In April last year changes to home ownership schemes were introduced to make shared home ownership schemes more attractive. It’s hoped that this will encourage more first-time buyers to use the option to find their way onto the property ladder.
Under shared ownership, you buy a percentage of the property and the rest of the property is normally owned by the housing association or local authority that provides the shared ownership scheme. In most cases, people take out a mortgage for the share of the property they want to buy. They then pay rent under a leasehold agreement for the rest of the property they do not own.
It is then possible to increase the percentage of the property you own over time through a process known as ‘staircasing’.
Changes to Shared Ownership Schemes
Changes introduced in 2021 gave shared owners (new and existing) access to 990-year leases. This is a much better option than the 99 or 125-year leases that used to be the norm. The provider of the shared ownership scheme will now also be responsible for repairs for the first ten years of the agreement.
Other important changes include reducing the minimum stake in the shared ownership property from 25% to 10%. Staircasing to increase the share of ownership can now be done in 1% steps instead of the previous minimum of 10%.
Shared ownership schemes are growing in popularity. Recent research shows that in some areas there are 10 applications for every shared ownership opportunity. The number of shared ownership completions has quadrupled since 2015/16.
Shared Ownership Pros and Cons
Home ownership schemes are helpful for many people who struggle to find the deposit needed to buy 100% of the freehold of a house. But there are a few potential pitfalls to be aware of.
Selling your home can be more complicated when you don’t own all of it. Normally, the scheme provider will attempt to sell the property to a new shared owner based on a ‘fair valuation’. If no shared owner can be found it can then be sold on the open market. It’s worth remembering that the ‘fair valuation’ is essentially somebody’s opinion.
Other points to consider are that you are still a tenant. This means you may have to pay a service charge and there will be restrictions on how much you can alter the property.
While the option to staircase your share of ownership in small increments offers more flexibility, the legal and admin costs might mean it’s not worth doing.
The final point to remember is that when your share of the property exceeds 80% you will be liable for stamp duty based on the whole value of your home.
If you have any questions about shared ownership or buying a home, the property team at PowellsLaw will be happy to help. Contact us on 01934 623 501 for more information or email helpforyou@powellslaw.com.
