Guide to Shared Ownership
It can be frustrating if you cannot afford to buy a home outright, but there is a solution. You can buy a portion of your home and get your foot on the property ladder, through the Government’s Help to Buy: Shared Ownership Scheme.
So, who can take advantage of shared ownership schemes and how do they work?
Who can apply for shared ownership?
You do not need to be a first-time buyer to be eligible for shared ownership. However, you must not still own property, meaning you would have to sell your existing home before you can apply. Also, your household must earn less than a combined £80,000 per year, or £90,000 per year in London.
What is shared ownership?
If you cannot get a mortgage for the full value/asking price of a property, then some homes are available as shared ownership. You buy part of the house, and you rent the remainder from the government. You can buy between 25% and 75%, and you will pay rent to the co-housing association for the rest,
A secondary benefit to shared ownership, which is particularly attractive to first-time buyers, is that you will only need to save a small deposit, typically around 5%.
There are advantages to buying a 40% share or more. When you do this, you have the right to staircase. Staircasing lets you buy more shares in your home at increments of 10% or buy the whole property at a later time.
Shared ownership schemes vary between England, Scotland, Wales, and Northern Ireland, so be sure to check the fine print. In England, shared ownership properties are leasehold. You only own your portion of the home for a fixed time, and you do not own the land.
Right to Shared Ownership
The government announced a new scheme in October 2019. Under this scheme, tenants of housing associations can buy 10% of the home they live in and pay a subsidised rent on the remainder. They can purchase further shares in increments of 1% or more, up to 100%.
Stamp Duty on shared ownership schemes
Stamp Duty Land Tax (SDLT) is a tax on homes costing more than £500,000. With an approved shared ownership scheme, you can pay this tax in instalments or as a one-off.
If you pay a one-off fee, this is based on a percentage of the property value at the time you buy. You will not pay more stamp duty, even if you staircase and buy all or a more significant share of the property.
If you pay in instalments, HMRC calculates your stamp duty as a premium on the amount you paid for the grant of the lease. You will spend less today, but you may have to make more payments if you staircase.
Selling a shared ownership property.
You can sell your shared ownership property at any time, although you must notify the housing association first. The housing association has a right to find a buyer before you go to the open market. Their exclusive period is for eight-weeks, and afterwards, you are free to sell your share of the property, if they have not secured a buyer.
The amount you receive is balanced on the share you own and the market value of the property.
Pros and cons to shared ownership
As with all things, there are cons to balance against the pros we have mentioned above. It would be best if you considered these before joining a shared ownership scheme.
Maintenance: In addition to paying charges for ground rent, care-taking charges may be added for the maintenance of communal areas. The housing association pays for structural maintenance, but you may have to pay a share of major repair expenses. Before you enter shared ownership, check to see if any major works are planned.
Subletting: Subletting is usually not allowed.
Mortgages: Not all mortgage lenders will provide a loan for shared ownership properties.
Availability: You will have a limited choice of properties.
It is essential to know that you may have to pay individual additional costs every time that you staircase. These can mount up, so if you are considering staircasing, you might want to consider only doing so when you can afford to purchase a significant share.
Staircasing fees might include:
- Stamp duty
- Valuation fee
- Legal expenses
- Mortgage arrangement fee
- Any arrears
If you want to get on the property ladder, you should now be better prepared to decide whether shared ownership is right for you. For more information contact the Friends Capital team.