Shared ownership schemes are more popular than ever, because it gives a one stop opportunity for would-be buyers to get onto the property ladder, who would find it very difficult otherwise.
There are schemes not just for first time buyers, but also those who have owned property before, those over 55, and less able bodied individuals.
The properties are usually owned by Housing Associations, who generally remain as freeholders throughout.
The buyer can purchase a percentage (usually between 25% and 75%) of the property and rent the remainder from the Housing Association. The properties tend to be flats or smaller properties on leasehold.
There are strict eligibility rules; these schemes are generally aimed at first time buyers or individuals who once owned a property but cannot afford to do so now. The purchaser's household income needs to be £60,000 per annum or less.
The theory behind shared ownership relates to 'staircasing', i.e. that the buyer could increase their share of the property over the years or can sell in order to move to have a greater share of another similar property.
That is the theory; in practice things aren't quite as straightforward.
Recent research by Cambridge University highlights the difficulties that a purchaser may face.
Purchasing Your Share
The most important issue is to be aware of costs. Mortgages for shared ownership schemes can be more expensive than others, so it really pays to shop around.
If you are purchasing a share worth less than £125,000 then there will be no Stamp Duty payable. Beware, when 'staircasing', that if you are buying above that level then Stamp Duty will be payable.
There will be the usual survey fees for your bank/building society. There may also be ground rent, service charges, repairs, maintenance, rent and even a rental deposit.
Some Housing Associations expect an independent valuation survey to be commissioned and paid for by you. This would be to confirm the value of the share being purchased and is the basis upon which they will assess rent due.
It is vital that you look carefully at the lease agreement and the rental agreement, and ensure that a genuinely experienced property/conveyancing solicitor scrutinises both agreements and explains all the ramifications of both so that you fully understand what it is that you are taking on.
DO YOUR FIGURES. It is so easy to lose track of what sums are due and when.
Very recently, a woman had fallen into arrears with her rent only, the mortgage payments were kept up, but the Court of Appeal held that the freeholders/Housing Association were entitled to repossess the property including the 'purchased' share.
Selling Your Share
There are strict rules governing the sale. The Housing Association has the sole and absolute right to market the property initially, and usually for a period of up to eight weeks before the property can be released onto the open market.
Finding a buyer for the same percentage that you are selling may not be so easy and that potential purchaser also has to fulfil the same eligibility criteria. So the second hand market can be tricky, and most of the properties are sold back to the Housing Association at market levels. In fact, they have the right of first refusal which continues on for up to twenty-one years, if you have been fortunate enough to buy the property outright (less than 20% ever manage to do this). So there can be, in a rising market, capital appreciation.
Please contact our property team if you require advice and assistance on any issue raised here, either by telephoning us on 020 7387 2032 or by completing our online enquiry form here.
