Shared Ownership is a system of part buy, part rent. An individual buys between 25% and 75% of a property from a housing association. The remaining percentage belongs to the housing association and the sharing owner pays rent on it.
Buying only part of a house instead of paying the whole amount can mean the difference between being able to get on the housing ladder of having to keep renting. The major advantage is that for almost all purposes, the sharing owner is regarded as a homeowner. This can make getting loans and insurance easier and cheaper, and you can redecorate the house without asking the landlord for permission.
Sharing Owners Do Not Really Own Their Property
However, sharing owners do not have the freedom of true homeowners. If you want make structural changes to your home, or take in a lodger, or use your home as business premises, you will need permission from the housing association, and they are not obliged to grant it.
The ability to ‘staircase’ means that a sharing owner can eventually buy 100% of the property, and will then have all the right and protections of homeowners. Before that, the legal position is less clear-cut. If you fall behind on your mortgage payments your share of the house may be repossessed, of course. However, for sharing owners there is also the possibility that it you fall behind on your rent the housing association may evict you – and keep your stake in the property.
This is what happened in the case of Richardson v Midland Heart Ltd. Although the sharing owner had a 50% stake in the property, the entire property was given back to the housing association, and the stake was lost. This is a worrying legal precedent. It is not certain that other evictions from Shared Ownership properties would end the same way, especially as Richardson v Midland Heart Ltd. it was unusual because there was no mortgage, but it’s worth bearing the risk in mind.
Sharing Owners Are Not Really Tenants
Sharing owners don’t have the legal rights and protections of homeowners, but neither do they have all the benefits of renting. Someone who is renting a property can expect the landlord to keep the property in a good state of repair and occasionally (say every five to ten years) refit parts of the house such as the kitchen, bathroom and boiler. Sharing owners have to take care of all of this themselves.
Factors’ fees are also a big issue for sharing owners in flats, and anyone considering buying a stake in a Shared Ownership flat should find out what these fees are likely to come to. Don’t rely on the housing association giving you a rough guide – either get a written estimate from them, or from the factor they use, or speak to other owners in the block to find out what they pay. When you rent a property, the landlord usually pays the factor’s fees so you may not realise how much of an extra expense they will be, coming to potentially hundreds of pounds per quarter.
What to Consider Before Buying a Shared Ownership Property
It is important, when considering whether you can afford a Shared Ownership property, to add up not just the rent plus the mortgage payments and legal fees, but also the expected factor’s fees and upkeep of the property. You should include contingency money for repairs and replacing white goods.
If you work out your budget properly and can be confident of keeping up both the mortgage repayments and the rent, Shared Ownership can be an effective solution to getting on the housing ladder if you could not otherwise afford it.
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