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September 10, 2020
4 minute read
A new model for shared ownership has been announced this week as part of the £11.5 billion Affordable Homes Programme due to be delivered over the next five years to provide 180,000 new homes across England.
Half the homes will be available for affordable home ownership in a bid to help more first-time buyers gain a foothold on the property ladder.
Shared ownership allows you to buy a percentage of a home for people who can’t afford to take out a mortgage for the total value of the property. More details of how the scheme currently works can be found here.
At the moment, the minimum initial share you can buy under the scheme is 25%, but this will be reduced to just 10%, making shared ownership even more affordable for many.
New shared ownership homeowners will also be able to buy additional shares in their home in just 1% increments with little or no fees from next year. We do not yet know whether existing shared ownership homeowners will also be able to benefit from this change.
Referred to as “staircasing“, buying more shares in your property under the scheme currently needs to be done in chunks of between 5% and 10%.
Staircasing has been a major source of complaint about the scheme because it is very complicated, time-consuming and costly.
The government says that under the changes:
Whether buying shares in your property at 1% at a time makes financial sense for people remains to be seen. Our mind boggles at the thought of all the admin required for each 1%!
For shared owners wishing to buy larger chunks of shares, the existing staircasing process still applies i.e. with RICS surveyor valuation and mortgage fees.
The government also announced a 10-year period for new shared owners where the landlord would cover the cost of any repairs and maintenance.
This is good news for new buyers. One of the major drawbacks for shared ownership is the ongoing costs. Currently, while you may only own a small share of the property, you’re liable for the full maintenance and repair costs.
So we welcome the government’s announcement to remedy this by introducing a 10-year cost free period. But we do worry that this will encourage landlords to delay any necessary repairs which may mean a hefty bill in year 11.
Other costs do remain and need to be highlighted to homebuyers under the scheme. Shared ownership properties are usually leasehold, with uncapped service charges and conditions on what they can and can’t do (from subletting to certain home improvements). These issues have not been addressed in the latest government announcement.
At the moment, when it comes to selling a shared ownership home, the landlord has an 8 week period during which they have exclusive rights to market the property. If they fail to sell it in that time, the shared owner can place it on the open market. The idea is that the landlord (usually a local authority or housing association) has a list of prospective shared ownership buyers. But in practice the 8 week period often means delay for the shared owner. So the period has been reduced to 4 weeks.
This new standard model will be introduced on all future Shared Ownership homes delivered with Government funding.
Shared ownership can make financial sense if you are struggling to raise a deposit, allowing you to own a share of their home.
Monthly costs can be cheaper than renting, shared owners can build up equity if that’s what they want, or simply use the scheme as a stepping stone to eventually buying on the open market.
But the scheme is not straightforward and buying a leasehold can come with additional costs and problems. So, make sure you’re aware of all the pros and cons.
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