Our latest research has shown that 30% of people admit to not really understanding what shared ownership is, despite 20% of first-time buyers hoping to take advantage of a Shared Ownership scheme to get on the property ladder.
This article seeks to help you understand how this scheme works and any minor details that you might need to consider. Shared ownership was introduced in the early 1980’s in an effort to help people who were in need of housing but could not afford to buy a property outright. It allows you to purchase a share in the property of anything between 25% and 75% – which is usually funded with a mortgage, and the Housing Association will own the remaining share. You then pay rent on the share amount held by the Housing Association. Homes can be New Builds offered by a Housing Association and developer, or it can be an existing home that is being sold with a Shared Ownership offering. After you have bought the property with your initial share, you can buy additional shares up to 100%, at which point you would own the property outright and it is no longer a shared ownership. (This is known as staircasing ).
You can buy a home through shared ownership if:
Ultimately it will be up to the conveyancer whether they feel the criteria are met and that they can take your case on. Many lawyers will be happy to consider doing so, and if that’s the case, should discuss the criteria with you and talk you through the positives or any potential downsides.
- Your household earns £80,000 or less (£90,000 a year or less in London)
- You are a first time buyer, you used to own a home but can’t afford to buy a new one or are an existing shared owner looking to move
What amount of rent will I pay?
The rent level is set by the Housing Association, but generally the annual rent is no more than 3% of the share that you own. For example, if the property is worth £200,000 and you own / mortgage 50%, the shared owned by the Landlord is 50% so the rent will be 3% of this – so 3% of £100,000 equals £3,000 per year, so £250 per month in rent. This will be payable in addition to the mortgage on the 50% that you own. The idea of this it to make it an affordable rent, and is not what the property would rent for on the open market.
You rent could increase and your Housing Association will usually have a rent review process. (They’ll usually be able to let you know how they calculate an increase so that you may be able to budget for the future.)
The amount of rent will be reduced when you buy additional shares in the future (known as staircasing).
Who maintains the property?
If you own a share of a house, the lease will usually state that you’re responsible for all repairs/maintenance for the property both internally and externally, irrespective of the share that you own. The Housing Association will normally be responsible for arranging the buildings insurance.
If you own a share in a flat/apartment, the internal parts of the property will be your responsibility, and the external and communal areas will be looked after by the Housing Association. However, you’ll probably pay a service charge for this which is normal for this kind of property.
You usually won’t be able to sub-let the property while it’s under Shared Ownership – the scheme is designed to help you afford to buy a home rather than become a landlord yourself.
What will we do to help you?
As your purchase progresses, we’ll check that you understand exactly what shared ownership is and explain fully the share that you will own and the share that the Housing Association will own. We’ll make sure that you understand the payments that you’ll be paying – mortgage, rent, and any service charges or ground rent. We’ll also make sure that you understand any restrictions or provisions on when you can staircase (buy more of the property).
What if I want to sell my shared ownership home?
You’ll need to offer right of first refusal to the Housing Association – they will need the opportunity to buy your share back from you before you can place your home on the open market. (This doesn’t apply once you have staircased up to 100% and own all of the property yourself.)
What Stamp Duty Land Tax (SDLT) will I pay on a Shared Ownership property?
You will be liable to pay Stamp Duty (SDLT) on the full value of the property, although there are 2 options available for how you choose to pay:
- You can choose to make a one off payment based on the total market value of the property. In this case there will be no further SDLT charges at a later date.
- SDLT is paid in stages, i.e., you only pay Stamp Duty on the share that you own, making additional Stamp Duty payments each time you staircase to own more of the property.
Disclaimer: This article is for informal and general advice regarding Shared ownership.
