Shared ownership can be a great option for those who want to step onto the property ladder, but there are disadvantages as well as advantages. Here we discuss how shared ownership schemes work and what you need to know.
What is shared ownership?
Shared ownership is ‘part rent part buy’. You buy a portion of a property with a mortgage and pay rent on the share you do not own. A housing association or a housing developer owns the rented portion, and they are the landlord.
You buy between 10% and 75% of a property and you only pay a mortgage deposit on that share. The deposit you pay may be as little as 5%. This means that if you buy 10% of a property worth £300,000 and you need a deposit of 5%, you will only need to save £1,500. This makes it much easier to get onto the property ladder.
It is also very unlikely that you will have to pay stamp duty on a shared ownership property. However, if you are a first-time buyer, you are exempt from paying stamp duty on any type of property worth under £300,000.
Is shared ownership really affordable?
Shared ownership properties are normally leasehold. This means you pay the landlord a service charge every month to cover maintenance to communal areas and gardens.
It is very important to find out how much the monthly service charge will be as it can have a significant impact on your finances.
Previously, if you bought a shared ownership home you would also be responsible for paying towards major repairs (such as a roof replacement), but the rules changed in April 2021. Now, the landlord is responsible for these costs for the first 10 years.
To work out whether shared ownership is right for you it is advisable to calculate the total monthly cost of your mortgage repayments, rent and service charge.
Can I purchase more shares of a property?
You can buy more shares of a property when you can afford it. In most cases, you are allowed to own 100% of a property, but it is important to check the landlord’s ‘key information’ document to find out. The process of buying additional shares is called ‘staircasing’.
Since April 2021 buyers have been allowed to purchase minimum shares of 1% (compared to 5% previously). The maximum percentage you can buy at a time varies between housing associations and developers. The more of a property you own, the less rent you pay.
There may be restrictions on when you can buy further portions of a property. For example, you may only be allowed to buy additional shares once you have lived in a property for a certain length of time. Again, this varies between housing associations and developers, so it is important to check the landlord’s ‘key information’ document.
When you do buy further shares there are expenses involved such as a surveyor’s valuation fee, legal expenses, a mortgage arrangement fee and possibly stamp duty. The landlord might also charge an administration fee on top of this. These costs might affect what percentage of additional shares you decide to buy each time.
Am I eligible for shared ownership?
Most people who cannot afford to buy their own home are eligible for the government’s Shared Ownership scheme. If you have a household income of less than £80,000 (£90,000 in London) you can apply.
Those aged 55 and over may qualify for Older People’s Shared Ownership (OSP). Under this scheme, you can only own up to 75% of a property.
You could be eligible for the government’s Home Ownership for People with Long-term Disabilities (HOLD), if you have a disability.
Will I be able to get a mortgage?
Not all high street lenders offer mortgages for shared ownership properties, but there is still plenty of choice.
It is worth considering talking to an FCA registered independent financial advisor because they have access to a greater range of products and deals not available on the high street.
How much rent will I pay?
For new-build properties landlords cannot charge more than 3% of the share they own. Most landlords charge less.
So, if a landlord owns 60% of a property and their share is valued at £200,000, then the rent charged will be £6,000 per annum (assuming the rent is 3% of their share).
If you buy a shared ownership home from another tenant, you are likely to pay the same rent that they paid.
Can I rent out a room if I need extra money?
The good news is that you can probably sublet a bedroom if you live in the property yourself. However, you do need to check the landlord’s ‘key information’ document to make sure.
Are there any restrictions on shared ownership properties?
Shared ownership properties normally have the following restrictions. Some restrictions only apply when you do not own 100% of a property:
- If you want to rent out the whole property you will not be able to do so without the landlord’s permission.
- Check the lease to find out whether you are allowed to keep pets.
- Home improvements. You will need to ask the landlord’s permission before making home improvements.
- When you want to sell a shared ownership property, you must give the landlord the opportunity to buy it from you or sell it themselves before you can put it on the market. They must find a buyer within a certain time limit, however, otherwise you can go ahead and sell it yourself.
At Insight Law, our shared ownership solicitors can carefully review the lease and landlord’s ‘key information’ document for you. It is important to be aware of any restrictions, so you know exactly what you are buying before you go ahead with a purchase.
Insight Law shared ownership solicitors
Our shared ownership solicitors at Insight Law specialise in this area of conveyancing. Since these properties involve ‘part rent part buy’ and they are normally leasehold, the paperwork is more complex than with other purchases.
We will highlight any restrictions, charges and obligations that you need to be aware of, so you can make informed decisions. We always use plain English, not legal jargon, and we are happy to answer your questions.
To talk to our friendly solicitors about shared ownership conveyancing, please call 02920 093 600 today.