Conveyancing: Shared Ownership Properties
Shared ownership should be distinguished from joint ownership. Joint ownership simply means that two, or more, people are buying a property together. Between them they will own the property outright. There is very little difference in the conveyancing process for joint ownership than where one person is buying the property alone. However, the process for shared ownership may be much more complicated and buyers should make sure they know exactly what they are letting themselves in for before deciding to do their own conveyancing on a shared ownership property.
Shared ownership should also be distinguished from shared equity. Shared equity is where a buyer purchases all of the property but is provided with a special loan to finance part of the purchase. This is different from the usual mortgage and should be on preferential repayment terms. The buyer may not even have to make any payments on the loan for some time. However, if they subsequently decide to sell the property the organisation which provided the loan may be entitled to take a share of the increase in the equity.
What is Shared Ownership?With shared ownership the buyer purchases a percentage of the property, often from a housing association. The initial share will usually have to be at least 25%. Ownership of the remainder of the property remains with the housing association, or other landlord, to which the buyer must pay a rent to cover the percentage of the property retained by them. The rent should be lower than the market rate for rent in the area. The buyer therefore needs a much smaller mortgage to become a property owner.
There will usually be a provision for more of the property to be purchased at a later date. However, some shared ownership properties may not allow occupants to buy 100% of the property. If the ultimate aim is to own the whole of the property it is, therefore, vital to check the details of the “staircasing” provisions in the contract. These will explain how a greater percentage of the property may be bought.
Many of the complexities of shared ownership property arise because the buyer becomes both an owner and a tenant. Shared ownership conveyancing is quite specialised and higher fees may be charged for it. Care must be taken to check the terms of the lease – rather than just focusing on the conveyance of the freehold.
The Shared Ownership ProcessBefore buying a shared ownership property the potential buyers may have to be accepted as eligible by the housing association which owns the development. Total household income, ownership of any other property and the type of work that the buyer does could all impact on their eligibility.
The housing association may expect the buyer to already have an in-principle mortgage offer – or to secure one very quickly after being accepted on the scheme. Currently most shared ownership properties are new-builds and therefore should be covered by structural defects insurance. Consequently it may only be necessary to have a standard valuation done before securing a full mortgage offer.
The Stamp Duty on Shared OwnershipSpecial rules apply to the Stamp Duty which has to be paid on a shared ownership property. Buyers may initially be able to pay Stamp Duty only on the value of the share they buy – and defer the rest of the Stamp Duty until they own 80% of the property. This may seem appealing as it will obviously save on the upfront costs involved in buying a home. However, if the value of the property has gone up by the time the time 80% is owned, Stamp Duty will be calculated on the new, higher value of the property. Therefore, deferring Stamp Duty could mean having to pay more Stamp Duty in total.
The Potential Downsides of Shared OwnershipGetting a mortgage on a shared ownership property can be more difficult than on a normal purchase. Some lenders may be reluctant to lend on a property at all if there is no prospect of the borrower being able to buy 100% of the property. In addition, shared ownership properties may be more difficult to sell in the future.
Buyers of shared ownership properties also remain tenants, which is why they have to pay rent as well as mortgage repayments. This may be more affordable than renting or buying outright a comparable property. However, if the occupier of a shared ownership property falls behind with their rent they could face landlord and tenant repossession proceedings. It is much easier for a landlord to repossess a property than it is for a mortgage lender.