Are you thinking of buying, selling or trying to improve a Shared Ownership property? Maybe you’re unsure how this type of scheme works? We explore the pros and cons of Shared Ownership schemes, so you’re aware of the benefits and some common pitfalls.
How does a Shared Ownership scheme work?
Shared Ownership schemes are a popular way for people to get onto the property ladder. They allow buyers to purchase a share of a property, usually between 25% and 75%, and then pay rent on the remaining share. This means that buyers can own their own home without having to raise a large deposit or take out a large mortgage. Ideal for first-time buyers and people who can’t afford to buy on their own, this is a type of alternative homeownership scheme.
Shared Ownership schemes have been around for a while and offer leasehold ownership of a property. Available on both new build and resales properties, this is a long tenancy giving you the right to occupy your home. They have enabled many people to own their own home. However, like any housing scheme, there are pros and cons to Shared Ownership.
Advantages of Shared Ownership
There are several advantages of a Shared Ownership scheme:
Long-term stability for low-income earners – Shared Ownership offers a much-needed opportunity to own your own home. This can help younger, first-time buyers without adequate savings and those on low incomes, such as key workers. You would then pay a monthly rent to the housing association or company, alongside a lower mortgage (if you need one).
Affordability - Shared ownership can be a much more affordable way to get onto the property ladder than buying outright. This is because buyers only need to raise a deposit on the share they are purchasing, rather than the full value of the property. They may also need to raise a mortgage.
Lower mortgage payments – Even when combined with your monthly rent to the housing provider, due to the current interest rates, mortgage payments can still be cost-effective. Overall monthly costs are often lower than a standard rental property.
Option to buy remaining shares – Many people aim to own their home outright in the end. Known as ‘staircasing’, you can buy more shares in your property until you reach 100%. When this happens, you will no longer pay any rent to the housing association or company.
Good investment. As the buyer owns a share of the property, they can benefit from any increase in the property's value. This means that if the property increases in value, the buyer's share will also increase in value. For new homeowners, this can be a useful way to build up equity over time. The buyer can then decide whether they wish to buy the remaining shares on the home and then sell at a future date.
Disadvantages of Shared Ownership
There are a few pitfalls to watch out for when it comes to a Shared Ownership scheme:
Being able to buy the remaining shares - One of the main issues of buying on a leasehold basis is the fact that the buyer may not be able to afford to purchase the remaining share of the property. This can lead to difficulties in the future, as the buyer may find it harder to sell the property or may have to pay higher fees to do so.
Extra ground rent and maintenance charges – You might be expected to pay charges for ground rent or maintenance, which is common in Shared Ownership apartment blocks. In recent years, there have been publicised cases concerning escalating ground rent charges for leasehold properties. Ground rent is very rare in the case of Shared Ownership leases and new laws have banned it from new leases. Carefully check the lease so you are aware of any maintenance charges that might apply.
Stamp Duty – In many cases, you might not have to pay Stamp Duty. However, depending on the property’s value and your situation, you might choose to make a one-off payment based on the total market value. You can also choose to pay Stamp Duty in stages. In this instance, you will be reassessed on your potential liability to pay Stamp Duty on completion of your purchase of extra shares that takes your total owned share over 80%. Always check with an expert property solicitor.
Home improvements - Another potential issue with shared ownership is the fact that you might be restricted when it comes to making significant improvements to the property. Although internal decorating is allowed, you would need to seek the permission of the housing association or company for structural alterations. If they refuse your request, this will limit you in terms of how you can improve your home.
To conclude, there are different pros and cons to buying a Shared Ownership property, and the benefits will depend on your own situation. For many people, this type of scheme is the only way they can get onto the property ladder. We recommend that you scrutinise the terms and conditions of the particular scheme you are interested in before purchase.
Salusbury Harding & Barlow can help you navigate the complexities of buying and selling a Shared Ownership property. Our experienced property solicitors will check the lease terms to make sure you are fully clear on your rent, ground rent and any maintenance charges. We will ensure you’re aware of your responsibilities and any clauses that could affect you.
If you need advice on a shared ownership property or scheme, get in touch or email: email@example.com to arrange a face-to-face or telephone appointment.