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What is Shared Ownership?
Shared ownership is an affordable home ownership scheme provided mainly by Housing Associations (also known as Registered Social Landlords).
Under this scheme you part buy and part rent your home. You can purchase between 25% and 75% of the property value and pay a subsidised rent to the Housing Association on the share you do not own. You can normally buy further shares, which is called staircasing, until you own 100% of the property. However, if your property is in an area designated a Rural Designated Area you will only be able to purchase up to 80% of the property value. This is to ensure that the property remains within the shared ownership scheme. You will be informed by the Housing Association whether or not your chosen property is in this area.
In addition to the subsidised rent you will also pay a management charge, service/estate charges and, in some cases, an annual ground rent to the Housing Association.
Shared Ownership Lease
A shared ownership property is normally always leasehold whether it is a house or flat. A shared ownership lease will usually be for a term of 99 – 125 years. Although you will not own the property outright you will have the normal responsibilities of a full owner.
The lease will contain standard obligations on the part of the leaseholder found in most residential leases but will in addition contain provisions specific to shared ownership. These are (a) restrictions on selling the property including rights in favour of the Housing Association to repurchase your property (b) review provisions on the rent you pay on the unpurchased share and (c) the procedure which must be followed by your building society/bank (your mortgagee) in the event that you default on your mortgage and the mortgagee wishes to repossess and sell the property.
The lease will be registered at the Land Registry with leasehold title and that title will refer to the restriction on selling. The title will also note details of your mortgage.
Stamp Duty Land Tax
Stamp Duty Land Tax (SDLT) is charged on land and property transactions in the UK. The tax is charged at different rates and different thresholds for different types of property and different values of transaction. The current minimum threshold for payment of stamp duty on a residential dwelling is £125,000.
There are different options for paying SDLT when a property is bought through a shared ownership scheme. You can either make a one-off payment based on the total market value of the property OR pay any SDLT due when you purchase further shares.
These options will be explained to you by your solicitor and a decision can be made as to which option is suitable for you.
Selling a shared ownership property
To ensure that the property remains available to people in need of shared ownership properties there are restrictions on the sale or sub-letting of the property. These restrictions apply from the date the lease is granted up to the expiry of the period of 21 years from the date that 100% of the property has been fully purchased.
The lease sets out the procedure to be followed which includes serving notice of your proposed sale on the Housing Association who can either require that you surrender the lease to the Housing Association or transfer the lease to a person nominated by the Housing Association. In both cases the price will be no more than the market value of your share in the property.
A restriction will be noted on your title to the property confirming that there can be no disposal of the property unless the provisions of the lease have been complied with.
Once you have staircased to 100% there is usually no restriction on sub-letting the property but you should refer to the lease for this confirmation.
Staircasing takes place when further shares are purchased including the final share giving you 100% ownership of the property. The rent payable to the Housing Association will reduce proportionately, eg. if you originally had a 50% share and purchased a further 25% share, you will now pay rent at 25% of the market rent.
If the property is leasehold, once 100% staircasing has been effected, you will continue to hold the property under the same lease but the shared ownership provisions will no longer apply.
This may not be the case however if the Housing Association themselves have a leasehold interest in the property and you may be asked to take an assignment of the Head Lease. Your landlord would then be the landlord under that Head Lease and not the Housing Association and service charges and any ground rent would be paid to that landlord.
If the property is a house on 100% staircasing the freehold of the property would be transferred to you. If the house is on an estate not wholly owned by the Housing Association, you may now be obliged to pay the estate charges to the Developer or Estate Management Company.
In both cases the restrictions on disposal will apply for a period of 21 years from the date of 100% staircasing.
The rent paid to the Housing Association on the share not owned by you will be reviewed periodically, usually every year, and will be increased in line with any proportionate increased in the Retail Prices Index. Note that the rent is only reviewed on an “upwards only” basis and will not go down when reviewed. The shared ownership lease will provide an example of how this works.