What Is Shared Ownership Property? | Residential Conveyancing
In this week’s offering we take a look at shared ownership as an affordable way of getting a foothold on the property ladder.
Buying your first home can be a mere pipe dream for people on a low or even mid-range income. At Saracens, some of our younger clients often express their frustration at not being able to buy their own property outright. Many do not have enough funds to put down a deposit, or don’t earn enough to maintain large monthly mortgage repayments.
Renting is one option but most people hold dearly to the dream of owning their own home at some point in their lives – and for them that is an itch which absolutely must be scratched!
However, with rents sky-rocketing at the moment, especially in London and the South East of England, landlords are rubbing their hands together with glee. Meanwhile tenants are clocking on that mortgage lending is becoming more available again, and that money spent on rent can instead help them take that all important first step onto the property ladder.
Although outright ownership may still be a dream an affordable solution that can get you there is shared ownership.
Supported by the UK government, shared ownership is a scheme that has been set up for people who are unable to pay the full cost of buying a property outright.
The way shared ownership works is quite straight forward – you buy as much of a property as you can afford e.g. 30% and then pay rent on the remaining percentage you don’t own. As time goes by, you can increase your share by purchasing more of the property.
Eventually, you will be able to claim full ownership of the property in question. This process is commonly referred to as ‘staircasing’.
Shared ownership has proven to be extremely popular, particularly in London where property prices are said to be higher now than they were prior to the on-set of the recession. Through shared ownership young people and first time buyers can leave their family home or rental accommodation sooner, as a smaller deposit is required.
First time buyers are essential to the property market. If they can’t afford to buy then the market slows down, fewer homes are sold on the open market and ultimately as recent years have shown it aggravates the already huge housing crisis in the UK. Simply put, we need more houses as there aren’t enough; the ones already available are generally too expensive. For first time buyers and others looking for financially viable alternatives, shared ownership offers a good solution. It is worth noting that first time buyers can often save around a quarter of their usual housing costs through buying shared ownership property.
There are approximately 170,000 people currently in the process of applying to enter into the shared ownership scheme, many of whom are first time buyers. Since 2001, in the region of 150,000 shared ownership properties have been sold to individuals and families alike. Shared ownership is a relatively new concept. As a result many are new build properties or only a few years old, and benefit from contemporary design and lay-out.
Can I buy a shared ownership property?
Shared ownership is generally available to first time buyers and individuals renting from a housing association. This scheme is only accessible to households that collectively earn less than £60,000.00 a year and applies to leasehold properties only.
A mortgage is still often required to purchase a share but the amount borrowed will be much smaller and therefore more manageable.
When buying a shared ownership property, you will enter into a long lease granted by the housing association. Rent is payable to them for use of the percentage that you don’t own. In effect, this means you both own and rent a property at the same time until or unless you buy it outright. Avoiding payment of stamp duty land tax (SDLT) is also a major incentive. You don’t have to pay SDLT if the share you are purchasing falls below the minimum threshold which currently stands at £125,000.00. Where SDLT is payable, there are two ways to pay:
(1) making a one-off payment based on the total market value of the property
(2) paying any SDLT due in stages
If you decide to make a one-off payment up front this is known as making a ‘market value election’ for SDLT.
If you choose to pay SDLT in stages then you pay anything that’s due on the initial purchase amount. But then you don’t have to make any further payments until you own more than an 80 per cent share of the property.
In essence, shared ownership presents property buyers with an opportunity to purchase a home that they could not otherwise afford.
There is a related scheme that has been designed to assist the elderly called ‘Older People’s Shared Ownership’. This is very similar to shared ownership, the main difference being that a home owner over the age of 55 will only be allowed to purchase up to 75% of the property.
Once this threshold has been reached, although the property will be owned outright, the shared owner will not have to pay rent on the remaining percentage.
What’s the catch?
As is the case with most things, shared ownership is not without its flaws. Rent and other expenses such as service charges are still payable to the housing association. These charges can increase from time to time which drives up the amount needed to maintain living standards.
Shared ownership mortgages are often high interest and you may need a further advance to staircase, in which case your lender must be notified, but in the long run you could find yourself saving money as the amount you borrow is less than what you would need to purchase a property outright.
Shared ownership properties cannot be let unless permission is first obtained from the housing association however consent will often only be refused with good reason. Selling your share in the property requires you to follow a set procedure and the incoming purchaser must satisfy the shared ownership criteria mentioned earlier.
Lastly, if you wish to sell a shared ownership property that you own outright, some housing associations will reserve a right of first refusal for the first 21 years of your outright ownership; meaning you will have to offer them the right to buy the property back off you first before you are able to offer it for sale to anyone else for the first 21 years of your outright ownership.
Is shared ownership for me?
Shared ownership is designed as an alternative option for people who want to climb onto the housing ladder. Consider these key points:
- Do you satisfy specific criteria to buy a shared ownership property?
- Are you already letting a property or a first time buyer?
- Do your finances stack up and can you obtain a mortgage?
Once a stake in the property has been purchased, you may want to increase your share by stair-casing up towards 100% as quickly as you can. It’s not all plain sailing as particular rules and regulations imposed by individual shared ownership schemes can sometimes throw up obstacles when a shared owner attempts to increase their stake. But with careful planning and taking professional legal advice these hurdles can be easily overcome.
For further information on shared ownership and all other residential property related matters, please feel free to contact us.