownership home, there are several things you should and shouldn’t do. Any breach of a lease could lead to legal action and severe financial penalties, so it’s important to ensure you always remain compliant.
Do
- Ask your landlord/housing association for permission to sublet the property
- Check the lease for terms relating to subletting. Some may allow lodgers, some may not.
- Speak to your mortgage lender about your plans to rent out your home
- Ensure a legally binding written tenancy agreement is drawn up between you and the person or people renting your home. There may also be a contract between you and your landlord specific to this short-term rental agreement.
- Adapt your insurance to landlord insurance
- Learn about tenant rights and your obligations to those renting your property, such as EPC regulations
Don’t
- Don’t rent out the property without gaining consent from the landlord
- Don’t assume the rules are the same for every housing association
- Don’t forget about tax. Rental income may need to be declared
Drawing up a rental agreement for my shared ownership home
If you are granted permission to rent your shared ownership home to tenants, you’ll need to ensure you have a legally binding tenancy agreement drawn up. The same applies if you have staircased to 100% ownership and decide to allow tenants to rent your home. You should speak to your housing association/landlord to ensure you are aware of your obligations. They may even help draw up an agreement for you, as it helps to protect their investment. If not, you could create your own, then gain its approval from the landlord before submitting it to your tenants.
You should include:
- Names and addresses for you and those renting the property
- Start and end date of the tenancy
- How much rent is being paid and by what method
- What deposit has been paid, and the deposit protection scheme you are using
- An outline of responsibilities for bills, repair and general household rules
- Restrictions on use or occupancy, such as pets, smoking, building alterations, etc
At Cairds, we provide trusted landlord services in Epsom, and also assist those looking for new builds in Epsom and the surrounding areas. With a dedicated team and streamlined process, we help you find the property you desire. Contact our team today if you need help selling property in Surrey or are looking at houses for sale in Fetcham, Tadworth, Bookham and elsewhere.