Renting Out Shared Ownership Homes: What to Know

Shared ownership properties offer a unique route to homeownership for those who might struggle to afford an entire property outright. However, potential and current owners sometimes have questions about renting out their shared ownership properties. This article explores shared ownership, the possibilities and limitations of renting out shared ownership properties, and the do's and don'ts of subletting these homes.

What is a Shared Ownership Property?

Shared ownership enables individuals to purchase a portion of a property and pay rent on the remaining share. The landlords are usually housing associations, local councils or private developers. Shared owners can purchase additional shares in the property after purchasing the initial share, a process known as "staircasing", until they own 100% of the property.

How Does Shared Ownership Work?

1. Initial Purchase: Shared owners can usually purchase between 25% and 75% of a shared ownership home initially, although it is possible to purchase 10% in some cases. They can take out a mortgage for the purchase price with a 5%-10% deposit, subject to lender criteria. To be able to purchase a shared ownership property, their annual household income must not exceed £80,000 (or £90,000 in London); they should be unable to afford the deposit and mortgage payments for the entire home they need; and they must satisfy one of several other criteria, such as being a first-time buyer or being an ex-home owner who can no longer afford to buy a home that meets their needs.

2. Rent Payments: Rent is paid to the landlord on the portion of the property that has not yet been bought by the shared owner. Annual rent for the first year is capped at 3% of the value of the landlord’s share of the property for a new build, although it is usually around 2.75%. Depending on the terms of the lease, rent thereafter can increase annually in line with inflation plus 0.5%.  

3. Staircasing: Shared owners have the option to buy additional shares in the property, which reduces the rent proportionally. Usually, it is possible to buy a 10% or greater additional share at a time, although, depending on the terms of the agreement, it may be possible in some cases to buy a 1% additional share each year for the first 15 years if the shared ownership started on or after 1 April 2021. The cost of additional shares is typically based on the property's value at the time as determined by a surveyor.

4. Full Ownership: Eventually, owners can usually purchase the entire property, eliminating rent payments and owning 100% of the property.

Can You Rent Out a Shared Ownership Property?

The primary purpose of the shared ownership scheme is to help people buy their homes to live in, not for rental investment. Landlords typically include clauses in the lease that prevent subletting. However, in many cases, you may be allowed to rent out a room while you are still living in the property.

Renting Out the Entire Property

Renting out the entire property goes against the scheme's aim of providing affordable housing for those in need of it. You generally cannot rent out the entire property if you are a shared owner without your landlord’s express permission. They will usually only provide such permission in exceptional circumstances, such as if you are in the army and need to serve away from home for a fixed period. If you have a mortgage, you will also need to obtain your lender’s permission, which, again, may only be granted in exceptional circumstances. If you own 100% of the property, you are free to rent it out, subject to your lender’s permission if you have a mortgage.  

If you have the relevant permissions in place and intend to rent out your property, ensure that certain basics are in place:

1. Comprehensive Tenancy Agreement: Having obtained satisfactory references for the tenant, it is essential to have a comprehensive tenancy agreement executed that sets out the terms and conditions of the rental arrangement between you and the tenant. This document should cover rental duration, rent amount, maintenance responsibilities and all other pertinent details.

2. Insurance Coverage: Review and update your property insurance to encompass rental activities.

3. Regulatory Compliance: It is imperative to ensure that your property complies with all relevant regulations and standards. This includes adherence with safety regulations and tenant rights laws. By proactively addressing regulatory compliance, you mitigate potential risks and provide a safe and compliant rental environment.

The Do's and Don'ts When Subletting Shared Ownership Properties

The Do's

First and foremost, always obtain written permission from the landlord before renting out your property. It is also crucial to follow the terms of your shared ownership lease agreement. In addition, you must obtain your mortgage lender’s written permission.

Furthermore, having obtained satisfactory tenant references and entered into a comprehensive tenancy agreement, ensure that the property complies with all the applicable regulations. For example, regular maintenance and safety checks are essential.

The Don'ts

1. ‍Don't Rent Without Permission: Obtaining the necessary permissions from the landlord and mortgage lender before renting out your property is essential. Failure to do so can strain your relationships with them and potentially lead to serious legal consequences.
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2. ‍Remember the Lease: When considering renting or subletting your property, carefully review the clauses in your lease agreement. Pay close attention to any restrictions, requirements or conditions related to renting out the property to avoid violating the terms of your lease.
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3. Don't Ignore Tenant Rights: It is crucial to familiarize yourself with tenant rights and rental regulations. Understanding and complying with these can prevent potential disputes and legal complications.
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4. Remember Insurance: Ensure your insurance policy is updated to include coverage for rental activities.

Shared ownership provides a valuable route to homeownership for many individuals. While it offers numerous benefits compared to traditional renting, it also has specific restrictions, particularly regarding renting out the whole property. Generally, renting out a shared ownership property is not permitted without explicit permission from the landlord and mortgage lender. Understanding these limitations and following the proper procedures can help ensure compliance and protect your investment.

FAQs:

Q. Can I rent out my shared ownership property?

A. Shared ownership schemes are designed to help people purchase homes to live in, not for rental investment. If you need to rent out the property due to exceptional circumstances, you must seek written permission from your landlord and your mortgage lender.

Q. Are there any circumstances under which I can rent out my shared ownership property?

A. Landlords will usually only provide permission in exceptional circumstances, such as if you are in the army and need to serve away from home for a fixed period. The same is also true of mortgage lenders.

Q. What is staircasing and how does it affect my ability to rent my shared ownership property?

A. Staircasing is buying additional shares in your shared ownership property, eventually leading to full ownership. Once you have acquired 100% ownership, the restrictions on renting out the property are usually lifted, allowing you to rent it out fully. However, if you have a mortgage, you will still need your lender’s consent.

Q. What should I include in a rental agreement for a shared ownership property?

A. A rental agreement for a shared ownership property should include the terms of the lease, rent amount, payment schedule, maintenance responsibilities, duration and any specific conditions set by the shared ownership landlord. Ensure that the agreement includes clauses that protect both the landlord and tenant, and that the agreement and the tenancy comply with all relevant laws and regulations.

References

1. https://www.gov.uk/shared-ownership-scheme

2. https://www.theguardian.com

3. https://lqhomes.com

4. https://www.myclarionhousing.com

5. https://www.gov.uk/shared-ownership-scheme/renting-out-your-home-subletting