Getting onto the property ladder for the first time can be difficult as property prices continue to be out of proportion to the average income. Saving for a deposit is now taking house hunters years longer than before. If you are unable to raise the money for the deposit on your own and cannot borrow from loved ones there may be another way to get your foot on the first rung of the property ladder: Shared Ownership. This is a government initiated scheme which was created to allow people to buy a share in a property while paying rent on the remainder. Although you will only be buying a share, you will still have sole occupancy rights.
Our solicitors have a wealth of experience in advising clients on Shared Ownership properties. We will utilise that to ensure that your transaction progresses smoothly and efficiently.
Shared Ownership properties are always leasehold (although the properties themselves can be flats or houses). They are available through housing associations. Put simply, you go into partnership with the housing association and buy a share in a property (between 25-75%) and pay rent on the rest. You will still need a deposit and a mortgage. However, depending on how big a share you purchase, the deposit and mortgage will be considerably less than if you were purchasing the property outright.
The housing association continues to own the remaining share of the property and you pay rent on that remaining share of the property. The housing association charge a fixed amount of rent based on the value of the property which will be a maximum of 3%. Therefore, Shared Ownership can be much cheaper than privately renting. You can sell your share of the property at any time.
If your household income is less than £80,000 a year (£90,000 in London) then you are eligible to apply for a Shared Ownership home. Typically first time buyers apply for Shared Ownership. You can apply if you have owned a property before but cannot afford to buy one again, however first time buyers are more likely to be accepted.
Shared Ownership is a good idea if you are eager to get onto the property ladder but you simply do not have the funds to buy a property outright. You will have security knowing that as long as you pay your rent and mortgage repayments you can continue to live in the property. It is also generally cheaper than private renting. You can sell your share in the property at any time.
However, Shared Ownership properties are limited. If you have a preferred location you should do some research online with your local Help to Buy Agent first to see if shared ownership properties are available in that area. You should also check whether local residents who already live in the area have priority for the Shared Ownership properties as can be the case in more rural locations.
It is important to have your finances in place before you go house hunting. You will still need both a deposit and a mortgage to buy into a Shared Ownership property.
As well as the usual considerations when buying a house, there are issues specific to Shared Ownership which you need to think about, such as:
At any stage during your time in the property you can buy a larger percentage to bring you a little closer to owning the property outright. This is called ‘Staircasing’. The cost will depend entirely on the value of the property at the time you decide to staircase. Not the original value when you first bought your Shared Ownership property. Staircasing is useful as it will also decrease your rent and increase your share in the house.
Generally, you will have to purchase a minimum of 10% each time you staircase, although this does vary. You will probably only be able to do it three times. Some housing associations will only let you staircase for the third time if you intend staircase to 100% ownership and buy the property outright. You may have to pay service charges, especially if the property is on a leasehold agreement, even after you have staircased to 100%. Some Shared Ownership leases will only allow you to staircase to a capped percentage (such as 80%). Although, the majority do allow you to buy the housing association out.
If you decide to staircase you will need to follow the procedure set out in your Shared Ownership lease. The process usually includes a valuation, which you will be required to pay for, which lasts for three months. You will pay the housing association the value of the share you are buying from them. There are also likely to be other costs involved (such as Stamp Duty Land Tax in some cases, notice fees and paying your rent and service charge up to date).
If you own 100% of the property you can sell it yourself. However, you should check your lease (or transfer if you now have a freehold house) to see whether there are any requirements in relation to selling within the first few years of staircasing to 100%.
If you own a share of a property the housing association has the right to purchase it first or find a buyer for your home who is eligible for Shared Ownership. This means the pool of potential buyers is much more limited. The sale price will be based on the valuation of your property at the time you sell and the percentage you own. For example, if you own 50% of your property and the market value at the time of sale is £180,000 then the sale price for your share will be £90,000. The lease continues for the other 50% still owned by the housing association. The proceeds of sale (after paying off your mortgage, legal and estate agent fees etc) will go to you as the seller.
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It is essential to have legal support when considering Shared Ownership. The intricacies of buying a property are complex enough, but with Shared Ownership, your solicitor will also advise you on whether the lease on offer is suitable. If you do decide to staircase later on, you will need our advice and support to manage that paperwork too.
For more information on how we can help support you through your shared ownership purchase, please contact one of our residential property specialists in our Newbury, Thatcham or Maidenhead offices below.