The benefits and disadvantages of purchasing a Shared Ownership Property
Shared Ownership can be a fantastic way to take your first step onto the property ladder if you can’t afford to buy a property outright. Our shared ownership conveyancers discuss the benefits and disadvantages of Shared Ownership Property.
What is Shared Ownership?
Shared Ownership makes it possible to buy a home that otherwise may have been out of reach. You purchase a share of the property (a minimum of 25% and maximum of 75%) and pay subsidised rent on the remaining share. When you can afford to, you can increase the amount of the property you own by “staircasing:” buying further shares until you own 100% of your home. Note that if you do purchase 100% of your home, this does not necessarily mean you will become the freeholder. If you own a Shared Ownership House, you will become a freeholder; if you own a shared ownership flat, the flat will remain leasehold and you may still need to pay ground rent if required to by your lease. For advice on Staircasing, read our blog on Shared Ownership Staircasing here.
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Who can buy a Shared Ownership Property?
At the time of writing, only homebuyers whose household income is less than £80,000 (or £90,000 if you live in London) are eligible to buy a shared ownership home. At least one of the following criteria must also apply:
- At least one homebuyer must be a first time buyer
- You own or used to own a home and want to move but can’t afford to buy a new home that fits your requirements. If you own a home, you must have accepted an offer to buy your home and must complete on the sale of your current property before your purchase of your shared ownership property has completed.
For properties in certain areas, you must also have a connection to that area in order to be eligible to buy a home there – for example, if you already live or work there.
How much rent would I pay on a Shared Ownership property?
The exact amount you will pay will depend on the terms stated in your Shared Ownership lease, but it will usually be set at around 3% of the value of the shares you do not own. Therefore, the more shares of the property you own, the less rent you will be paying.
Can I buy a Shared Ownership property with a mortgage?
Yes – many high-street lenders offer mortgages for shared ownership properties although there may be problems with shared ownership property with a short lease. It’s worth speaking to a mortgage broker to find a lender that offers shared ownership mortgages with good rates. Our partner company, Starck Uberoi Wealth, offer independent mortgage advice and can recommend you the ideal shared ownership mortgage for your needs.
Can I renovate my Shared Ownership Property?
Your lease will cover what improvements you can make to your home and when you will need to obtain the housing association’s consent first. Bear in mind how potential improvements may influence your property’s value and therefore the value of shares you have not yet purchased.
Do I need a deposit to buy a Shared Ownership property?
You will generally need a deposit to purchase a Shared Ownership home, but the deposit you pay will be far smaller than the deposit you’d pay to buy your home outright. Usually, this will be somewhere between 5% and 10% of the value of the share, not the value of the whole property. For example, if you wanted to buy a 25% share in a home worth £400,000, the share you would buy would be worth £100,000. If you were required to pay a 5% deposit, you would therefore only need to put down a £5,000 deposit.
Do I have to pay Stamp Duty Land Tax on a Shared Ownership property purchase?
Yes, but Stamp Duty Land Tax (SDLT) works a little differently for shared ownership purchases. If you are a first-time buyer, you may also be able to claim first-time buyer stamp duty relief on the share you buy. You can choose whether you would like to pay SDLT on the full market value of your home or only on the share you are purchasing. If you decide to pay SDLT on just the initial share you purchase, you won’t need to pay any more SDLT until you own 80% or more of the property. Depending on the value of your home, it may still be a more cost-effective solution to simply pay the SDLT upfront when you first purchase the property. At the time of writing, the SDLT threshold for first time buyers is £425,000 – so if your property’s full market value is less than this amount, you wouldn’t need to pay any SDLT anyway.
How do I sell my Shared Ownership home?
In order to ensure that Shared Ownership properties remain affordable, the housing association will want the property to be sold on to another Shared Ownership buyer. Generally speaking, the process will be as follows:
- You inform the Housing Association of your intention to sell the property.
- You arrange for a valuation of your home to be conducted by a licenced RICs surveyor.
- You then complete a contract of sale and return this to your Housing association. As part of this contract, you will need to have chosen a solicitor to act for you. Our solicitors are on the trusted lender panels for the majority of institutional lenders and have Law Society Accreditation under the Conveyancing Quality Scheme (CQS) – call our team on 020 8840 6640 for a quote today.
- The Housing Association will then first try to find a buyer looking to purchase through the Shared Ownership scheme, as Shared Ownership homes are often in high demand. If they do not find a buyer within the time period stated in your lease, you will then be free to advertise the property and sell it.If the Housing Association does not find a buyer for your property and you have not purchased 100% of your property, you may run into some difficulty when it comes to selling your home. While it is possible to sell your share of a property on the open market, a share of a property is not likely to be appealing to most non-shared ownership buyers. Therefore, you may need to agree to staircase to 100% ownership on the same day as your sale, which would reduce the profits you receive.
- Once a suitable buyer has been found, you can instruct a shared ownership conveyancing solicitor who will begin the legal process for you.
Who is responsible for maintenance of a Shared Ownership Property?
Your landlord will usually be responsible for the maintenance of your property’s structure and you will likely need to pay service charges for your property’s maintenance, as you would if you owned a leasehold property. These service charges will typically vary, although your lease may offer a fixed service charge. The landlord will also typically be responsible for organising and paying buildings insurance. You will be responsible for the interior maintenance of the property. If at any point you feel your service charge is unfair, our property litigation solicitors can help you make a service charge dispute against your landlord.
Is shared ownership a good idea?
There are a few advantages and disadvantages of the scheme to consider before making a decision on whether Shared Ownership is right for you. Some of the advantages are:
- Because you’re paying only a share of the full market value, your deposit will be based on that share, so you won’t need to save as much for a deposit.
- You have the potential to staircase up to 100% of your home which could make buying a home far more affordable.
- As an owner-occupier, you have much more freedom to redecorate and increase your property’s value that a renter would not have.
However, some disadvantages include:
- Shared Ownership homes are leasehold, meaning that you may need to fund a lease extension during some point of your tenancy. Read more about lease extensions
- If you’ve made improvements to your home that have raised its value, you will not receive the full benefit of these improvements when the property is sold; the Housing Association will receive some the benefit even though they did not contribute to the improvements made.
- If you want to own more than 80% of your home, you will need to pay SDLT if you chose to only pay SDLT on the share you initially purchased.
- You will need the Housing Association’s permission to make certain changes to your home.
- If you cannot find a shared ownership buyer in time and do not own 100% of your property’s equity, you will need to staircase to 100% on the same day as your sale and therefore will keep less of the sale proceeds.
- Even if you own 100% of the equity in your leasehold shared ownership property, you will not become a freeholder. You may still need to pay ground rent depending on the terms of your lease.
How Starck Uberoi Solicitors can help
Our Partner and former partner of J Scollan & Co Property Lawyers , Regina Bannigan, specialises in Shared Ownership transactions and has over 30 years’ experience in handling a wide range of conveyancing matters, including those with complicated stamp duty. She is well-renowned for providing a knowledgeable and reliable service to all of our clients regardless of the nature of their matter. To book an appointment, please call 020 8840 6640 or email solicitor@starckuberoi.co.uk. Our offices are situated in Brentford, Richmond, Ealing, London Belgravia and Canterbury, all within easy reach by public transport. Our partner, Raminder Uberoi, can also provide a Notary Public Service at any of our London offices.
Read more:
- Buying an Unmortgageable Property
- Should I buy a Shared Ownership Property with a Short Lease
- First-time Buyer Conveyancing
- Buying a leasehold flat and mortgage lender requirements
