Shared ownership can be an excellent way to get your foot on the property ladder.
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The principle is that instead of having to buy a property outright you buy a share (normally between 25% and 75%) and rent the remainder at a subsidised rate from a Housing Association. As and when you can afford it, you can normally buy further shares in the property until you own 100%.
The schemes are governed by the Homes and Communities Agency and housing has to meet stringent Government guidelines meaning that shared ownership properties may be more spacious and/or have better "green" credentials.
A familiarity with the regulations and the documentation involved is essential to properly advise on shared ownership property. Here at Eric Robinson, we have staff who have extensive experience, both in acting for Housing Associations in connection with shared ownership schemes and in acting for individuals buying either a new-build or existing shared ownership property. We are also experts in buying additional shares (known as "staircasing").
Our expertise enables us to provide simple, plain English advice on shared ownership and similar schemes and to work with you to tailor your home ownership to suit your needs.
Shared ownership is a way of enabling people to get on the property ladder. But it can also be quite a complicated arrangement. Here are our top tips on making the most of your shared ownership opportunities:
TIP 1 - BE AWARE OF THE ELIGIBILTY CRITERIA
Before you can buy a shared ownership property, you will need to be approved by the Housing Association. You can buy a home through Shared Ownership if:
- your household income is below the current threshold: please check online for limits: www.gov.uk/affordable-home-ownership-schemes
- you are a first-time buyer, or were previously a homeowner but can no longer afford to buy
- you currently rent a council or Housing Association Property or are in the Military you will be given priority
If you are aged 55 or older, you may be eligible for Older People’s Shared Ownership. These leases are capped at 75% shared ownership – it means you can’t own more than 75% of the property. You could own less than that percentage, but if you choose to own 75%, you will not pay rent on the remaining 25%.
TIP 2 - KNOW WHAT YOU ARE BUYING
When you are buying a shared ownership property, you are buying a part of a house or a flat. The remaining share will be kept by the Housing Association.
You will be granted / assigned a lease of the property, and this will be subject to rent and restrictions. So, even though you own part of the property, you will only be able to use the property in certain ways, and share it with certain people.
TIP 4 - DO YOUR RESEARCH
The government offers a few different ways of making property ownership more affordable. There are equity loans, shared ownership schemes and mortgage guarantees. Look into these and make sure that you are picking the best available product to suit you.
TIP 5 - BEWARE OF STAMP DUTY
If you are buying a shared ownership property, and you are the first owner under the lease, you will need to decide how to deal with Stamp Duty. You could either pay the tax on your initial share and rent, or on the full market value of the property plus ground rent. This is a tactical decision.
If you choose to pay Stamp Duty on your initial share, you won’t need to pay Stamp Duty if the value of the share you are buying falls below the tax threshold. Rent is taken into consideration and if you were to increase your shares to 80% or more, for example, then Stamp Duty will become payable. If you elect to pay Stamp Duty on the market value of the property at the time of purchase, you will not have to pay stamp duty again, even if you increase your shareholding to 80% or more. This option is only available if you are the original leaseholder.
TIP 6 - THINK ABOUT BUYING MORE SHARES
As time goes by, you may be able to buy further shares of the property. In most cases you can buy up to a 100% share in the property – this is known as staircasing. You will need to check whether or not your lease allows this; not all leases do.
How much would the shares cost? This calculation is based on a valuation of the property and the market value of the whole of the building. If you are interested in staircasing, you should contact the Housing Association and see what opportunities exist. However, remember the point we made about Stamp Duty becoming payable in certain circumstances where more shares are bought.
TIP 7 - GET PERMISSION BEFORE MAKING IMPROVEMENTS AND REPAIRS
Until you own 100% of the property, you will not be able to make any structural or non-structural changes, or any repairs to the property without the consent of the Housing Association.
A word of caution: if you go ahead and make approved changes, you won’t be entitled to any more of a share or value than that set out in your lease. So, while you may enjoy living in an improved home, it is the Housing Association that stands to benefit financially from your efforts.
TIP 8 - BUDGET FOR ALL PAYMENTS
When you own part of a shared property and rent the other part, you are wearing two hats. On the one hand you are a home-owner, responsible for paying a mortgage. On the other, you are a tenant who must pay rent. Your lease will set out how that rent will be calculated, so make sure that you can afford to make all payments that become due, and that you set up reliable methods of paying every month.
TIP 9 - BEWARE OF HIDDEN COSTS
When you go through the process of buying or selling shared ownership, the Housing Association – as well as you - will incur some costs and expenses. These include valuation fees and legal fees, all of which will be passed onto you. You could face quite a significant bill, so get a handle on what you might have to pay, and budget for it.
TIP 10 - UNDERSTAND HOW TO SELL YOUR SHARED PROPERY
If you own a share in your property, you are not free to sell the property as you ordinarily might. The Housing Association has the right to nominate the buyer.
You should therefore always contact the Housing Association first if you are considering selling your property to ensure you follow the correct procedure.