Can You Rent Out a Shared Ownership Property? The Rules
Shared ownership homes are a way for those who can't afford to purchase a home outright to become homeowners. These homes are not designed for investment but rather to be occupied by the owner. Therefore, they are subject to strict legal and contract restrictions on renting.
Before considering subletting, it is important to understand how shared ownership works and what your lease allows.
What is a Shared-Ownership Property?
Shared ownership properties allow you to purchase a portion of the home and rent the remainder.
Key Features of Shared Ownership
- Typically, you buy 25% to 75% of a property
- Some schemes, particularly the newer ones, allow you to begin with as little as a 10% ownership stake
- The housing association, local authorities, or registered private providers own the remaining shares
- Rent is paid on the part you own, not the share owned by the landlord
Important Restriction
Renting is only permitted if the property is your main or sole residence.
What is Shared Ownership?
Initial Purchase
For a buyer to be eligible for a shared-ownership property, the criteria must be met by both the housing provider and government.
The following are the most important requirements:
- Household income of not more than £80,000 or £90,000
- Unable to afford to purchase a suitable house outright
- You are a first-time buyer or former owner who cannot afford to purchase
- Purchase an initial share between 10% and 75%
- A deposit of 5%-10% is required to buy a share
- Take out a mortgage for shared ownership with a lender that is approved
Rent Payments
Rent is charged on the part of the property that you don't own.
- For new shared ownership properties, the rent charged in the first year is capped at 3% of the value of the owner's share
- Rent is usually set at around 2.5%
- Rental reviews are usually conducted annually
- Rent increases are typically tied to inflation, such as CPI, RPI, or CPI plus 0.5%, depending on the terms of the lease
Rent is one of the most important features of shared ownership. It is strictly regulated.
Staircasing
Staircasing is a way for shared homeowners to purchase additional shares over time.
- 10% is the usual increment for additional shares
- Each new share's price is determined by the current market value, which is typically performed by an RICS-qualified surveyor
- Some schemes offer 1% per year extra for shared ownership leases that begin after April 1, 2021
- Rents decrease proportionally as your property increases
Own a Full Ownership
You will have 100% ownership once you have reached the following:
- Rent is no longer payable to housing associations
- The property is yours, but you may still be liable for any mortgage
- Renting is not always automatic for some shared ownership leases, as they still have ongoing restrictions
Even after staircasing, it is important to check the lease.
Can You Rent Out a Property That Is Part of a Shared Ownership?
Shared ownership is designed to allow people to live in their own homes and not as a rental investment.
As a Consequence:
- Subletting is prohibited in most shared ownership leases
- Your main residence must be the property
- Renting the entire property is not permitted
There are some exceptions, but they are very limited.
Renting Out the Entire Property
You cannot in most cases rent out an entire property without explicit written consent.
Exceptional Circumstances
In exceptional circumstances such as:
- You must live somewhere else for a certain period of time if you are in military service
- Short-term employment relocation
- Health or family emergencies that are serious
Even then:
- Permissions are usually limited in time
- Lease conditions must be adhered to
- You must also get written permission from your mortgage lender if you have one
Renting Is Possible If You Own the Entire Property
- Even after staircasing, some leases still have restrictions
- The consent of the mortgage lender is still required
When You Get Permission to Rent Out
You must make sure that the following is in place:
Tenant Reference
Tenant reference to confirm suitability
Comprehensive Tenancy Contract
Rent, duration, legal obligations, and responsibilities are all covered in a comprehensive tenancy contract
Landlord Insurance
Standard home insurance is not the best choice for landlord insurance
UK Rental Regulations Compliance
All UK rental regulations, including:
- Gas Safety Certificates
- Electrical Safety Reports
- Smoke and Carbon Monoxide Alarms
- Right to Rent Checks
Tax-Deductible Rental Income
How to declare it correctly - ensure you understand your tax obligations when renting out a shared ownership property.
Renting Out a Room in a Shared Ownership Property
Renting out a spare bedroom may be allowed in some circumstances.
It is more likely that:
- Continue to live on the property
- Leases allow lodgers to stay in the property
- You have notified or obtained consent from your housing association
Rent a Room Scheme
You may be able to use the Rent a Room Scheme if you are allowed to do so, but only if HMRC's rules allow it.
The Do's and Don'ts of Subletting Shared Ownership Homes
The Do's
- Always get written permission from your housing association
- Be sure to read your lease contract carefully
- Obtain mortgage lender consent before renting
- Renters must be properly referred
- Use a tenancy contract that is legally compliant
- Safety and regulatory compliance is essential
- Your insurance policy should be updated
The Don'ts
- Rent out your property only with permission
- Do not assume that staircasing removes all restrictions
- Tenant rights and landlord obligations are important
- Don't forget to declare rental income
- Breach of your lease can result in legal action or forced sale
Alternatives If You Need Financial Flexibility
Some homeowners look for alternatives, such as equity-access solutions, if renting isn't an option and selling isn't their preferred choice.
Equity Release Solutions
Pauzible, for example, offers ways to unlock your home equity without having to sell or take on conventional debt. This can give you financial breathing room during tough times while still allowing for compliance with the rules of shared ownership.
Frequently Asked Questions
No. You have to live in the house unless both your mortgage lender and the housing association give you written permission.
You can, but only under exceptional circumstances such as military service, short-term employment relocation, or serious health or family emergencies. Even then, permissions are usually limited in time and require written consent.
Staircasing is like buying more shares of your home. Some leases restrict renting even if you own your home 100%. It's important to check your lease even after achieving full ownership through staircasing.
You can if your lease permits it and you plan to continue living in the house. You may need to notify or obtain consent from your housing association, and you may be able to use the Rent a Room Scheme if HMRC's rules allow it.
You could be forced to sell your shares if you breach your lease. This can result in legal action, financial penalties, and potentially losing your shared ownership property.
Household income must be not more than £80,000 or £90,000 depending on the location and scheme. You must also be unable to afford to purchase a suitable house outright.
For new shared ownership properties, the rent charged in the first year is capped at 3% of the value of the owner's share. Rent is usually set at around 2.5% and rental reviews are usually conducted annually, with increases typically tied to inflation.
Yes, through a process called staircasing. You can usually buy additional shares in 10% increments, or 1% per year for leases beginning after April 1, 2021. Each new share's price is determined by the current market value assessed by an RICS-qualified surveyor.
Conclusion
Shared ownership was designed to make home ownership affordable and not to encourage buy-to-let. Renting out shared ownership homes is generally prohibited, strictly regulated and only permitted in rare circumstances.
Understanding your lease and seeking permission early can help you protect your home as well as your financial situation.
Need Help with Shared Ownership Property Financing?
Let Tapton Capital help you navigate the complexities of shared ownership property financing. Our specialist team can assist with understanding your lease terms, securing appropriate financing, and ensuring compliance with all legal requirements.
Get Free Consultation Call Now