Shared Ownership – Q & A
What is shared ownership?
With Shared Ownership properties, the purchaser will purchase a share in the property with the remainder being retained by the Housing Association but let back by way of a Shared Ownership Lease (also known as “part buy, part rent”). Shared ownership properties are always leasehold.
The scheme is generally available to anybody who cannot otherwise afford to purchase a property by any other means provided your household earns £80,000.00 a year or less. The most common purchasers are those who are coming out of a separation.
Is there any difference between a shared ownership lease and a normal residential lease?
The answer to this is “yes”.
The shared ownership lease should be based on the Homes & Communities Agency’s standard model lease. They primarily differ from normal residential leases in the following ways;
- There is an absolute prohibition on underletting or parting with possession of part of the premises;
- If and when the lease is assigned (i.e. the property is sold), the property must first be offered back to the Housing Association who are entitled to nominate a buyer, only if no nomination is made within a certain time can the property be sold on the open market.
What is staircasing?
This is the right to purchase additional shares in the property. Generally, the lease will provide that a leaseholder can staircase to 100% of the equity. However, some contain restrictions limiting the percentage that an owner can purchase, meaning that they can never own the property “outright”.
Purchases of further shares can only be undertaken in up to three further stages after purchase of the initial share and the cost of the new share will depend on how much your home is worth when you want to buy the share.
Historically shared ownership leases contained a right of pre-emption (or right of first refusal) which meant that once completion of staircasing had taken place, the property had to first be offered back to the Housing Association on any disposition of the property for a period of 21 years after completion of the staircasing. Recent amendments to the capital funding requirements have meant that this right of pre-emption is now to be removed for all new and existing leases.
What kind of property can I buy?
This will vary according to the specific Housing Association. But generally, Shared Ownership schemes can be applied to new-build and existing properties.
Stamp duty – how is this dealt with in shared ownership transactions?
When purchasing an existing shared ownership property, the stamp duty will be payable on the price being paid i.e. if you were paying £60,000.00 for a 50% share in a property, then stamp duty would only be payable on the consideration of £60,000.00 i.e. nil.
When purchasing a new-build shared ownership property, there are two options as to how to deal with stamp duty;
- To deal with payment of stamp duty on the share being purchased (as above);
- To make a “market value election” i.e. to elect to pay stamp duty on the gross market value of the property (100%). This could be advantageous if a purchaser was certain that they wished to purchase further shares in the property in the future, as this would mean that there would be no further stamp duty to pay upon purchase of the shares (this assumes that there is an increase in the market value of the property and not a decrease!).
What are the advantages of purchasing a Shared Ownership property?
If you are eligible to purchase a shared ownership property, this would be a very good way of getting onto the property ladder. It may also be possible to purchase a bigger house than you might be able to purchase if you were purchasing a property outright.
Because you are only purchasing a share of the property, this will significantly reduce the amount that you need to borrow by way of mortgage.
This article was produced on the 8th July 2016 by our Property team for information purposes only and should not be construed or relied upon as specific legal advice.