For some, a shared ownership property is the best way to get yourself on the property ladder. Shared ownership leases can be used in the case of both houses and flats and there tends to be no real difference between the way the Leases are drafted for either a flat or house.
In order to understand how a shared ownership lease works, we must first address what this actually is and we have set out below the standard queries which are usually asked in respect of the same, together with a brief explanation of the answer.
What is a Shared Ownership Lease and how does it work?
Effectively, when you enter into a shared ownership lease, you are buying a proportion of the equity in the property and the balance of the equity is still owned by a third party, usually a Housing Association or another Social Landlord, who will then lease the remaining share of the equity back to you. Equity is more easily explained as being the difference between the full market value of the property and the mortgage loan amount which you have borrowed.
You will then be required to pay rent to the Social Landlord on the share of the equity which they have retained, as well as making any mortgage payments to your lender. You should ensure that you have factored this additional rent into your finances when looking to buy a shared ownership property, to ensure that you have enough money to cover the full costs.
Once you have purchased the initial share of the property, whatever that may be, you are able to buy additional shares from the Landlord, until you own the whole of the equity in the property. This is known as staircasing and tends to be purchases of a minimum of 10% of the equity from the Landlord.
Once you have purchased all the shares and own 100% of the equity, you will either then be the owner of a freehold house or a normal leasehold flat. This is known as a Final Staircasing.
By undertaking a final staircasing, you effectively terminate the Lease on a freehold house and remove the shared ownership provisions from the lease of a flat.
Stamp Duty Implications on a Shared Ownership Lease
When buying a shared ownership lease, it is possible that the cost of the share being purchased is less than the Stamp Duty threshold and therefore stamp is not always payable.
However, even if Stamp Duty is not payable on the share being purchased, it is possible to elect to pay Stamp Duty on the whole of the market value. If you elect to pay the Stamp this way, it is unlikely that any further Stamp would be payable on the acquisition of further shares.
If you are paying Stamp on the whole of the market value and the Lease provides that you will own a freehold house following the final staircasing, the Stamp will be calculated on the basis of the market value of the freehold house.
However, if you opt to pay Stamp on the initial share of the equity, you will only become liable to pay Stamp once you have purchased 80% or more of the equity of the property.
Further details regarding Stamp Duty implications can be found at: https://www.gov.uk/guidance/sdlt-shared-ownership-property
What happens when you come to sell?
If you come to sell a shared ownership property, you are required under the terms of the Lease to give notice of your intention to sell the property to the Landlord, who then have the option of nominating a purchaser to buy the property. The Landlord usually has a period of 8 weeks to nominate a party, if after which time the Landlord has not nominated someone, the property can be put on the open market for sale.
The sale price for the property must always be based on the value of the share of the equity which you are selling, rather than the value of the whole of the equity. Therefore, when you come to sell, you must ensure that the sale price is agreed with any prospective buyer and estate agent on the basis of the share of the equity you own.
If you have further queries regarding a Shared Ownership Lease or Stamp Duty Implications on a Shared Ownership Lease Talk to Tollers. Call us on 01536 276 727.