The highs and lows of shared ownership

It is a well-known fact that housing affordability in the UK has been an issue for almost a decade. With an aspirational population, many aim to own their own home as soon as they are financially stable. Yet, with recent growth in house prices, the margin of owner occupation shows how many households are finding the transition to home ownership increasingly difficult.

Shared ownership schemes are in place to bridge the affordability gap. They offer prospective buyers a facility whereby the initial costs of home ownership are lower,
so that those who fall short of providing a full 10 per cent deposit on exchange of contracts, as well as affording
all other associated costs, can enter into a local housing association scheme to try to climb the property ladder.

Not to be confused with
shared equity, shared ownership schemes offer between a 25 per cent and a 75 per cent share
in a leasehold property, with a deposit of just 5 per cent of the share being purchased. This is considerably less than the deposit you would need to provide normally. There is then the option to increase the share in the property, or 'staircase', to achieve full ownership.

With the government trying
to streamline the process in order to support these schemes, it is important for solicitors to advise clients on both the advantages and disadvantages.

The advantages include
the scheme's accessibility for lower-income households, as it provides a platform for those who earn less than £60,000 a year (or £66,000 in London). Buyers only have to bear the cost of a mortgage on the share they are purchasing and not on the rest of the property. They can take out an affordable mortgage and gain the benefits of home ownership.

Furthermore, 100 per cent ownership can be acquired over time, and it is potentially more cost effective than renting outright. Although the schemes focus on first-time buyers, there are opportunities with the older people's shared ownership scheme if you're aged 55 or over, and for home ownership for people with long-term disabilities.

Before entering into a shared ownership scheme, buyers should be reminded of the following:

• Restrictions can be placed on shared ownership properties, which can make them more difficult to sell. Eligibility may depend on whether you work or live locally, and landlords can limit the maximum household income and the size of the property. It is very difficult to rent a property out to a tenant as the majority of leases prohibit sub-letting. Lenders expect schemes to operate on a standard lease and any variations or restrictive covenants can dissuade lenders from participating;

• Shared ownership applies only to leasehold properties and various fees are therefore incurred. Rent is payable on the share of the property not owned by the buyer; a valuation fee applies every time a new share is purchased; and other charges, including service charges and ground rent, can still be relevant even if purchasing a house; and

• A buyer can choose to pay stamp duty land tax (SDLT) up front on the full market value of the property, or pay in stages. If it is paid up front, no further SDLT will become due. The lease must be granted by
  a qualifying body and be of a dwelling giving exclusive use to the lessee. It must also be granted in consideration for rent and for a premium calculated by reference to the market value. This may be the best option if the market value of the property is below the SDLT threshold. Should SDLT be paid in stages, an amount
  is paid on the first share acquisition and then nothing
  is due until you own 80 per cent or more of the property. The amount of SDLT due is based on the total amounts paid for the property so far
  and staircasing transactions are considered as linked for
  the purposes of SDLT.

One final point to consider is selling the property. Currently, consent must be sought from the housing association to assign the lease. Written notice must be given by the owner confirming their intention to sell, whereupon the housing association has eight weeks
to find another purchaser and repurchase the property. This right remains for 21 years and applies to any subsequent owner, to ensure that shared ownership properties are retained for those who are in genuine need of housing.
This can cause issues for those who purchase but have never themselves been shared
owners. Recent proposals have suggested that the pre-emption right be removed from leases to avoid any delay in selling, but this debate is yet to be determined.

Of course, the scheme has many attractions, but it is important to note the complexities of buying
property on the above terms. SJ

Roberta Organ is a solicitor in the residential conveyancing team at Brachers

@BrachersLLP