The shared ownership model makes it possible for first-time buyers to own a share of real estate. Businessman Alexander Studhalter believes that people should consider shared ownership as a viable option. In this article, Alexander Studhalter will further explain why that should be the case.
Firstly, what is shared ownership?
Shared ownership is an alternative homeownership scheme. In that scheme, first-time buyers and those without homes can purchase shares in new builds and resales.
An investor can purchase a share of a home, called part-buy, or part-rent, usually between 25% and 75%. The amount can vary if you choose the Shared Ownership model, which allows you to buy 10% shares first.
Housing associations, along with any service charge and ground rent, will collect a below-market-value rent on the remainder from buyers. The deposit is typically much lower than when purchasing a property outright since only a mortgage is required.
Why do people consider shared ownership, according to Alexander Studhalter?
Shared Ownership is a housing option for people who can’t afford a home outright. The costs of Shared Ownership are usually lower than those of other housing options for several reasons:
- At 2.75% of the property value, the rent is less than what is charged on the open market.
- You can start with a 25% share under the existing scheme or 10% under the new Shared Ownership scheme.
- Your deposit will be 5-10% of the share’s price, not the total market value of the whole property.
- SDLT (or ‘stamp duty’) can generally be deferred until 80% of the property is owned by you.
Alexander Studhalter explains what the different types of shared ownership are
Joint Tenancy: All tenants must, simultaneously, have an equal interest in the property through one sale deed. The concept of joint ownership is based on the right of survivorship. After the death of one co-owner, the property passes to the surviving tenant.
However, ownership over property would legally be considered tenancy in common. That is unless you mention in the property documents that the property is owned as joint tenants.
For example, Sita and Geeta bought a property together, explicitly mentioning the joint tenancy of the co-owned property. If one of the co-owners dies, her share will thoroughly pass on to the surviving tenant.
Tenancy in Common (TIC): A joint ownership arrangement in which the ownership percentages are equal or unequal under tenancy in common (TIC). For example, Sarah might own 40% of a property, while Bob might own 60%.
Each named party on the title is responsible for all aspects of the property. That means Sarah is not limited to accessing only 40% of the physical property or only 40% of the time.
Each owner’s right is to occupy and use the entire property. The interest percentage determines the financial ownership of the real estate.
It is the tenant’s responsibility to dispose of or encumber their portion of the property at any time. This type of title can be entered at any time—even years after other owners entered an agreement.
Ownership can be willed to other parties; in the event of death, ownership will transfer to that owner’s heirs undivided.
Limited Liability Company (LLC): Limited liability companies (LLCs) are business structures in the U.S. that protect their owners from personal liability for their debts. A limited liability company has similar characteristics to a partnership or sole proprietorship.
LLCs have limited liability features like corporations but do not offer flow-through taxation to their members as partnerships do.
What are the downsides of shared ownership?
- All lenders do not offer shared ownership mortgages. However, the majority will.
- You must pay 100% of your property’s ground rent and service charge; however, low your share is.
- If your share equals or exceeds 80% of the property’s value, you must pay Stamp Duty on its total value.
- All properties will be leasehold only. However, some homes can become freehold after staircase to 100%; this would need to be agreed upon with the relevant housing provider.
- Leasehold properties are sold under Shared Ownership. Leasehold ownership allows you to live in the home for an extended time (usually 99 or 125 years). As the lease term decreases yearly, you can buy or sell the house if you wish.
What are the advantages of shared ownership?
- As an owner-occupier, Shared Ownership provides long-term stability without overstretching yourself.
- Compared to buying on the open market, deposits are generally lower.
- Mortgages are more accessible with Shared Ownership, even if your income is low.
- The monthly repayments are often lower than if you had an outright mortgage. Compared to private rentals, the monthly payments are generally lower.
- Staircasing allows you to buy more shares of your home in the future. Most staircases can be used 100%, which means the purchaser pays only their mortgage, service charges, and ground rent.
- Your shares are available for sale at any time.
- It is not usually necessary to pay Stamp Duty land tax on the initial purchase.
Alexander Studhalter’s recommendation
- Unlike private renting, you have the security of tenure.
- You must pay rent and mortgage repayments for the duration of your lease, which is usually 99 or 125 years.
- At the end of the lease, the leaseholder can organize an extension with their housing provider. Alexander Studhalter recommends appointing a solicitor and surveyor with experience in this area.
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