What are Shared Ownership Properties?
Posted on 31st May 2024
Shared ownership properties offer an different type of route into homeownership, particularly for those who find the full purchase price of a home un-affordable. In a recent blog, our Conveyancing Solicitors in Preston discussed the rising cost of buying a property as first time buyer, which you can read, here. The Shared Ownership purchase scheme is especially prevalent in England and Wales, designed to help first-time buyers, or those who do not currently own a home, to get onto the property ladder. This blog post from our Conveyancing Solicitors in Preston delves into how the shared ownership scheme works, outlines the usual costs involved, and weighs the pros and cons of opting for a shared ownership property.
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How the Shared Ownership Scheme Works
Shared ownership allows you to buy a share of a home (usually between 25% and 80% of the home’s value) and pay rent on the remaining share. The scheme is part-funded by the government and is offered through housing associations, with the housing association owning and collecting rent on the share not owned by you. You have the option to increase your share during your time in the property through a process known as “staircasing,” eventually owning the property outright if you choose to and can afford to. Once you staircase to 100% ownership, you won’t need to pay rent on the property at all, simply paying nothing at all or your mortgage, depending how you purchase the property.
Costs Involved in Buying a Shared Ownership Property
Initial Purchase Costs
Deposit:
Typically lower than buying on the open market, usually 5-10% of the price of the share you’re buying. As you are buying a share of a property, rather than paying full price, you will typically be required to spend less than purchasing 100% of a property.
Mortgage Payments:
You may require a mortgage to cover the cost of the share you’re purchasing. The amount of any mortgage will depend on the share’s value and the cost of monthly repayments will depend on the terms of your mortgage.
Rent:
You’ll pay rent on the portion of the property you don’t own. This is usually set at an affordable rate, below market value, and is determined by the lease you enter into with the housing association.
Service Charges and Maintenance Fees:
These cover the cost of maintaining common areas and building repairs, commonly for common areas on the development. They can vary significantly depending on the property.
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Ongoing Costs
Increased Shares:
If you choose to buy more shares in your home, your mortgage payments may increase, but your rent payments will decrease proportionately.
Other Costs:
Similar to any homeownership, you’ll be responsible for utility bills, council tax, and any repairs within your home.
Pros of Shared Ownership
Affordability:
The lower deposit requirement and the ability to buy part of a property make it easier for many people to start owning a home and get on the property ladder.
Flexibility:
You can increase your ownership over time through staircasing, allowing you to adjust your investment according to your financial situation.
Security:
As long as mortgage and rent payments are maintained, shared owners have the same security of tenure as outright purchasers. The same obligations to your mortgage lender apply whether you are buying a full ownership or shared ownership property.
Cons of Shared Ownership
Limited Control:
Restrictions may be placed on what you can do to the property, including limitations on home improvements and subletting.
Service Charges:
You are liable for service charges and maintenance fees, which can be significant and increase over time.
Selling Can Be More Complicated:
Selling your share of the property can be more complex than selling a property owned outright, as the housing association can have the right to find a buyer before you can put it on the open market.
Shared ownership properties present a viable pathway to homeownership for those who might otherwise be priced out of the market. While the scheme offers affordability and the opportunity to increase your investment over time, potential buyers should be aware of the limitations and responsibilities that come with shared ownership. Carefully considering the costs, benefits, and restrictions will help determine whether shared ownership is the right choice for your circumstances. As with any significant financial decision, seeking advice from a financial advisor or mortgage broker is recommended to ensure that you have all the information needed to make an informed choice.
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Tagged as: Conveyancing, Solicitors in Preston
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