If you can’t afford to buy a property outright, shared ownership can be a great way to get a foot on the property ladder as it allows you to buy a share of a home. In this episode we want to give you an overview of how shared ownership works.
What’s it all about?
This is great if you’ve found the perfect home, but you can’t quite afford to take out a mortgage on the full asking price, and as you only own a percentage of the property, the deposit needed is usually only around 5% which makes it a popular scheme for first-time buyers.
When it comes to the percentage split of the property, anything in your favour above 40% is a great starting point. You then have the option to ‘staircase’ your share in your home, this is the process of buying more shares, or even buy the whole property in the future.
Shared ownership properties in England are always leasehold, which means that whilst you will own a part share of the property, this is only for a fixed term and you will not own the land on which it sits.
Are you eligible?
Shared ownership schemes are open to anyone with a total household income that does not exceed £80,000 a year outside London, and £90,000 within London. You don’t even need to be a first-time buyer to qualify, so long as do not already own a home or you will have sold your current home before you purchase.
How does Stamp Duty work on a shared ownership property?
If you choose to make an up-front payment, you will pay a percentage based on the total market value of the property at the time of purchase. Once you’ve paid this, you will not pay any more on the property sale, even if you decide to staircase your ownership later on.
If you decide to pay in stages, HMRC charge SDLT on the premium you paid for the grant of the lease. Whilst this means that you’ll pay less, to begin with, you may have to make further payments if you increase your share of the property at a later date.
What do I do when I want to sell up?
The total sum you and the housing association will receive will depend on the market value of the property at the time.
What are the downsides to shared ownership?
When it comes to shared ownership, you are restricted to specific properties and availability can often be limited in the area you’re interested in. Also, not all mortgage providers cater to shared ownership schemes, so check with your agent before committing to a sale.
Generally, even with monthly mortgage repayments and rent fees, shared ownership is a cheaper option than buying a property outright, but there are additional charges you’ll be expected to pay that could drive up the cost. As well as your monthly ground rent payments, you will also have to pay a general service charge for caretaking and maintenance of communal areas. Service charges can vary from year to year and they can go up or down, so be prepared for possible increases in the future.
Whilst the housing association will be responsible for all structural maintenance of the property, you may be asked to make a financial contribution towards major repairs, so it’s a good idea to ask for a list of any planned works beforehand.
If you’re planning on renting that second room to a friend, think again. Sub-letting is generally not allowed in shared ownership homes, and there are likely to be restrictions letting the property out as a whole.
Increasing your share can be pricey
When it comes to increasing the stake in your property – or staircasing – it’s not just the price of buying the share you need to think about. Other costs involved include:
- A valuation fee – you will need to pay for an independent survey of the property to confirm the current market value of the property.
- Legal expenses – staircasing will involve changes to your existing lease, which will require a solicitor.
- Stamp Duty – if you opted to pay your land tax in instalments initially, you may need to pay stamp duty on the additional share you’re purchasing.
- Mortgage fees – If you are applying to change lenders to buy the additional share, or to obtain a better interest rate, you will have to pay the lender’s valuation fee and you may be required to pay a mortgage arrangement fee, plus any penalty your existing lender charges for terminating your mortgage with them.
- Arrears – if you have any arrears these must be cleared before completion of the staircasing transaction.
Always check for restrictions within your lease. You are likely to have to ask permission in writing before making any improvements or structural alterations. In some cases, the lease will require you to ask permission for redecorating as well.
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