There are many advantages and disadvantages to buying a shared ownership home. However, the positives outweigh the negatives by far!
Shared ownership gives buyers who are eligible for a mortgage an opportunity to get their foot on the property ladder by allowing them to buy a percentage share of the equity in a property, depending on their financial capacity, starting from a 25 % share. They would then pay rent to the landlord (which is usually a housing association) on the remaining equity.
Shared ownership schemes also give owners the opportunity to ‘staircase’. This means that the homeowner can buy a further share of the equity in the property which leads to a reduction in the rent they have to pay to the landlord. A homeowner has the opportunity to eventually own 100% of the equity in a property. Therefore, shared ownership schemes offer an alternative way to own a home. Most shared ownership properties are leasehold which means that the buyer will have to pay service charge to the landlord and also contribute to any works in the building. However, even with these expenses and mortgage instalments, owning a shared ownership property is still more affordable than buying all of the equity in a property.
It is important to be aware that there are also disadvantages involved in owing a shared ownership property, for example conditions to owing the property may be that you are not allowed to let or sublet the property or make any alternations to the structure without the landlord’s written consent. The process of ‘staircasing’ can also be costly as you would be paying for the additional shares based on the current market value (not the initial purchase price). In addition, you have to pay a surveyor to value the property and pay legal costs. You would also have to pay stamp duty on the extra share that you have purchased when the share goes over 80% and you may have to increase your mortgage or change lenders.
Here at HPW, we have acted for many shared ownership buyers and sellers and are very familiar with shared ownership transactions. If you are thinking of buying or selling a share in a shared ownership home or have any questions, please do not hesitate to contact us.