I have heard that buying a shared ownership property could help me get on the property ladder. What exactly does shared ownership mean?
A shared ownership property enables you to purchase a share in a property. The remaining share is owned by a Housing Association and you will pay a subsidised rent to them on the remaining share. For example, you may purchase a 40% share in a property and pay rent on the remaining 60% share which is owned by the Housing Association. You have to meet a certain criteria, determined by the Housing Association, to qualify for such a purchase - you must be at least 18 years old, have an annual household income of less than £80,000.00 (less than £90,000.00 in London), you should be a first time buyer, you should not be able to afford to buy a home suitable for your housing needs on the open market , you must show that you are not in mortgage or rent arrears, you must be able to demonstrate that you have a good credit history and can afford the regular payments and costs involved in buying a home. You will be the legal owner of the leasehold interest of the share you purchase.
What are the advantages of purchasing a shared ownership property?
It can be a good way of getting onto the property ladder. The initial deposit required will be 10% of the premium you pay for the share you are purchasing and you will only require a mortgage to cover the share you purchase. However, it is worth considering that rent will be payable on the remaining share and you will be responsible for the total cost of any repair and maintenance to the property.
Will I be able to purchase further shares in the property?
Most shared ownership leases will include provisions to allow you to purchase further shares, usually for additional 10 – 25% shares. This is called 'staircasing'. The rent will decreased in line with the additional share you own.
Can I ever own all of the property?
It would be necessary to check the terms of the Lease. Most do allow for staircasing to 100% at which time the whole of the leasehold or freehold interest in the property would be transferred to you (depending on whether the property is a flat or a house). However, not all shared ownership leases allow for this and may cap ownership to a certain percentage.
Will I be able to sell the property?
You will be able to sell the share you own in the property and the Lease will specify how this is to be dealt with. You will need to give notice of your intention to sell to the Housing Association, who will carry out a valuation to determine the value of the property at that time and the value of the share you are looking to sell. It is worth mentioning that the Housing Association will ask that you be responsible for the valuation fee. Most Shared Ownership Leases allow the Housing Association to first nominate a purchaser for the property. If they decline to do this, or do not do so within a certain period, you will be able to sell the property on the open market in line with the valuation.
Will any improvements made increase the value of the property when I come to sell it?
As mentioned above, you will be responsible for the total cost of any repair and maintenance to the property. Any improvements made to the property will not be taken into account when the value of the property is determined by the Valuer, when you come to sell the property, as most of the leases specifically state that the property is to be valued excluding any improvements made. If you are purchasing the property with the intention of carrying out lots of works to improve the value in the property it will worth bearing this in mind.
Is it possible to extend a Shared Ownership Lease?
Under the Leasehold Reform, Housing and Urban Development Act 1993 there is no statutory right to extend a Shared Ownership Lease. If you require a Lease Extension you would have to approach the Housing Association, but it is worth noting that they are under no statutory obligation to agree.
Will I have to pay Stamp Duty on the share of the property I am purchasing or the full purchase price of the property?
Generally, you will only need to pay the stamp duty on the share you are purchasing (which is usually below the Stamp Duty threshold for payment) and if you purchase additional shares in the property then stamp duty may be chargeable on this amount. However, we will be able to give you full advice on stamp duty during your transaction.
Will there be restrictions and covenants (promises) contained within the shared ownership lease?
As with all leasehold properties, the shared ownership lease will contain rights granted, rights reserved and covenants concerning the property. These are usually standard however we will report these to you and answer any enquiries you have regarding the same.
We have a team at Fosters Solicitors who specialise in Shared Ownership work and would be pleased to assist with any queries you may have.