Buying a shared ownership property
Buying a shared ownership property
Shared ownership is a perfect way to get onto the property market if you can’t raise or borrow enough money to buy a property outright. The main difference between shared ownership and normal ownership is how the property is paid for. There are several shared ownership schemes in place to help you get into the property market.
However, like all other types of conveyancing, you’ll need conveyancing solicitors (external link) to deal with the legal side of the transaction. You can even do the transaction using firms that do online conveyancing (external link), which is becoming a more popular choice.
What is shared ownership?
Shared ownership is as simple as it sounds - it’s essentially a hybrid between renting and owning a property, such as a house or a flat.
You buy a percentage of the property at market value, and pay rent on the rest of the property (which stays in ownership of the freeholder). The percentage of a property you can buy varies from area to area. In Wales you can purchase as little as 25%, or as much as 75%, of properties up to the value £300,000.
Wherever you buy the property, the rent you pay is usually subject to an annual increase of no more than the 12 month average consumer price index plus 1%.
With shared ownership you’ll usually have the right to purchase the balance of the property, so that you can eventually own the whole property. You’ll be allowed to buy the rest of the property in portions until you own 100% of the equity in the property (this is known as ‘staircasing’). In some places you can’t start the staircasing process until you’ve owned the property for a set period of time, but in Wales you can start the process as soon as you’re ready. When the staircasing process comes to an end you’ll have full ownership of the property.
Shared ownership properties are always leasehold not freehold. They’re newly built properties sold on a shared ownership basis, or properties usually granted by housing associations as part of their home ownership programmes.
Not everyone is eligible to buy through shared ownership but as a general rule, you need to be able to show that you can’t afford to buy a place without the scheme, but can afford to meet the mortgage and rent payments.
You’ll need to meet some (or all) of the following criteria to be eligible for the shared ownership scheme. You may be eligible if...
- Your household earns £60,000 or less per year (in Wales)
- You’re a first-time buyer (although in Wales you’ll also be considered if you’re a newly formed household – so if you’re looking to buy with a new partner who’s previously owned their own property you may still be eligible)
- You’re renting a council or housing association property
- You’re aged 55 or over- you could be eligible for the older people’s shared ownership scheme
- You have a long-term disability
- You can’t afford to buy a property suitable for your family size on the open market
- You’re in work, including being self-employed
- You don’t currently own another property
- The property you want to purchase/rent will be your main property
- You’re financially able to pay the market rent, or can afford the share you are purchasing
- You’re able to pass the security/affordability checks, and get a mortgage to help you buy the share in the property
- You have the right to live permanently in the UK
The financial assessment
Your landlord will need to make some final financial checks to make sure you can afford a shared ownership. They’ll need to make sure you aren’t stretching yourself financially and are able to qualify for a mortgage. You’ll be asked to provide information to prove your ability to purchase and sustain home ownership, such as details of your income and outgoings.
- You get onto the property market and own something when you might not otherwise have been able to afford to do so
For many people it can be hard to get onto the property market and shared ownership may be the only way to do it.
- You don’t need to save up as much for the deposit
House prices are constantly increasing, and this can make it difficult to save for a deposit. However, when buying a shared ownership property you aren’t required to save up a lot of money for the deposit (in Wales it can be as little as 5%).
- Smaller mortgage required
You’re not buying the full property, so you only need a smaller mortgage and your monthly repayments will cost less.
- Renting and mortgaging together can work out cheaper than outright buying
Your monthly mortgage and rent payments combined can be cheaper than buying a property outright at the initial point of purchase.
- You have your own share in the property
You’ll own part of the value of your home rather than only paying rent with no return - this makes you a part owner of your home rather than a tenant. Being a part owner also gives you all the rights and responsibilities as a full owner (subject to the terms and conditions of your shared ownership lease).
- You can increase your shares in the property or sell your share
You can buy more shares in the property i.e. ‘staircasing’ when you can afford to do so, or you can decide to sell your share and move if you choose.
- You only buy what is affordable to you
You only buy what you and your landlord feel you can afford, and eventually you might be able to own the whole property.
- There are a large number of new builds available for shared ownership
The Welsh Government is investing £70m in rent to own and shared ownership schemes, as part of their commitment to build 20,000 affordable homes by 2021.
- Conveyancing is more expensive and may take longer
Although the process is very much the same, you’ll still need to use a conveyancing solicitor (or you can go through the process by online conveyancing) as you’re only buying part of a property, so there needs to be an ongoing agreement between you and the freeholder to set out what happens to the rest of the property (e.g. by agreeing on what terms you can start the ‘staircasing’ process, and when). This adds to the cost of the process and the time it can take.
- You can’t rent the property out or sublet it
A shared ownership lease will normally contain a clause that doesn’t allow subletting of the property in any circumstances. If your shared ownership lease prevents you from subletting the property but you do have a good reason or your personal circumstances require you to move away, then you can always approach your landlord and discuss any potential subletting with them.
- Restrictions on what alterations you can make to the property
It’s likely that you’ll be required to ask permission of the freeholder before you make any structural alterations to the property, as they own a share too. A good tip is to always check the terms of your shared ownership lease for any restrictions on what you can, and you can’t do with the property.
- Extension of a shared ownership lease is subject to certain conditions
The owner of a shared ownership leasehold flat only has the right by law to extend their lease as the holder of a ‘long lease’ if they’ve ‘staircased’ up to, or acquired 100% ownership of the flat. If you’re still only a part owner at the point where you want to extend the lease, you won’t be able to do so by law.
However, your landlord may have their own policy of when to permit a lease extension where there is less than 100% ownership. We recommend that you check with your solicitor before you buy the property, to find out how long the lease is, and when you could extend the lease.
- Issues around selling your share when moving home
If you haven’t ‘staircased’ up to 100% ownership in the property, then your landlord will usually have ‘pre-emption’ rights under a shared ownership lease. This means they have the right to be offered to buy back the property first before it’s offered to somebody else, or to nominate a purchaser to buy back the property at the correct market value.
If your landlord nominates another purchaser and exercises their pre-emption right, you‘ll also be required to offer the property to that nominated purchaser if your landlord wishes, assuming you haven’t acquired 100% ownership. Your landlord will usually appoint a surveyor to determine the correct purchase price.
Your landlord will need to exercise their pre-emption rights within eight weeks from you informing them that you wish to sell the property. If your landlord doesn’t exercise their pre-emption rights within that eight week timeframe, then you can sell the property on the open market subject to some conditions.
- The landlord can still repossess the property for rent arrears
As you’re paying rent on the part of the property that isn’t owned by you, your landlord can take action to repossess the property for rent arrears, and this will involve taking you to court. If the property is then repossessed by your landlord, you won’t get any compensation for the balance between your debt and the market value of your share in the property.
- Service charge
A shared ownership lease must include a clause providing for the payment of a service charge. If you’re a shared ownership leaseholder of a flat, you’ll need to pay the full service charge and not a proportion in line with your equity share i.e. the share you’re paying rent on.
If you’re a shared ownership leaseholder of a house, you’ll be responsible for the maintenance/repair of the house and the only service charge you’ll need to pay will be the building’s insurance. However, if your house is in a development with shared maintenance areas, then you may still be required to pay a service charge (also referred to as an estate/management charge for the maintenance of the shared areas).
- Stamp Duty Land Tax (SDLT)
You may need to pay SDLT on the sale of a new shared ownership property and the sale of an existing lease of a shared ownership property.
You can be exempt from paying SDLT if you’re a first-time buyer and your shared ownership property is worth up to £500,000 as announced by the government in the 2018 budget. This change is backdated to 22 November 2017 so if you paid SDLT on an eligible shared ownership property after that date, you can apply for an SDLT refund.
If you’re eligible for a stamp duty refund, then you need to contact HMRC in writing. Make sure you do this by the deadline of October 28, 2019.
- Protection of the lender’s security
There will be a mortgage protection clause contained in the shared ownership lease which essentially protects the lender’s security. Under this clause, the lender is entitled to acquire and dispose of 100% of the equity in the property. The landlord should also notify the lender if they intend to take possession of the property or start forfeiture proceedings.
Most lenders won’t offer you a mortgage if there isn’t a mortgage protection clause in the shared ownership lease.
- No greater protection
It’s a government backed scheme, however this doesn’t provide you with any more protection than if you were buying without the scheme.
If you wish to increase the value of shares you have in the property you can start the ‘staircasing’ process. This means you can gradually buy more shares in the property, and it’s possible to ‘staircase’ up to the point of owning 100% of the shares in the property by going through this process. If you’re planning to buy more shares in the property, then you’ll need to check whether you’re allowed to in the shared ownership lease. There’s no limit on how many applications you can make to buy additional shares in the property.
To go through the staircasing process you’ll need to...
- Get an independent valuation to confirm the current market value of the property.
- Work out the percentage of the property that you can afford to buy.
- Instruct a conveyancing solicitor to act on your behalf on the purchase
- Complete the staircasing application form
- Provide the valuation to the housing association
- Finalise your funding (remortgage or savings) This completes one instance of ‘staircasing’.
- The first stage is your application, you’ll need to provide the following documents to support your application...
• Proof of your income
• Audited accounts from the past three years - if you’re self-employed
• Proof of savings, such as a photocopy of a bank statement
• A mortgage in principle certificate – most mortgage lenders will provide this free of charge
• A tenancy reference - if you’re renting your current home
• Proof of identity - driving licence or passport
• Proof of address, such as a recent utility bill
- Appointing a conveyancing solicitor
- The sales process
- Exchange of contracts
- Completion day
Buying a shared ownership property is an affordable way for you to get your foot on the housing ladder, especially if you’re a first-time buyer. However, because there are costs involved, it’s a good idea to only buy large shares of the property each time.
Disclaimer – content written by Express Conveyancing, who are a nationwide conveyancing panel firm helping with the legalities of buying and selling property. Their article is designed to give you guidance and information, although there’s no substitute for proper direct advice, particularly as everyone’s circumstances are different. You can contact them for advice that is specific to your situation, if you think any of the circumstances mentioned in this article may affect you.
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