Buying a home is a big financial decision, and understanding different ownership structures is essential. Two common terms you’ll come across are shared ownership and leasehold. Whether you're considering a shared ownership lease or just want to understand how leasehold works, this guide breaks it down for you.
What does leasehold mean?
Leasehold means you own the property for a set period but not the land it sits on - that belongs to a freeholder (landlord). Your lease agreement outlines:
How long you can stay in the property
Your responsibilities as a leaseholder
Any fees you need to pay, such as ground rent and service charges
💡 Editor's insight: Leasehold is most common for flats in the UK. Some houses are also leasehold, but new laws are reducing leasehold sales for new-build homes. The Leasehold and Freehold Reform Act 2024, expected to take effect in 2025 or 2026, aims to change the rules around leasehold houses.
👉 Want to learn more? Check out our guide on how leasehold works in the UK.
Pros and cons
Pros ✅ | Cons ❌ |
|---|---|
Leasehold properties are usually cheaper to buy compared to freehold. | Leaseholders may have to pay ground rent, service charges, and fees for extending the lease. |
Leaseholders share the costs for communal areas, making upkeep more affordable. | As the lease gets shorter, the value of the property normally decreases, making it harder to sell or remortgage. |
You may need permission from the freeholder for major changes to your property. |
What is a shared ownership lease?
Shared ownership allows buyers to buy a portion of a property (usually between 25% and 75%). You then pay rent on the remaining share owned by a housing association. It aims to make owning a property more affordable. But shared ownership properties are also leasehold. This means you’ll have a leasehold agreement over your use of the property.
Shared ownership pros and cons
Pros ✅ | Cons ❌ |
|---|---|
You only need a deposit and mortgage for the share you are buying. | You may still be responsible for service charges, ground rent, and maintenance. |
Most shared ownership schemes allow you to buy more shares over time. | Increasing your ownership share can be expensive. You need to consider legal and valuation fees too. |
If you want to sell a shared ownership property, you’ll need to gain approval from the housing association. |
Can shared ownership be leasehold?
Yes, shared ownership properties are usually leasehold. When you buy a share in a property through a shared ownership scheme, you’ll have a lease. This will define your rights and responsibilities as a leaseholder. This lease may include clauses specific to shared ownership, such as restrictions on subletting. They will also have requirements for staircasing which is buying more shares over time.
What’s the difference between shared ownership and leasehold?
The main difference is that shared ownership refers to a scheme for purchasing a part of a property while paying rent on the rest. Leasehold refers to the legal arrangement of owning the property for a set term. Shared ownership properties are always leasehold. Not all leasehold properties are part of a shared ownership scheme.
In short:
Shared ownership = A way to buy a percentage of a property.
Leasehold = A form of property ownership with a fixed term and certain fees.
Can you extend a lease on shared ownership?
Yes, you can extend a lease on a shared ownership property, but the process can be more complex than for standard leasehold homes. Whether you own part or all of the property will affect how the extension works.
If you still own a share of the property: You’ll likely need to negotiate with both the freeholder and the housing association, as they both have a stake in the property.
If you own 100% of the property: You have the same rights as other leaseholders under the
Leasehold Reform, Housing and Urban Development Act 1993. This means you can apply for a 90-year lease extension under the standard process.
💡 Tip: If your lease is getting shorter, it’s best to look into an extension early - especially before it drops below 80 years, when costs can rise due to marriage value. If you're unsure about your rights, a lease extension specialist can help guide you through the process.
Shared ownership lease extension process
Extending a lease on a shared ownership property can protect your investment and maintain its market value. The process differs depending on whether you own a share of the property or have staircased to 100% ownership. A lease extension solicitor can help you with this process - here’s how it works:
Step 1: Check the lease terms
The first step is to review your lease agreement which will outline the terms of your ownership. This document will state whether the housing association has special rules for lease extensions. It should also outline any fees involved.
Step 2: Determine how much of the property you own
Partial ownership: If you don't have full ownership and want to extend the lease, you’ll need permission from the housing association.
Full ownership: If you own 100%, you may have rights under the Leasehold Reform, Housing and Urban Development Act 1993. This will allow you to extend the lease by 90 years at a peppercorn rent (no ground rent).
Step 3: Obtain a valuation
A professional valuation determines how much the lease extension will cost. The shorter the remaining lease, the more expensive the extension, especially if it is below 80 years due to 'leasehold marriage value' costs.
Step 4: Negotiate with the freeholder
You’ll need to approach the freeholder (or the housing association if applicable) to negotiate the lease extension. By law, the freeholder will need to offer fair terms for lease extensions.
Step 5: Instruct a solicitor
Specialist legal advice is essential for navigating the lease extension process. The agreement will include calculations and legal requirements.
Step 6: Complete the lease extension
Once both parties agree on the terms, the lease extension will be completed through legal documentation. This will update your ownership term and will let you know about any related ground rent obligations.
FAQs
What happens when a shared ownership lease runs out?
When a shared ownership lease expires, your right to occupy the property ends. But, most leases are over a long period (often 99 or 125 years). If your lease is running low on time (usually below 80 years), we advise extending it as soon as possible. This will help to keep the property’s value and avoid higher extension costs.
Does buying 100% of shared ownership become freehold?
After buying 100% of the property through staircasing, the property remains leasehold unless specified otherwise. Some housing associations offer the option to buy the freehold after reaching full ownership. This depends on the terms of your agreement and whether the property is eligible.
What is the 45% rule for shared ownership?
The 45% rule refers to a limit that some lenders have in place when calculating affordability for shared ownership mortgages. It restricts your total monthly housing costs - including mortgage, rent, and service charges - to 45% of your monthly income. This rule helps make sure that borrowers don’t overstretch their finances when buying a shared ownership leasehold property.
Final thoughts
Understanding shared ownership and leasehold is key to making an informed decision when buying a property. While shared ownership can be a more affordable way to get on the property ladder, it’s important to be aware of the costs, lease terms, and potential challenges that come with it.
Before committing, consider both the benefits and risks - including how leasehold rules might affect you in the long run. Thinking about future costs, lease extensions, and resale options can help you decide if shared ownership is the right fit for your financial situation and lifestyle.
💡 Need legal advice on leasehold or shared ownership? Our expert property solicitors can help. Get in touch today for a free quote.
References
Shared ownership homes by Gov.UK
Leasehold property by Gov.UK
Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified accountant or business advisor. Bear in mind that tax rules can change and will differ based on your circumstances.
