Shared ownership - the new & improved product

With a new shared ownership product and lease having recently been launched by Homes England and bringing the biggest changes to shared ownership in years, Adam Crawford, Partner and Head of New Build Homes, at Prince Evans Solicitors LLP looks at what this means for buyers

BACKGROUND – WHAT IS SHARED OWNERSHIP?

Shared ownership is a Government-backed scheme that allows you to purchase a share in a property and rent the part of the property you do not own (also known as part-buy, part-rent) from the landlord (which is usually a housing association or a local authority).

Provided you meet certain criteria, such as a maximum household income of £80,000 outside of London or £90,000 in London, and you are a first time buyer or home mover (ie not buying as an investor), then you may be eligible to purchase a shared ownership property.

You will still have to apply for a mortgage and save for a deposit; however, the deposit can be as low as 5% of the share you are buying. As shared ownership is Government backed, your landlord is under an obligation to act responsibly and ensure it only allows you to purchase the property if you can afford to keep up with the repayments on your mortgage and the rent you pay it and other associated outgoings. You will need to meet the affordability criteria, about which the housing association will be able to advise you.

Shared ownership is, generally, considered by most (including the author) as an excellent route into homeownership for those who may not otherwise be able to afford it.

WHAT WAS THE PREVIOUS SHARED OWNERSHIP PRODUCT?

Previously if you purchased a new build shared ownership property you would buy the property and be granted a lease on the following basis: 9 You purchase the maximum share you are assessed to be able to purchase of between 25%-75% 9 You pay rent on the share you do not own to your landlord 9 You have the right to buy additional shares in the property in minimum tranches of 10% (a process known as

“staircasing”) up to 100% in most cases (some leases restrict staircasing to 80%). 9 For a minimum 99-year lease term (or more typically a 125-year term) 9 When you wish to sell the property, you must first give the opportunity to your landlord to find a buyer for the property – it has eight weeks in which to find a buyer after which you can sell on the open market (this is known as the

“nomination period”) 9 The price for a sale agreed by the landlord referred above is set by a valuation, with the valuation being valid for eight weeks (exchange of contracts must take place within eight weeks and if not achieved, a new or extended valuation may need to be obtained). Please note as per the comments later in this article, this product will continue to be available for new builds constructed from pre-2021 funding and on resales.

SO, WHAT HAS CHANGED?

Under the new shared ownership product, you will now buy a new build shared ownership property and be granted a lease on the following basis: 9 You purchase the maximum share you are assessed to be able to purchase of between 10%-75% (25% was the

previous minimum)

9 You pay rent on the share you do not own to your landlord 9 You have the right to buy additional shares in the property in minimum tranches of 5% (a process known as

“staircasing”) up to 100% in most cases (some leases restrict staircasing to 80%).

Previously a 10% minimum was required

9 In addition, during the first 15 years

of your ownership you will now have the right to buy an additional 1%

share each year. This will be based on a value adjusted in line with the

House Price Index (“HPI”) rather than the need for a valuation and the 1%

staircasing will be subject to reduced administration and therefore reduced costs for you 9 For a minimum 990-year term

(previously 99 years)

9 When you wish to sell the property, you must first give the opportunity to your landlord to find a buyer for the property (nomination) – it has four weeks in which to find a buyer after which you can sell on the open market (previously

eight weeks)

9 The price for a sale under a landlord nomination is set by a valuation with the valuation being valid for 12 weeks (exchange of contracts must take place within 12 weeks and if not achieved a new or extended valuation may need to be obtained). Previously eight weeks 9 Your landlord will be responsible

for the cost of essential repairs to the external fabric of the building and the structure in the first 10

years – your conveyancer will explain in more detail what this means to you

(previously you were responsible for these costs)

9 You may be able to claim up to £500

per annum from the landlord for essential repairs/replacement inside

the home for the first 10 years – again your conveyancer will explain in more detail what this means to you;

(previously you were responsible for these costs without any contribution).

Please note the changes will not be retrospectively applied to shared ownership property previously sold or being sold on the previous model.

WHEN DOES THIS COME INTO EFFECT?

This is where it becomes a little tricky as shared ownership is often, but not always, grant-funded (ie the Government provides public funds towards the cost of shared ownership). It is only shared ownership properties which are built and sold from the Government’s Affordable

Homes Programme 2021 to 2026 which are obliged to use the new shared ownership lease/product. However, some housing associations have already adopted the new model for new shared ownership sales for properties which are grant funded pre-2021 on a voluntary basis.

It is probably the case right now that the vast majority of new sales are still on the old form of shared ownership as it takes time for grant funding to result in a built property ready to be sold and lived in. However, over the coming months we will see an increasing number of properties sold under the new shared ownership model.

Shared ownership resales (where an existing shared ownership leaseholder sells their property) will not be under the new form of lease and it is likely therefore that this will only be seen on new build properties for at least the next couple of years until there are resales of properties sold under the new model.

I’VE HEARD OF SOMETHING CALLED A RIGHT TO SHARED OWNERSHIP – WHAT IS THIS?

This is also a new scheme as part of the Government’s Affordable Homes Programme 2021 to 2026 and only applies to properties that were built for social and affordable rent.

Essentially, if you live in a property built under this grant funding programme, and provided you are an eligible tenant renting an affordable or social rent home, you will be given a right to buy the property you rent on shared ownership terms, under the terms of the new shared ownership lease outlined above.

If you are unsure if you, or your property, are eligible, you should speak to your housing association landlord which will be able to assist you.

THIS ALL SOUNDS GREAT, IS THERE ANYTHING ELSE I SHOULD BE AWARE OF?

You need to be aware, as advised earlier, that this only applies to new grant-funded shared ownership properties. Nongrant-funded shared ownership, shared ownership sales arising from pre-2021 grant funding and shared ownership resales will continue in their current/original form and not benefit from the changes (unless landlords voluntarily opt to sell under the new model). This can create confusion for buyers in understanding precisely what product they are buying.

It is also possible over time, as has happened in the past, that mortgage lenders and the legal and consumer market may come to find the older form of shared ownership less desirable. Hopefully this will not be the case as it is still a very good product for both buyers and mortgage lenders, but it is a risk that cannot be discounted (albeit one would hope Homes England would then dictate a variation to the previous leases as it has done before).

The shared ownership lease has also been subject to a general “tidy up” and modernisation (such as allowing working from home in a home office or the ability to sub-let in some exceptional circumstances) to reflect changes in society.

Prince Evans specialise in all aspects of conveyancing. Please contact Prince Evans for all your conveyancing needs and for a friendly no obligation quote on 020 8567 3477 or nbh@prince-evans.co.uk

SUMMARY

Clearly the changes will be very welcome to buyers, with a longer lease term, a lower purchase/deposit entry level (enabling more people to take a first step on to the housing ladder), less cost for buyers, reduced administration, a more flexible approach to buying additional shares and fairer resale procedures.

However, for housing associations it does mean they will need to quickly adapt to a new product, new working practices and new financial responsibilities. They will also need to ensure their staff are fully trained in both the old model of shared ownership as well as the new model so they can help prospective buyers on their journey to home ownership.

Introducing a new product also adds another layer of complication to shared ownership with a number of variations of shared ownership now running side by side.

This only highlights more than ever the importance of ensuring you instruct

shared ownership specialists when you

buy a shared ownership property, none more so than your conveyancer who will need to fully understand and advise you on the new shared ownership model lease.

Prince Evans Solicitors LLP specialises in all aspects of shared ownership conveyancing including the new shared ownership model and we are ready to assist you on the contact details shown.