The process of buying or selling a shared ownership property shares many of the same steps as the standard conveyancing process. However, there are a few extra actions and legal complexities which can be a little confusing, especially if this is your first time buying or selling.
This guide explains what shared ownership is and what happens if you are buying or selling a shared ownership property.
Understanding how shared ownership works
Shared ownership is a scheme introduced by the government that allows buyers to purchase a share of a property and pay rent the remaining share, usually from a housing association. The percentage of a property that can be bought varies but is usually between 10% and 75%.
This scheme makes taking that first step onto the property ladder more affordable for people who may not be able to buy property the traditional way. Once you have your initial share in the property you can purchase additional shares each year, increasing the amount you own gradually in a model known as staircasing.
Through shared ownership you can usually buy the following properties:
- New build homes
- Homes being sold through a shared ownership resale scheme
- Homes for specific needs, for example if you have a disability that requires a ground floor property.
These homes are usually sold by housing associations and councils.
How does shared ownership staircasing work?
Staircasing in shared ownership is the process of buying additional shares of your shared ownership home; this allows you to gradually increase the percentage you own at a rate your situation and finances allow.
Staircasing can be done one of two ways:
- Gradual staircasing – you can buy 1% a year for the first 15 years of your shared ownership.
- Standard staircasing – You can increase the percentage of the property you own at any time if you are buying shares of 5% or more.
When you are ready to buy more shares, you will need to get a new property valuation. This will help you find out the cost of this increase.
You may be charged an administration fee by your landlord when buying shares that are more than 1% of the property.
As the percentage of the property you own increases, the amount of rent you pay on the remaining portion will decrease.
Who can buy a shared ownership property?
To qualify for a shared ownership property your household income must not be more than £80,000 a year (£90,000 for property in London) and you are unable to buy a property through traditional means.
You must also match one of the following requirements:
- Be a first time buyer
- Previously have owned a home but are not in a financial position to buy another one
- You are starting over, for example in the case of leaving a relationship
- You already own as part of a shared ownership scheme and are looking to move
- You already own a property and need to move, but can’t afford a property outright that meets your needs
In some cases, you may need to show that you live, work, or have ties to the area where you want to buy a home.
What happens when you buy a shared ownership property?
Once you find the right home and pass the application process, the home provider (usually the developer or housing association) will refer you to a mortgage adviser. The adviser will review your financial situation. They will ensure you can afford the payments for the property you want to buy a share in.
You will probably need to pay a reservation fee to the property provider. This fee will hold the home for you for a certain time. This fee is usually non-refundable so be sure to check with the property provider.
Once your offer has been accepted, the process from here is similar to a standard property purchase. The housing association will send a Memorandum of Sale to your conveyancer, they will then begin the conveyancing process including reviewing the draft contract and lease, requesting local authority searches, investigate the title and review your mortgage offer.
The housing association you are buying from must approve the mortgage. You cannot exchange on the property until they do.
When buying a shared ownership property, think about the costs besides the deposit and final payment, including your conveyancing fees.
Also, check if you need to pay Stamp Duty. If you do, there are two different ways to go about this.
Market value election – you can opt to use the current total market value of the property to get the full amount of SDLT you would pay on the property (even if you are buying a smaller share) and pay the full SDLT rate. The benefit of doing it this way is that you won’t have to make another payment, even if you buy further shares in the home.
Paying in stages – The alternative to paying the full amount upfront is paying the SDLT payment in stages. You would make your first payment on the amount you pay for the lease premium (the initial payment for the share you are buying), but only if this amount is over the threshold for a residential property. If it sits below this threshold you will still need to submit a return but there will be no tax to pay.
There is the possibility that if the total amount of rent you pay over the length of the lease is more than the SDLT threshold you might have an extra SDLT fee to pay.
If you grow the shares you own in the property, you won’t be liable to pay SDLT until you own more than 80% of the home. Once you reach this point you will need to pay SDLT on the payment that took you past that 80% share point and on any further shares you purchase.
Find out more information and calculate your possible SDLT payments on the Gov.uk page for shared ownership properties.
What happens when you sell a shared ownership property?
If you own your property completely when you decide to sell, you can sell it like any other home. This is true unless it has a ‘designated protected area – mandatory buy back’ lease. In which case the association or council you bought it from will either buy the home themselves or find someone else to.
To sell your share in the property, you must first talk to the housing association and let them know you want to sell. The association then has a set time to find a buyer, usually 4, 8, or 12 weeks. If they have not found someone to buy your share within the designated timeframe then you can sell your share on the open market.
You will need to get a valuation done by a RICS registered surveyor to get the sale price for your home.
You may have to pay a fee to the housing association when you sell your share of the home. This information should be in the lease you received when you bought the home.
Buying a shared ownership home is a great way to get on the property ladder if you are unable to buy a property outright. However, reading all contract and lease information carefully is important.
There may be extra costs with a shared ownership home. These can include ongoing service and maintenance fees. You might also face extra administration fees when buying or selling a property in a shared ownership scheme.
