Ask The Experts - Getting on the Housing Ladder with Shared Ownership

I only have a limited deposit and my friends keep telling me to buy a shared ownership property. I am nervous as a first-time buyer and really don’t know what this means. Are you able to help?

I do sympathise with your position entirely, as these sorts of property purchases are not easy to understand and are complicated from a legal perspective. Put simply, shared ownership means that you will initially buy a share in a property (often 50%) with the right to purchase extra shares until you eventually own it entirely. The other share will belong to the shared ownership provider and you will rent this other share from them (so part rent, part buy). It can be a great way of getting on the housing ladder if your deposit is limited.

So, are there any pitfalls or extra requirements when buying a property like this?

There are a number of things to think about. Firstly, your income must be below 80k if outside London. Secondly, you cannot own another property if you want to buy a shared ownership one.

You also need to realise that you will only get a lease of the property when you move in, and that there will be a number of obligations that you will have to comply with; these will include things like restrictions and covenants (governing the use) as well as the obligation to offer the property back to the shared ownership provider (usually a housing association) when you want to sell up, so that they can offer it to someone else who might be on their waiting list.

That makes sense. Apart from the usual legal fees relating to the purchase, are there any other costs to think about?

Yes. Stamp duty will be payable in the normal way on the value of the share that you purchase, although you could elect to pay stamp duty on the full value of the property instead (but this only applies to new shared ownership property). If you then later buy extra shares in it, then you will not have to pay anything further; this is however a complicated area of law, and specialist advice must always be sought before deciding which path to take!

In addition, if the property is a flat then you will have to pay service charge. This is a payment that you will make every year to contribute towards the cost of the upkeep of the building as a whole, as well as a contribution towards the building’s insurance. In addition (and most importantly) you will have to pay the shared ownership provider rent on the share that you do not own. Whilst your lease will show how this is to be calculated, it is likely to go up every year – as well as the service charge – so you need to budget carefully for this.

If you are buying a house, then the situation is simplified as you will be responsible for the upkeep and insurance of the building and will only pay the rent mentioned above, not any additional service charge.

Lastly, one word of warning. Assuming that you are purchasing with a mortgage, then it is essential to keep up with your payments. If you are repossessed, the mortgage lender can seek considerable costs against you, including those which it might need to spend to buy extra shares in the property until it owns 100%.

Simon David is Managing Director at Thomas Legal. He was previously a partner at a large regional firm based in the South West, where he headed up a sizeable conveyancing department. Simons remit is to ensure that Thomas Legal remain the first and best choice for consumers by exploring cutting edge IT technology and ensuring we deliver the highest standards of service. He is a member of the Management Board of the Conveyancing Association.

To contact Simon, email or call 01452 657951

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