Can You Make a Profit on Shared Ownership?

Shared ownership presents an alternative pathway to homeownership for individuals who might find traditional property purchases financially challenging. This arrangement involves acquiring a portion of a property and paying rent on the remaining share, allowing for a smaller initial investment. This article explores the mechanics of shared ownership and its potential for profit, examining its structure and factors influencing property value.

Shared Ownership Fundamentals

Shared ownership models allow individuals to purchase a percentage of a property, typically between 10% and 75%, while a housing association or similar entity retains ownership of the remaining share. This structure aims to make homeownership more accessible by reducing the upfront financial commitment. The initial investment, including the down payment, is based solely on the purchased share, not the full market value of the home.

Monthly financial obligations in shared ownership typically include a mortgage payment on the owned portion, a rental payment on the unowned share, and service charges. Service charges usually cover maintenance and upkeep of communal areas and the building’s insurance. Homeowners are often responsible for contents insurance separately. Some properties may also require ground rent payments.

Generating Profit

Profit in a shared ownership property primarily arises from the capital appreciation of the owned equity. As the overall value of the home rises, the value of the owner’s purchased share also appreciates. This creates potential for a financial gain upon resale, similar to traditional homeownership.

A key aspect of shared ownership is “staircasing,” which allows owners to purchase additional shares in their property over time. This process increases the owner’s equity and reduces the rent paid to the housing association, as the unowned share diminishes. Increasing ownership through staircasing can lead to a greater share of future capital appreciation, enhancing net profit upon sale.

Influences on Profit

The amount of profit realized from a shared ownership property is directly influenced by several financial factors. Property market appreciation is a primary driver; a general increase in property values within the local area directly enhances the value of the owned share. However, property values can fluctuate, and profit is not guaranteed.

Ongoing costs of ownership significantly reduce potential net profit. These expenses include monthly rent on the unowned share, which can be around 3% of the housing association’s share annually, and recurring service charges. Mortgage interest payments on the owned share, property taxes, and utility bills also contribute to the total cost of ownership.

When selling a shared ownership property, various selling costs further impact the final profit. These include valuation fees, legal fees for both the seller and the housing provider, and real estate agent commissions if the property is sold on the open market. Real estate agent commissions can range from 5% to 6% of the sales price, while title fees are between 0.5% and 1%. Some housing associations may also charge a nomination or resale fee, 1% to 1.5% of the share value, when facilitating the sale.

Reselling Your Share

The process of selling a shared ownership property involves specific steps, differing from a traditional home sale. Initially, the owner is required to offer the property back to the housing association that holds the remaining share. This is known as a right of first refusal, allowing the association a specific period, around eight to twelve weeks, to find an eligible buyer.

Before marketing, a professional valuation by a qualified surveyor is required to determine the current market value and set the sale price for the owner’s share. If the housing association cannot find a buyer within their nomination period, the owner is permitted to sell their share on the open market through an estate agent. The entire resale process for a shared ownership property can vary, but takes between one to three months to complete, potentially faster than traditional sales.