A Guide to Shared Ownership

Mon 16 Sep 2019

What is Shared Ownership?

Shared Ownership is a part-buy, part-rent government-backed scheme which allows buyers to purchase a share of a new home (usually between 25% and 75%) and pay rent on the remainder to the co-owning housing association.

This is great if you’ve found the perfect home, but you can’t quite afford to take out a mortgage on the full asking price, and as you only own a percentage of the property, the deposit needed is usually only around 5% which makes it a popular scheme for first-time buyers.

When it comes to the percentage split of the property, anything in your favour above 40% is a great starting point. You then have the option to ‘staircase’ your share in your home, this is the process of buying more shares, or even buy the whole property in the future.

Whilst the principle is similar across the UK, the rules can vary between Northern Ireland, Scotland and Wales so make sure to double check this before signing on the dotted line.

Shared ownership properties in England are always leasehold, which means that whilst you will own a part share of the property, this is only for a fixed term and you will not own the land on which it sits. Take a look at our helpful guide for more information about leasehold properties.

Who is eligible for Shared Ownership?

Shared ownership schemes are open to anyone with a total household income that does not exceed £80,000 a year outside London, and £90,000 within London. You don’t even need to be a first-time buyer to qualify, so long as do not already own a home or you will have sold your current home before you purchase.

How does Stamp Duty work on a shared ownership property?

There are two ways you can pay Stamp Duty Land Tax (SDLT) when buying a share in a property through an approved Shared Ownership Scheme; you can choose to make a one-off payment or pay it in stages.

If you choose to make an up-front payment, you will pay a percentage based on the total market value of the property at the time of purchase. Once you’ve paid this, you will not pay any more on the property sale, even if you decide to staircase your ownership later on.

If you decide to pay in stages, HMRC charge SDLT on the premium you paid for the grant of the lease. Whilst this means that you’ll pay less, to begin with, you may have to make further payments if you increase your share of the property at a later date.

It's important to note that if you are a first-time buyer, stamp duty is only payable on shared ownership properties costing more than £500,000. 

What do I do when I want to sell up?

You can sell your shared ownership property at any time, but you must first notify your housing association, who then has the right to try to find a buyer before you put it on the open market. They have an eight-week period in which to find a purchaser for your home, after which, you are free to market your share of the property.

The total sum you and the housing association will receive will depend on the market value of the property at the time. 

What are the downsides to shared ownership?

Availability

When it comes to shared ownership, you are restricted to specific properties and availability can often be limited in the area you’re interested in. Also, not all mortgage providers cater to shared ownership schemes, so check with your agent before committing to a sale.

Maintenance charges

Generally, even with monthly mortgage repayments and rent fees, shared ownership is a cheaper option than buying a property outright, but there are additional charges you’ll be expected to pay that could drive up the cost. As well as your monthly ground rent payments, you will also have to pay a general service charge for caretaking and maintenance of communal areas. Service charges can vary from year to year and they can go up or down, so be prepared for possible increases in the future.

Whilst the housing association will be responsible for all structural maintenance of the property, you may be asked to make a financial contribution towards major repairs, so it’s a good idea to ask for a list of any planned works beforehand.

Rental restrictions

If you’re planning on renting that second room to a friend, think again. Sub-letting is generally not allowed in shared ownership homes, and there are likely to be restrictions letting the property out as a whole.

Increasing your share can be pricey

When it comes to increasing the stake in your property – or staircasing – it’s not just the price of buying the share you need to think about. Other costs involved include:

• A valuation fee –  you will need to pay for an independent survey of the property to confirm the current market value of the property.
• Legal expenses – staircasing will involve changes to your existing lease, which will require a solicitor.
• Stamp Duty – if you opted to pay your land tax in instalments initially, you may need to pay stamp duty on the additional share you’re purchasing.
• Mortgage fees – If you are applying to change lenders to buy the additional share, or to obtain a better interest rate, you will have to pay the lender’s valuation fee and you may be required to pay a mortgage arrangement fee, plus any penalty your existing lender charges for terminating your mortgage with them.
• Arrears – if you have any arrears these must be cleared before completion of the staircasing transaction.

Lease limitations

Always check for restrictions within your lease. You are likely to have to ask permission in writing before making any improvements or structural alterations. In some cases, the lease will require you to ask permission for redecorating as well.

 To see the full article https://www.propertymark.co.uk/advice-and-guides/buying-a-home/shared-ownership/