You may think that shared ownership sounds like the perfect way of getting your foot on the housing ladder. You can pay a portion of the overall selling price of a property to purchase a percentage of ownership, which you can increase as time passes; a process known as staircasing.
This all sounds really good on the face of it, but you need to be aware that shared ownership is not always the perfect solution it appears to be. There are certain pitfalls around opting for shared ownership that it’s useful to be aware of before you follow this path.
Is shared ownership really an affordable option?
It can be tempting to purely consider the fact that the mortgage payments for shared ownership will be less than for full ownership of a similar property, but that is only part of the story. You need to remember that you will also have to pay rent each month, to the housing association or private developer who owns the remainder of the property. This rent is of course at a reduced amount, but it is still subject to potential annual rises which can quickly become costly. Most shared ownership properties are also leasehold so you will be faced with having to pay a monthly service charge. In addition to this service charge you need to ascertain how much you will be expected to contribute to other major maintenance costs, such as roof repairs, before you sign any contracts.
Take a look at all the costs involved in shared ownership and you can see that it isn’t always the appealing and affordable option you think it is.
Is it really ownership?
You need to be aware that the housing association or private developer has overall ownership of the property and as a landlord, they can evict you for rent arrears. Often mortgage lenders will add rent debt to the mortgage to prevent you from losing your home, but the fact remains that you can actually lose a property that you apparently have part ownership of. In 2007 a woman was evicted from her home for rent arrears, and the court found that she had no right to recover the cost of the 50% stake in the property that she had invested.
The expense of increasing your share
In order to be able to afford all of the associated costs you may be tempted to commence shared ownership with a relatively small stake such as 25%, in the hope that you will be able to afford to increase your stake in the months or years to come. What you may not consider is the amount of money this could potentially cost. You could be faced with:
- Valuation fees to determine the market value of the property.
- Solicitor’s fees as increasing your stake involves changing the details of your lease.
- Mortgage fees if you undertake a change of lender.
It’s important to read the fine print about increasing your stake before you enter into any shared ownership agreement.
Restrictions you may encounter
Owning your own home may bring a vision of freedom; of being able to do as you see fit with the property. This is often not the case with shared ownership. Often there is no sub-letting allowed under your lease agreement so you cannot rent out any part of the property. You may also need to seek the agreement of the housing association or private developer to make any changes to the property, even something as simple as redecoration.
Problems with moving on
One of the biggest problems people often encounter with shared ownership is that it can be difficult to sell the property and move on. More often than not you will find that the provider of the property has the “right of first refusal” which means you have to offer to sell to them first. They may not take you up on the offer, at which point you can market your share of the property. This is not easy, as you need to find a buyer who satisfies the shared ownership criteria of the housing provider, and who can get a shared ownership mortgage. This can severely limit the size of the pool of people you have to sell to.
Taking all of these issues into consideration you can see that there are several pitfalls with shared ownership that are not always immediately apparent. If you decide that it may still be a good option for you then you need to ensure you read all of the contract information very carefully before you commit to what could be a problematic experience.
Love Removals is a domestic and commercial removals and storage company based in Brighton.