There are several ways you can become a homeowner. One of the most popular means is through shared ownership.
The reason for this isn’t surprising. Shared ownership lets you to buy a property that you wouldn’t be able to afford yourself. But even if you get your home through shared ownership – you can only claim “full” ownership when you own 100% of the shares in the house.
Shared ownership is a government supported scheme that gives you the opportunity to buy a property you can’t outrightly afford.
You buy a percentage of the house (normally with a mortgage) and pay rent on the rest to a housing association.
This scheme was initially designed by the government to help families and people with lower incomes to become house owners. Over time the shared ownership scheme has proven effective in helping more people to be first time house owners.
Shared ownership is actually open to individuals from many walks of life, as long as you meet the eligibility criteria.
The shared ownership scheme allows you to initially purchase a maximum of 75 per cent shares at the first instance.
This means that if you are going to buy a house through shared ownership, you can’t purchase more than 75 per cent of the property.
However, this doesn’t mean that you’ll have to remain a partial owner of the property forever. You can increase your shares to 100 per cent and acquire full ownership through a process called “Staircasing.”
Staircasing Your Way Up
Using the staircasing method, you can increase your shares by as little as 1% every year until you have acquired 100% shares.
In the past, a person could only request to staircase for a maximum of 3 times. This means that you staircasing the third time would mean you can afford to claim 100% ownership.
However, over time some of the policies of shared ownership have changed. As of now, there are no restrictions on the number of staircasing requests you can make. Nevertheless, it is advisable that you check the terms of the lease given by your provider.
There are also costs to pay each time you staircase.
In shared ownership, you buy a percentage of the house (between 10% to 75%). Whatever percentage you don’t buy belongs to the housing provider, making the provider the co-owner.
As such, you’ll have to pay rent on the percentage you don’t own to the housing provider.
So, let’s say you buy 75% of a property, you would pay rent on the remaining 25% you don’t own. As you staircase, you get more shares of the house and pay less rent.
However, as long as you have to keep paying rent, you are a tenant. It doesn’t matter if you already own 95% of the property; you’re still a tenant until you have 100% shares of the property.
As a matter of fact, if you fail to pay your rent as when due, the housing association can take you to court. This may result in you having to sell your shares if you still are unable to pay your rent.
Based on this it is very important that you have the financial capacity to afford the payment of rents until you can claim full ownership.
Higher Ownership Means You Pay Less Rent
As you staircase up to higher ownership, your rent reduces as you buy more shares to increase your ownership. This is because your annual rent under shared ownership is set at a maximum of 3% of the remaining shares that you don’t own.
Example
If a house costs £300,000 and you purchased a 10% share of the house, you will have to pay rent for the remaining of the 90%.
90% of £300,000 is £270,000. Your annual rent would be at most 3% of that £270,000, which will be £8,100 per year.
But if you buy an additional 40% shares (bringing your ownership to 50%) you’ll only need to pay rent on the remaining 50%.
50% of £300,000 is £150,000. Your rent will then be £4,500 per annum, which is 3% of £150,000.
Properties in shared ownership are almost all leaseholds, not freeholds. This means that you only own the property but not the land on which the home sits.
In contrast, freeholds mean that once you have gotten 100% ownership of a house, you own the land as well.
Because shared ownership requires you to become a tenant until you own the property, it’s very difficult to structure this to include the freehold of the land along with the property.
Most shared ownership houses have a leasehold that is between 99 to 125 years. But with new UK laws coming into effect, new shared ownership properties will have a leasehold minimum of 990 years.
But in case you do buy an existing shared ownership home with 100% of the shares, you may still need to extend your lease if it starts to run down. This is because short leases can make a property unmortgagable.
Some landlords may have policies against lease extension if you haven’t staircased to 100%.
Based on this, it is essential to first check the length of lease that comes with a shared ownership property and have your solicitor give you some advice. This will help you determine the period when the lease will come to an end and if there are any limitations to the lease extension.
Some may believe that once they own a share over 50%, they can claim full ownership of the house. Unfortunately this is not true.
You cannot claim full ownership until you completely own 100% shares. As such, acquiring over 50% share does not make much difference in terms of your rights and abilities.
But it is worth noting that the more of the property that you own, the lower your rent will be.
Bottom Line
Shared ownership is complicated. It’s not as simple as a regular purchase of a home. But the shared ownership scheme does give people the chance to own a home earlier than they might be able to without it.
It helps people and families to move forward with their life.
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