McHale & Co. Solicitors Blog

Shared ownership

Over recent times, during which many people have faced difficulties getting onto the property ladder, we have found ourselves being instructed on a number of transactions involving shared ownership. Shared ownership is a way of part-owning, part-renting a property and can be an attractive option for people who are unable to purchase a home outright. It offers an alternative to "Generation Rent" however it can be expensive and some of those extra costs are touched upon here. The concept involves buying a share in a property, normally between 25% -75%, with the help of a mortgage and then paying rent on the share that you do not own. The share that you do not own is normally owned by the local housing association or a government backed scheme.

The main benefit of this scheme is that it allows you to invest in a property with the option of purchasing the rest over time - a concept known as "staircasing". This is an attractive option as it reduces the rent and allows for outright ownership and therefore disposes of any restrictions and the extra costs of a shared property. However, the cost payable on the shares will depend on the market value of the property at the time of approaching the housing association, often meaning that the value of the property has increased and therefore so too the cost of purchasing the additional shareholding. There are also costs involved in staircasing, which can be off-putting as they may include the costs of a valuation and there will also be the normal conveyancing fees since the increase in the shareholding represents a sale.

However, a great deal of scepticism surrounds the scheme due to the costs involved and the lack of definitive ownership. Many would argue that the scheme is effectively a tenancy, with the housing association acting as landlord and in that respect you are not purchasing a share in a property at all – you are merely paying for the option to purchase the whole property at a later date. Additional problems arise as the housing association can increase the rent, will often have priority over finding a suitable buyer and leave you solely responsible for the service charge. The restrictive and expensive nature of this means the sale process can be slow and costly when the property comes to be sold on. There are also restrictions on sub-letting (renting) which can be problematic if your circumstances change. Furthermore, as shared ownership properties are leasehold, the shared owner will normally be liable for 100% of the service charge. Recent case law also paints a cautionary tale – when a Court granted a housing association possession of a shared ownership property which had been held 50% between it and the shared owner. The owner had paid £29,500 for a 50% share but fell into rent arrears which resulted in the housing association bringing possession proceedings against the owner. The Court reluctantly granted the housing association possession of the property, resulting in the 50% owner not only losing their capital deposit but also their home. This case indeed highlights the risk in investing in a shared ownership property as the 50% owner here was considered a tenant under an assured tenancy rather than an owner.

Potential buyers should be acutely aware of the process and also the expenses involved when it comes to selling a shared ownership property before committing to it. Advice from a lawyer is key in these transactions due to the nature of ownership and the additional costs involved. The Help to Buy Scheme may present a better alternative, and I will be discussing the Help to Buy Scheme in further detail next week.

Here at McHale & Co we are more than happy to discuss any property transaction with you, please feel free to call us on 0161 928 3848 for an initial consultation.

Categories: Conveyancing

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