There’s been a lot of talk in the press recently about Shared Ownership Properties – a topic covered on BBC Panorama programme recently, in an episode called ‘The Home I Can’t Afford’.
So what exactly is Shared Ownership and why is it under the spotlight?
The idea of Shared Ownership is to give first time buyers and those that do not currently own a home the opportunity to purchase a share in a new build or resales property. It is designed to enable those people that can’t afford to buy a property completely, the chance to move out of the private rental sector into something with feels more like home ownership.
The purchaser has a mortgage on the share they own- lets say 60%, and pays rent to a housing association on the remaining share – 40%. Because the purchaser only needs a mortgage for the share they are purchasing, the amount of money required for a deposit is usually a lot lower when compared to the amount that would be required when purchasing outright so it makes home ownership seemingly more affordable.
Over time, if the purchaser wants to, they can increase their share of the property via a process known as ‘staircasing’, and in most cases can staircase all the way to 100%. In this instance, the shared owner will no longer pay any rent, just their mortgage along with any service charges and ground rent.
And whilst the scheme probably makes perfect sense for most people, there are those who’ve found that the dream of owning their own home has become a nightmare.
So what are the issues?
Firstly, some of the new build properties offered for sale through housing associations have proved to have structural or other defects associated with them – causing the owner to fork out for costly repairs. And whilst they may not own the whole property, they are liable for 100% of the costs.
Secondly, the service charges associated with some of these properties seem to escalate at a rate well above inflation. Whilst Shared Ownership is marketed as an affordable housing option, sharp rises in service charges has become unaffordable for some owners – leaving them in debt and struggling to pay their bills.
As with any mortgage or loan secured against a property, failure to make payments leaves people at risk of having the property repossessed – which is clearly a massive stress to anyone.
And if that’s not enough, perhaps the most serious of issues with some shared ownership schemes is the fact that they have been sold with short leases. What the unsuspecting buyer may not be aware of is that many shared ownership homes are leasehold properties and it seems that Housing Associations offering them are craftily selling homes with leases of just 99 years. Whilst to you and I, 99 years sounds like a very long time, the reality is that of those mortgage lenders that accept leasehold properties, they don’t allow leases less than 80 years.
In normal circumstances someone with a leasehold this short would go through the process of getting it extended – which by the way is costly to do – but shared owners have no statutory right to a lease extension. This means the housing association not only has the right to refuse a lease extension but can also dictate both the price and length of it.
They can also add on other charges connected to the process such as a permission fee and their own legal fees, making the process extremely costly.
Owners in this situation are quite rightly feeling trapped as they can’t sell their home due to the fact that anyone wanting to buy would find it unmortgageable.
My advise to anyone considering buying a shared ownership property is to really fully understand the terms of the deal and to get an qualified independent solicitor check over all the paperwork and explain in simple terms what the pros and cons are. I suspect that many people who bought into these schemes were unaware of the short lease situation.
As a result of the BBC investigation, some Housing Associations have agreed to writing to their shared owners to highlight the fact that they property they have is leasehold and the implications of a short lease to them. This at least will bring it to the forefront rather than owners having a nasty surprise when they come to sell.