What are the opportunities for investors in shared ownership properties now that West Brom BS is resuming remortgages?
Quick Answer
West Bromwich Building Society's return to shared ownership remortgaging (effective January 2025) might open some opportunities for investors, but shared ownership is generally not for traditional buy-to-let. Lease restrictions and mortgage conditions typically prevent investors from letting these properties.
## Opportunities for Property Investors in Shared Ownership Properties
Shared ownership, a government-backed scheme, allows individuals to purchase a share of a property (typically 25% to 75%) and pay rent on the remaining portion to a housing association. The recent announcement that West Bromwich Building Society (West Brom BS) is resuming remortgages for shared ownership properties signifies a potentially maturing market and presents several opportunities for property investors.
### Can Investors Directly Purchase Shared Ownership Properties?
Directly purchasing a shared ownership property is primarily intended for owner-occupiers who meet specific eligibility criteria, such as being first-time buyers or former homeowners who cannot afford to buy outright on the open market. The scheme is designed to address housing affordability for individuals. However, the broader trend of increased lender confidence in this sector, as evidenced by West Brom BS re-entering the remortgage market, can indirectly create opportunities. For instance, an existing shared ownership leaseholder might seek to 'staircase' (buy more shares), and greater remortgaging options could facilitate this, freeing up capital for other investments or allowing them to buy the property outright, thereby making a fully owned property available on the open market for a different investor. Investors might also look at properties that were previously shared ownership, but where the full 100% share has been acquired by the leaseholder and is now being resold on the open market without shared ownership restrictions.
### What are the Potential Advantages for Investors?
1. **Lower Entry Capital:** While direct investment into shared ownership is restricted, the overarching growth and stability of the market, bolstered by lender support, can lead to more accessible traditional investment properties. If shared ownership helps more people get onto the housing ladder, it may ease demand pressures on lower-value properties in the open market, potentially offering more competitive entry points for investors in those segments. A small investor might find a 2-bed flat previously part of a shared ownership scheme, now 100% owned and available for £200,000, where a typical BTL mortgage deposit would be 25% (£50,000).
2. **Market Maturation and Liquidity:** The willingness of lenders like West Brom BS to provide remortgages indicates increased confidence in the long-term viability and valuation stability of shared ownership properties. This growing liquidity within the secondary market for shared ownership, even if not directly accessible to buy-to-let investors, strengthens the overall housing market. A more liquid market implies more accurate valuations and potentially faster sales processes, benefiting all property owners. This can also lead to more opportunities for leaseholders to staircase to 100% ownership, thus increasing the supply of traditionally accessible investment properties in the long run.
3. **Government Backing:** Shared ownership schemes benefit from government support and regulation, which can introduce a layer of stability. This underlying stability contributes to the overall health of the property market, which is beneficial for all investors. The government's continued focus on affordable housing through schemes like shared ownership helps sustain demand in certain segments of the property market.
### What are the Associated Risks and Limitations?
1. **Strict Eligibility Criteria:** The primary limitation is that shared ownership properties are not typically available for direct buy-to-let investment due to strict eligibility rules focusing on owner-occupation. Investors cannot typically buy a shared ownership property to rent it out in the traditional sense, as these schemes are designed for specific needs-based buyers. This means an investor cannot use the standard buy-to-let mortgage routes for these properties.
2. **Resale Restrictions:** Shared ownership leases often contain specific clauses regarding resale, which can include the housing association having the right of first refusal. While this primarily impacts owner-occupiers, it can influence market dynamics and valuations for fully staircased properties if the market perceives these restrictions as potentially hindering future sales velocity or price appreciation.
3. **Complexity of Staircasing:** While remortgaging facilitates staircasing, the process of buying additional shares can be complex and incur further legal and valuation fees. For an individual, increasing their share from 50% to 75% on a £300,000 property means purchasing an additional £75,000 equity, which would require re-evaluation and potentially a new mortgage product.
### Investor Rule of Thumb
While direct investment into shared ownership is generally not permitted for buy-to-let purposes, the increased financial product availability in this segment indicates a maturing market that can indirectly create opportunities for traditional investors through enhanced liquidity and market stability.
### What This Means For You
Understanding the nuances of schemes like shared ownership, and how they impact the broader housing market, is essential for identifying indirect investment opportunities. While you won't be buying a shared ownership property directly for buy-to-let, the market trends within this segment can inform your strategy in related areas. At Property Legacy Education, we focus on identifying and capitalising on these evolving market dynamics, ensuring you make informed decisions about your portfolio's growth and resilience, even in adjacent markets.
## Property Investment Strategies in a Dynamic Market
* **Focus on Market Data:** Analyse areas with high shared ownership activity. Increased successful staircasing could indicate areas with strong underlying property value growth, which might then translate to good prospects for traditional BTL properties. Look for towns where housing associations are building more shared ownership units, as this signifies demand and potential for future 100% owned properties to come onto the market.
* **Monitor Lender Behaviour:** The decision by West Brom BS to re-enter the remortgage market for shared ownership is a positive signal. Keep an eye on other lenders' stances on shared ownership to gauge overall market confidence and identify areas of growth within the wider property finance sector. This can influence the availability and cost of capital across the board.
* **Consider Property Types:** Shared ownership properties are often new builds or part of housing association stock. If these properties become 100% owned and then available on the open market, they may represent good investment opportunities for investors seeking modern, energy-efficient properties. New-build flats, for example, often offer good rental yields and lower maintenance costs initially.
## Common Pitfalls to Avoid in Related Markets
* **Assuming Direct Investment is Possible:** Do not assume you can purchase shared ownership properties directly for buy-to-let without checking specific eligibility criteria. Attempting to circumvent these rules can lead to significant legal and financial penalties.
* **Ignoring Leasehold Complexities:** Shared ownership properties are always leasehold. If you consider purchasing a fully staircased property that originated as shared ownership, carefully review the lease terms, ground rents, and service charges, as these can impact your overall investment profitability. High service charges, for instance, could erode rental yields.
* **Overlooking Local Authority Policies:** Local council policies on affordable housing and shared ownership can vary significantly. Understand the local context before investing in any area, even if your target is traditional buy-to-let, as these policies influence market supply and demand. For example, some councils might prioritise local residents for affordable housing schemes, impacting the demographic of potential tenants if you were to buy a fully staircased property.
## Investor Rule of Thumb
Always understand the specific eligibility criteria and long-term implications of any government-backed housing scheme, even if your investment is in the broader market, as these initiatives can subtly reshape local property dynamics.
## What This Means For You
While shared ownership is designed for owner-occupiers, the increasing liquidity and lender confidence demonstrated by West Brom BS's move is a positive indicator for the wider UK property market. It reinforces that understanding the entire property landscape, including schemes not directly open to you, is important. At Property Legacy Education, we equip you with this holistic market insight, enabling you to identify where true investment potential lies, whether directly or indirectly influenced by such developments, ensuring your portfolio strategy remains robust and adaptable. Ignorance of these broader market trends can lead to missed opportunities or misjudged investments.
Steven's Take
The West Bromwich Building Society's move on shared ownership remortgages is interesting, but for investors, it's not a green light for traditional BTL. Shared ownership is for owner-occupiers. You might see more liquidity in that market, potentially more fully staircased properties coming to market that then can be acquired as standard residential properties, but the shared ownership structure itself is not an investor play. Diligence on lease clauses and the intent of the scheme is paramount to avoid problems.
What You Can Do Next
Review specific shared ownership lease agreements: Before considering any property, obtain and thoroughly read the lease agreement to understand all clauses, especially those regarding subletting and permitted use. This is crucial for investment planning.
Consult with a property solicitor: Engage a solicitor specialising in leasehold property and shared ownership to clarify any ambiguities regarding potential investment use or future sale opportunities. Search for property solicitors on The Law Society website.
Contact the housing association: Directly communicate with the housing association connected to a specific shared ownership property to understand their policies on staircasing, selling, and any specific investment restrictions they might impose. Their website or direct contact number will provide this information.
Perform a full financial analysis on fully owned properties: If considering purchasing a property that has been fully staircased from shared ownership, conduct a comprehensive BTL financial analysis, including potential rental income, mortgage rates (5.0-6.5%), service charges, and any CGT implications (£3,000 annual exempt amount) on future disposal.
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