Are you dreaming of owning your own home but struggling to get on the property ladder? Shared ownership might be the solution you've been looking for but, do you know how does shared ownership work? This innovative scheme has helped thousands of people in the UK achieve their homeownership dreams. In this comprehensive guide, we'll explore how shared ownership works from a conveyancing perspective, providing you with top tips to navigate this unique path to property ownership.
What Is Shared Ownership?
Before diving into the details, let's start with the basics. Shared ownership is a government-backed scheme designed to help first-time buyers and those who can't afford to purchase a property outright. Under this arrangement, you buy a share of a property (usually between 25% and 75%) and pay rent on the remaining share, which is typically owned by a housing association.
Key Features of Shared Ownership
- Part-buy, part-rent arrangement
- Available for new-build homes and some existing properties
- Eligibility criteria apply
- Opportunity to increase your share over time (known as staircasing)
Now that we've covered the basics, let's explore how shared ownership works in more detail.
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How Does Shared Ownership Work? The Conveyancing Process
1. Eligibility and Application
To begin your shared ownership journey, you'll need to:
- Check your eligibility (typically first-time buyers or those with a household income under £80,000 outside London or £90,000 in London)
- Register with your local Help to Buy agent
- Get a financial assessment to determine the share you can afford
Tip: Consult with a mortgage advisor specialising in shared ownership to understand your borrowing capacity and options.
2. Property Selection
Once approved, you can start looking for shared ownership properties. These are usually:
- New-build homes
- Resale properties (previously owned through shared ownership)
Tip: Research the area thoroughly and consider future resale potential, as shared ownership properties can sometimes be harder to sell.
3. Reservation and Mortgage Application
After finding your ideal property:
- Reserve the property with the housing association
- Apply for a mortgage for your share of the property
Tip: Some lenders specialise in shared ownership mortgages, so shop around for the best deals.
4. Conveyancing Process Begins
This is where the legal work starts. Your conveyancer will:
- Receive the draft contract and lease from the seller's solicitor
- Conduct property searches and review the results
- Raise enquiries about the property and shared ownership terms
Tip: Choose a conveyancer with experience in shared ownership transactions, as these can be more complex than standard property purchases.
5. Lease Review
The lease is a crucial document in shared ownership. Your conveyancer will review it carefully, paying attention to:
- The share you're purchasing
- Rent and service charge details
- Staircasing provisions
- Restrictions on selling or subletting
Tip: Ask your conveyancer to explain any complex lease terms in plain English to ensure you fully understand your rights and obligations.
6. Exchange of Contracts
Once all enquiries are satisfied and your mortgage offer is in place:
- You'll sign the contract
- Pay your deposit (usually 5-10% of your share's value)
- Exchange contracts with the seller
Tip: From this point, you're legally committed to the purchase, so ensure you're completely happy with the property and terms before exchanging.
7. Completion
On completion day:
- Your conveyancer will arrange for funds to be transferred
- You'll receive the keys to your new home
- The property will be registered in your name at the Land Registry
Tip: Budget for additional costs such as stamp duty (if applicable), legal fees, and moving expenses.
Understanding Your Shared Ownership Responsibilities
Once you've completed your purchase, it's important to understand your ongoing responsibilities:
Mortgage Payments
You'll need to make monthly mortgage payments on the share you own.
Tip: Consider setting up a direct debit to ensure you never miss a payment.
Rent Payments
You'll pay rent on the share you don't own, typically to the housing association.
Tip: Be aware that rent may increase annually, usually in line with the Retail Price Index (RPI) plus an additional percentage.
Service Charges and Ground Rent
Most shared ownership properties come with service charges and possibly ground rent.
Tip: Factor these costs into your budget when assessing affordability.
Maintenance and Repairs
Generally, you're responsible for maintaining and repairing your property, even if you only own a share.
Tip: Set aside a maintenance fund to cover unexpected repairs or replacements.
Staircasing: Increasing Your Share
One of the key benefits of shared ownership is the ability to increase your share over time, known as staircasing.
How Staircasing Works
- Notify the housing association of your intention to staircase
- Get a valuation of the property
- Decide how much you want to increase your share by (usually in 10% increments)
- Arrange additional finance if needed
- Instruct a conveyancer to handle the legal process
Tip: Consider the costs involved in staircasing, including valuation fees, legal fees, and potential stamp duty implications.
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Selling a Shared Ownership Property
If you decide to sell your shared ownership property, the process can be slightly different from a standard sale:
- Notify the housing association of your intention to sell
- The housing association usually has the right to find a buyer first (known as nomination period)
- If they can't find a buyer, you can sell on the open market
- The sale price will be based on a current market valuation
Tip: Be aware that the pool of potential buyers may be smaller for shared ownership properties, which could affect your sale time and price.
Pros and Cons of Shared Ownership
Advantages
- Lower deposit requirements
- Opportunity to get on the property ladder sooner
- Ability to increase your share over time
- Often cheaper than renting privately
Disadvantages
- Limited choice of properties
- Ongoing rent payments
- Potential restrictions on improvements or subletting
- Can be more complex to sell
Top Tips for Shared Ownership Success
- Do your research: Understand the scheme thoroughly before committing.
- Budget carefully: Factor in all costs, including rent, service charges, and potential rent increases.
- Choose your conveyancer wisely: Opt for a professional with shared ownership experience.
- Read the lease carefully: Understand your rights and obligations.
- Think long-term: Consider future staircasing possibilities and resale potential.
- Get expert mortgage advice: Shared ownership mortgages can be specialised.
- Understand the restrictions: Be clear on what you can and can't do with the property.
- Plan for staircasing: Consider how you might increase your share in the future.
- Maintain your property: Remember, you're responsible for repairs and maintenance.
- Stay informed: Keep up to date with any changes to the shared ownership scheme.
"I felt like I was in very good hands with the team at AVRillo. They helped me work through some complexities with the process and were incredibly supportive and patient throughout." - Tamara, a satisfied AVRillo customer.
Conclusion
Shared ownership can be an excellent way to step onto the property ladder, particularly in areas where house prices are high relative to incomes. By understanding how the scheme works from a conveyancing perspective, you can navigate the process more confidently and make informed decisions about your property purchase.
Remember, while shared ownership has its complexities, with the right guidance and preparation, it can be a viable path to homeownership. Always seek professional advice from conveyancers, mortgage advisors, and financial experts to ensure you're making the best decision for your circumstances.
Whether you're just starting to explore shared ownership or you're ready to make your move, we hope this guide has provided valuable insights into how shared ownership works and what to expect from the conveyancing process. Happy house hunting!
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Frequently Asked Questions About How Does Shared Ownership Work
To further clarify how shared ownership works, let's address some of the most common questions potential buyers have about this scheme:
1. Can I buy any property through shared ownership?
No, you can't buy just any property through shared ownership. The scheme is typically limited to:
- New-build homes designated for shared ownership
- Existing properties being resold by housing associations
- Occasionally, properties that housing associations have purchased for shared ownership
It's important to note that shared ownership properties are usually leasehold, not freehold. Always check with your local Help to Buy agent or housing associations for available properties in your area.
2. How much deposit do I need for shared ownership?
The deposit required for shared ownership is generally lower than for a traditional mortgage, as you're only buying a share of the property. Typically, you'll need:
- A minimum of 5% of the share you're purchasing
- For example, if you're buying a 25% share of a £200,000 property (£50,000), you'd need a minimum deposit of £2,500
However, a larger deposit can help you secure better mortgage rates. Some lenders may require a 10% deposit, so it's wise to save as much as you can and consult with a mortgage advisor specialising in shared ownership.
3. Can I make improvements to my shared ownership property?
Generally, yes, but with some caveats:
- Minor decorative changes (painting, new carpets) usually don't require permission
- Major alterations or structural changes typically need approval from the housing association
- Improvements may affect the property's value, which could impact future staircasing or selling
- You may not recoup the full value of improvements when selling if you don't own 100% of the property
Always check your lease and consult with your housing association before undertaking any significant work on your shared ownership home.
4. What happens if I want to sell my shared ownership property?
When selling a shared ownership property, the process usually involves these steps:
- Notify your housing association of your intention to sell
- The housing association typically has a 'nomination period' (often 8 weeks) to find a buyer
- If they can't find a buyer, you can sell your share on the open market
- The property will need to be independently valued
- If you own less than 100%, you'll usually sell the same share you own (unless the buyer wants to purchase a larger share)
Remember, the pool of potential buyers may be smaller for shared ownership properties, which could affect how quickly you can sell and the price you can achieve.
5. Is it always better to staircase to 100% ownership?
While owning 100% of your property can be advantageous, it's not always the best option for everyone. Consider:
- Your financial situation: Can you afford the additional mortgage and associated costs?
- Property value: If prices have risen significantly, staircasing might be expensive
- Your long-term plans: Do you plan to stay in the property long-term?
- Rent vs mortgage balance: Sometimes, the combination of a smaller mortgage and rent can be more affordable than a larger mortgage
Staircasing to 100% ownership gives you more control over your property and eliminates rent payments, but it's a significant financial commitment. Always seek financial advice before making this decision.
These FAQs should help clarify some common concerns about shared ownership. Remember, while shared ownership can be an excellent way to get onto the property ladder, it's crucial to fully understand the scheme and seek professional advice before committing. Your conveyancer and mortgage advisor can provide personalised guidance based on your specific circumstances.
