David Turner is partner at Cavendish Law Group (CLG) in the shared ownership deptartment
For young first-time buyers, the first step onto the housing ladder can seem like a giant leap, particularly with house prices picking up again this year requiring ever-larger deposits.
Coupled with a national housing shortage which consecutive governments are having to address, many are looking at alternative routes through the market to get to a home they can call their own.
Shared ownership is certainly one way and probably represents the best opportunity to get on the housing ladder if buyers are unable to afford a property on the open market.
However, it’s important for brokers to be aware of the considerations prospective owners should have in mind, before committing to a shared ownership deal. These include a number of restrictions such as rent, ground rent, service charges and not being able to sell to the open market until they own it outright.
Some homebuyers have fallen foul of this in the past because of a lack of awareness, which is where ensuring the best advice from conveyancers operating in this area will help avoid some of the pitfalls.
But brokers also need to be aware of the new government reforms that were given the green light at the start of April, which should go some way to ironing out the problems that people had come up against previously.
One of the biggest changes is around the minimum stake required, which is coming down from 25% to just 10%. That is clearly going to open the option up to many more people for whom a ten per cent stake is more realistic.
Another key area is around so-called staircasing – the ability to increase your % share in the property. Under the new reforms, standard minimum staircasing has been reduced from ten per cent to five per cent.
The reforms also go some way to addressing another of the restrictions in terms of selling-on as the Housing Association always has first refusal. But now the resale nominations period – the number of weeks the HA has an exclusive right to market the property – has been reduced from eight to four weeks. That will tip the balance slightly more in favour of the homeowner.
But it’s also important that brokers are clear about some of the drawbacks that buyers will face, such as the cost of rent paid on the remaining un-acquired share, typically at market value.
On top of that there will be service charges and in some cases ground rent as the properties will be leasehold. Another issue to raise with prospective owners is that unlike owning a property outright, it is not possible to convert your mortgage to rent out the property.
So, with the new reforms now going ahead, and key elements such as the minimum stake being changed to benefit the homebuyer, the option of shared ownership will be appealing to many.
It is one of many initiatives now rolling out with the dual aim of helping first-time buyers and supporting the housing market. And what they all have in common is the need for the best advice from expert conveyancers who know the market and can support the purchase process right up to the day they collect the keys.