Shared ownership can be a way of getting onto the housing ladder for many people. But, there are a few things you should consider first.
- What is shared ownership?
- How does shared ownership work?
- Who is eligible?
- How much can I buy?
- Will I have to pay Stamp Duty Land Tax?
- Am I a key worker?
- What is a Maintenance Charge?
- Can I let the property?
- What happens if I want to sell the property?
- What other things should I consider?
It is a way of getting onto the housing ladder for people who are not in a position to buy a property outright. The term ‘shared ownership’ encompasses schemes whereby a registered social housing provider (Housing Association) grants a lease of a percentage share of the property and, more often than not, rents the remaining percentage to the tenant.
The Housing Association will own the freehold interest in the property and will grant you a Lease. Unlike an ordinary Lease, a shared ownership Lease will specify that you own a given percentage, which will be the share you agreed to purchase. The purchase price you pay will be a percentage of the market value which corresponds with the share you will receive. For example if the market value is £150,000.00 and you agree to buy 25%, the price you pay will be £37,500.00. You will then pay rent, known as "specified rent", on the remaining 75% share.
The Lease will usually contain a provision which will allow you to buy additional shares throughout the term as and when you are able, until eventually you own 100%. This is known as "staircasing". You should note however that not all leases allow you to staircase and those that do may not allow you to staircase to the full 100%.
You are only eligible to purchase a shared ownership property if you meet certain criteria. The criteria can be different for each development but usually requires:
- that you are either an existing social housing tenant
- a key worker
- or a person who has local connections to the area in which the property is situated
- with a household income below a set threshold.
You will also be required to show that you can reasonably afford the mortgage payments along with any rent that may be due.
Initial ownership starts at 25%, 50% or 75% of the value of the property and can be purchased via a mortgage. The balancing share is then rented from the Housing Association for an affordable rent. Your monthly outgoings will therefore include a mortgage payment and rent but will be much lower than the mortgage costs if you were to buy outright. When you can afford to you may be able to increase your ownership of the property by staircasing.
Stamp Duty Land Tax is assessed on the share of the property you are purchasing. You may also opt to pay stamp duty on the full market value of the property. The provisions for stamp duty on shared ownership properties are complex and we suggest you contact us for specific advice on your particular transaction.
To find out if you qualify, contact your local HomeBuy Agent. In general a key worker is classed as someone in a job which is vital to the community but who does not earn enough to buy a home in that community. It can include Police officers, nurses, midwives, members of the armed forces and prison officers to name just a few. You can find a HomeBuy Agent through a search on the internet.
In common with the majority of leasehold properties, you will be obliged to pay a share of the landlord’s expenditure incurred in satisfying its obligations under the lease. For a flat this may include, cleaning and lighting communal areas, buildings insurance, external decoration and structural repairs all of which you will share with other leaseholders. In the case of a house (as opposed to a flat) there will usually only be the buildings insurance premium to pay.
It is not usually possible to let a shared ownership property though once you have staircased to 100% this may be an option.
If you have bought the house outright you are free to sell the property as you wish but your landlord is usually entitled to buy back the property so that it can be offered to other families who seek low cost shared ownership. They are obliged to pay you the full market price for the property. If you only own a share of the property your landlord may require that you sell that share to a household nominated by them or to the landlord themselves, again for the full market price.
Conveyancing and mortgage costs are still payable when you opt for a shared ownership purchase.
The courts consider a shared ownership Lease to be a tenancy agreement rather than a long Lease until it has been staircased to 100%. Terminating a tenancy is much simpler than forfeiting a lease since all the landlord has to do is prove that the rent is in 3 months’ arrears. It is therefore important to note that you are at serious risk if you do not keep up with your rental payments.
You may find that a shared ownership property is more difficult to sell than a ‘normal’ property as the pool of buyers is smaller because not everyone will meet the required criteria. However, many popular developments have a waiting list of potential purchasers. With shared ownership properties you cannot simply sell through an estate agent and will have to follow specific criteria set out in the Lease. These will usually require you to allow the Landlord a period of 8 weeks in which too can nominate a purchaser. If the Landlord does nominate a purchaser, they will charge a nomination fee for finding that purchaser much like an estate agent would. You can also only sell at a price which has been agreed by the Landlord's valuer although this has to be the market price.
Chat to the Author, Catherine Banks
Associate, Bishop's Stortford officeMeet Catherine