Shared Ownership – Advantages and Pitfalls and why it is important your conveyancer has experience.

Shared Ownership – Advantages and Pitfalls and why it is important your conveyancer has experience.

Leigh Wills, Senior Conveyancing Executive in our Residential Property Team takes a look at Share Ownership and common confusions with leasehold properties – if you have any questions regarding Shared Ownership, please contact Leigh on 01905 900919 or leigh@bradleyhayneslaw.co.uk

________________________

A recent Panorama documentary on Shared Ownership properties raised a few issues that I felt were a little misleading.

The issues raised predominantly related to increased service charges and lease extension costs on Shared Ownership flats. I understand and agree that service charges are getting out of control and lease extensions costs are ridiculous, but this isn’t an issue solely for Shared Ownership properties – this is an issue with leasehold properties in general. It is therefore important that you instruct a lawyer who is experienced in these areas to ensure you receive the best advice possible.

The program shed a very negative light on the Shared Ownership scheme, which can be a great help to those who are struggling to get on the property ladder.

It also seemingly blamed Housing Associations for homeowners being unaware of the potential increase in service charge and the impact of a decreasing lease term. It is the lawyers’ responsibility and duty to ensure a purchaser is made aware of the aspects of a leasehold property, usually through written reports. It is very important that a purchaser then actually reads the reports to make sure they fully understand their current and potential liabilities, especially when it comes to service charges and extending the term of the lease when it gets low.

There was a very valid point made that despite only owning a share of a flat the homeowner was expected to pay 100% of the service charge. Specific to flats, the service charge will cover the upkeep and maintenance of the building and insurance contributions, amongst other things. This kind of charge is paid by all flat owners, whether or not the property is Shared Ownership. Whilst this is a pitfall, for most people this would be offset by the benefit of homeownership.

We at Bradley Haynes encourage our clients at the outset to read the Law Society’s guidance on owning a leasehold property. We also provide a detailed report on both the terms of the lease and the management/service charge information that we receive from the landlord or Housing Association who will be managing the property. It is then the purchaser’s responsibility to read and digest the information given and ask us any questions or talk through any concerns they have. Our reports will be in simple language – no legal jargon. It is important that our clients are able to understand the process; writing reports with fancy legal terminology might make us look good, but what use is it if a client doesn’t understand?

The Government are proposing reforms to make leasehold ownership fairer for homeowners and The Law Society/Law Commission provided their recommendations to the Government for consideration, which were welcomed. This has naturally taken a backseat since the COVID-19 pandemic struck but there is hope on the horizon for a reform of leasehold ownership. https://www.lawsociety.org.uk/en/topics/property/leasehold-reform

What is Shared Ownership?

Shared ownership is where you own a set percentage of a property and rent the remainder from a Housing Association. It is also sometimes known as part buy/part rent. It allows a purchaser to become a home owner with long-term security and stability at a price that’s affordable.

How Does Shared Ownership Work?

A purchaser will have a mortgage on the share that they own and pay rent to a Housing Association on the remaining share. You can start with as little as 25% in many cases.

A purchaser has the opportunity to purchase further shares during their ownership; a process known as Staircasing. In most cases, you can staircase up to 100% when you will own the property outright. You will then no longer pay any rent, you will just pay your mortgage (along with any other financial liabilities, such as service charge and ground rent).

What Are The Advantages?

Shared Ownership is a great way for people who can’t afford to buy a property on the open market to get onto the property ladder. It was designed so that the cost of a mortgage and rent is usually lower than private renting.

The deposit paid is lower too as it is calculated at 5-10% of the share price, not the full market value.

What Are The Pitfalls?

There are strict eligibility criteria for people who can buy a shared ownership property. You should always check with the Housing Association that is selling the property as they may have their own specific points, however some of the more general ones are as follows:-

• You must be over 18 years of age
• Your annual household income must be less than £80,000 (£90,000 for London properties)
• You must not be able to afford to buy a suitable house on the open market

Why is it Important to use Experienced Advisors?

Shared ownership is a specialist area. All shared ownership properties are leasehold. You need a lawyer who is experienced not only in dealing with leasehold properties but also in the specifics of a shared ownership lease and the process of staircasing.