Following the rise of “generation rent”, government-launched schemes can help buyers step onto the property ladder.
One such scheme is Shared Property Ownership, whereby you purchase shares in a property (usually 25% to 75%) and then rent until you own 100%.
The benefit of shared property ownership is lower upfront costs. Say you purchase a 25% share. This means you only need capital or to obtain a mortgage for that 25% initially.
Once share ownership is secured, the shareholder pays rent to the housing association and can “staircase” to owning the full 100%. This is a flexible route to property ownership for those who might not otherwise be able to buy.
The rent payable is often cheaper than similar rental properties, and further costs may be deferred or reduced. For example, Stamp Duty is generally deferred if less than 30% is owned.
Shared ownership properties are only available through housing associations and property management CRM groups, and other restrictions apply.
Not owning 100% of your property means the ownership contract is effectively an assured tenancy for the term of the lease. In other words, legal ownership remains 100% with the housing association until the shareholder purchases the full property.
Although freeholders cannot force a tenant to leave provided they adhere to the lease, and shareholders have legal protections including right to payment, they could face legal proceedings should issues arise involving rent, subletting or nuisance behaviour.
Furthermore, the shareholder is liable for all service and maintenance costs. This should be carefully considered if the building is old or requires work, as this may mean the shareholder’s full investment won’t be returned.
Sale and Ownership
If you decide to sell your shares, the freehold owner has first right to buy, even if you own the majority. They may also be entitled to manage the sale, taking you out of the equation. Even if you can sell yourself, you can only sell your shareholding, which could limit prospective buyers.
You should find that your housing association uses property deck software to keep track of the ownership of their properties and assist with prospective sales.
Furthermore, your ownership will always be leasehold, even once you own 100%. Leasehold rights may last 999 years but will eventually fall back to the freehold owner.