Shared ownership can work, but the small print can catch people out financially and legally. Here’s what you need to know With home ownership now unaffordable for many people on low. or middle incomes shared ownership continues to be pushed.
Being a cheaper upfront option, it is touted as a way for Generation Rent to move forward. After the deposit, it means paying a mix of mortgage repayments and rent for the remaining price of the property.
However, shared ownership schemes are not without their risks, which are not necessarily clear at the beginning and not always explained by landlords or conveyancing solicitors.
As shared ownership week gets under way in the UK, here are some of the issues that people considering shared ownership should be aware of:
You don’t actually own anything (yet)
Unless you have bought further shares in the property (a process known as “stair casing”) up to the full 100% share, a shared ownership lease actually amounts to an assured tenancy for the term of the lease. In effect, this means it’s not ownership until you really do own all of it. While the agreement means that the tenant would get paid their percentage share upon sale of the property in the future, they essentially remain a tenant in the meantime.
This means that they can face possession proceedings on a range of grounds: rent arrears, nuisance behaviour, or subletting, for example, some of which are mandatory (pdf).
Although rent arrears will usually see the mortgage lender step in to pay them off before an eviction is ordered, any possession order could result in the loss of the property. Plus, there’s no obligation by the housing association to repay the purchase price. You could lose the property and the full purchase price you paid.
You will need to pay service charges
You may have a 25% or 40% share, but you will still be liable for 100% of the service charges for the maintenance of the building. Unlike the rent and mortgage elements, these payments are unpredictable and can rise steeply.
As some shared ownership buildings start to age, there may well be significant repair costs in the pipeline. You cannot rely on the current annual service charge continuing at the same level.
Increasing your shares can be tricky
Purchase of an increased share of the property in the future will be on the future overall market value, which the landlord will assess. So the value of 25% now is likely to be significantly lower than buying another 25% in five years time. If property prices continue to rise, this needs to be factored in to future plans.
Staircasing rates are low, in 2012-13 only 2% of shared owners reached the 100% figure. So unless you intend to stay in the property for many years, are you really likely to buy an increased share?
Repair work can fall through the gaps
Unless the housing association owns the whole block, it is unlikely that they will be responsible for repairs to the building. Instead, they will have a lease for some flats, and you have a tenancy from them.
In that case, the owner of the building is not obligated to carry out repair work, and you can’t enforce repairs if they aren’t carried out. I have seen some very bad cases of this, with the shared ownership tenant unable to do anything about leaking roofs, structural problems and more.
Shared ownership can work, but prospective buyers need to be fully aware of the risks and the potential future costs before making the decision.
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https://www.theguardian.com/housing-network/2016/sep/15/shared-ownership-risks-affordable-housing-rent
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