People often talk about ‘getting on the ladder’. If you ask us, actually managing to purchase property feels more like engaging in a complicated square dance.
Not only do you have to move to the rhythm of the music and remember the fiddly footwork, you’ve also got to pay attention to what the other dancers are doing. For the purposes of this spurious analogy, consider managing the rhythm, footwork and other dancers to be something akin to managing a mortgage application, finding a property, satisfying all legal requirements and navigating the needs of the rest of the chain. See? It’s definitely more complicated than just stepping onto the first rung of a ladder.
Of course, all this square dancing talk assumes you’re actually able to afford the entrance fee. For many would-be buyers, a ten or fifteen percent deposit just isn’t feasible… which is where shared ownership schemes come in.
Stop one: how shared ownership schemes work
Shared ownership schemes allow people who can’t afford the whole cost of a property to buy part of it instead. You’ll typically buy between 25% and 75% of the property, though sometimes the share can be as low as 10%.
Before you ask: no, this doesn’t mean you’re only allowed to use some of the rooms. But it does mean you’ll pay a monthly rent for the share of the property that’s still owned by the landlord.
Close your eyes for a moment and imagine you were buying a 50% share of a house with a total value of £200,000. The value of your 50% share would be £100,000, so you’d need to put down a deposit of 5–10%: which would be up to £10,000. You’d need to take out a mortgage for the remaining £90,000.
On top of your mortgage payment, you’d also need to pay rent on the landlord’s 50% share. Rent costs can vary (make sure you ask this question early on!) but is typically around 3% of the remaining value per year. So, if the landlord’s share of the property was worth 100,000, 3% of that would be £3,000, resulting in a monthly rent of £250.
On top of your monthly mortgage payment and rent payment, you’d also need to take into account that all shared ownership properties are leasehold rather than freehold. This means (surprise!) there are likely to be annual service charges and maintenance fees.
Stop two: shared ownership eligibility
The main eligibility criteria for the scheme is having a household income of below £80,000 (£90,000 if you’re buying in London) and not being able to afford to buy a home that meets your needs.
Most people who buy within these schemes are first time buyers. However, it’s possible to move from one shared ownership property to another, or even from a traditionally-owned property to a shared ownership scheme that suits you better.
Some schemes have extra eligibility criteria you’ll need to meet, such as having a connection to the area.
Stop three: what the heck is staircasing?!
As if the whole thing wasn’t complicated enough… staircasing is when you buy additional shares of your shared ownership property. You can usually do this in amounts of 5% or above, though some newer schemes allow owners to purchase an extra 1% per year for a certain number of years.
You might be able to buy the new shares outright, or you may need to take out an additional mortgage. Either way, you’ll need to keep in mind that the cost of any new shares will be worked out based on the current market value of the property not what it cost when you bought your original share.
It’s possible to staircase your share in the property all the way up to 100%. What happens then will (yes, you guessed it) depend on the contract, but in many cases you will then own the freehold and the property will no longer be part of the shared ownership scheme. If you reach 100% ownership of a flat, however, it will generally remain leasehold and related annual fees will still apply.
Stop four: the shared ownership buying process
Though the scheme can be an excellent way for people to become homeowners… it can also be really, really complicated. Besides the mammoth task of getting your head around how much it would actually cost to live there(!), there are significantly more hoops to jump through than if you were buying a property the traditional way.
The process will be different whether you’re buying a new build (when you’ll usually be able to choose your share percentage) or whether you’re buying a resale property from another shared property scheme owner (when you’ll usually need to match or better their percentage share).
All in all, trust us when we say you should prepare yourself for a long period of back and forth between seller, landlord and solicitor. We highly recommend (yes, this is us bringing out the big guns) that you find yourself a solicitor that specialises in conveyancing for shared ownership schemes. Trust us: you’ll want someone on your side who definitely knows what they’re doing.
Stop five: stamp duty complications
In many cases – thank goodness – first time buyers who are buying a shared ownership property with the total value of less than £300,000 won’t have to bother themselves with stamp duty at all. However, if you’re not a first time buyer – or if the property you’re buying has a total value of more than £300,000 – you’ll have to embrace these complications head on.
When you buy as part of a shared ownership scheme, you can essentially choose whether you pay stamp duty on the whole property or just on the share of it you’ve actually bought.
The benefit of coughing up the whole sum up front is that you won’t have to pay any more stamp duty if and when you start staircasing. This could save money over the long term if the value of the property increases.
However, if you’re buying as part of a shared ownership scheme, it’s likely you don’t have pots of spare cash lying around and paying all the stamp duty up front might seem laughable. It could also be totally unnecessary if you don’t plan to try and increase your share. We suggest you take some solid advice from your solicitor, mortgage advisor and other financial professionals who can muse on your particular circumstances.
Stop six: selling on
Our tour wouldn’t be complete without a few thoughts on selling a shared ownership property. After all, it’s smart to have an idea of what’s in store when the time comes to move on.
Again, the rules on this will change from scheme to scheme and this is something a good solicitor will check for you right at the beginning. In most cases, when you decide to sell you will need to give your landlord first refusal. If they don’t want to buy your share back from you, your contract will determine whether you’re able to sell your share on the open market or whether you have to wait for your scheme to find a buyer themselves.
Either way, it almost certainly won’t be a speedy process.
Step seven: getting started
If we haven’t put you off with talk of complicated costs and long, drawn out conveyancing processes, we’ll finish up our whistle-stop tour with some words on how you can actually get yourself a fraction of a property.
The first step is to register with a shared ownership agent to see what properties they have available. There are three to choose from whether you’re buying in the north, buying in the south or buying in London/the midlands.
Of course, you’ll also need to bag yourself a specialist solicitor who knows their stuff. Luckily for you, we’ve got just the chap for the job and are always on hand to chat. Get in touch if you’re looking for advice on shared ownership, staircasing, stamp duty or, indeed, things that don’t happen to begin with S.