Shared property ownership – what a concept for North America! As usual, the Brits are way ahead of the curve on affordable home ownership and this program has existed for over 30 years. I first ran across the idea back in 1983 when I lived in London. At the time, I was newly married and pregnant and living in one of the worst places on earth called the Aylesbury Estate. This horrendous concrete jungle was the nastiest Council Housing in London and the most dangerous as well. I read about Shared Ownership in a magazine I had picked up and promptly called the Housing Authority that was implementing the scheme and I have never looked back.
The idea behind Shared Ownership is to give those with limited incomes a hand up onto the property ladder. Housing is brutally expensive in London and other major cities in England and many folks just don’t have a chance to buy a property. Reminds me of Toronto, Vancouver, Ottawa and many other places in Canada were people are priced out of the market. Public housing is scarce, private renting is becoming more expensive, while the 25% deposits demanded by mortgage lenders are locking out first-time buyers because it is just not possible to save that much when house prices are over $250,000 for something decent.
Shared ownership basics
Shared ownership allows people to part own and part-rent their homes. The scheme operates through housing associations. People can buy from 25 to 75 per cent of a property, using a small deposit and mortgage, and rent the remaining “un-owned” share.
What is the Housing Corporation?
The Housing Corporation was introduced by the UK government in 1964 to ensure that enough affordable homes were being produced in the country and that they were of good quality. The Housing Corporation gets money from the central government and funds homes built by housing associations. Only registered housing associations get funding and once registered their management and financial performance is monitored by the government to ensure standards are met.
What is a Housing Association?
Housing associations are non-profit organisations set up to provide and manage low-cost housing for rent and for sale to people that cannot afford housing. While the majority of housing associations use government money from The Housing Corporation to provide housing, some may use their own money and are registered charities. Housing associations registered by the Housing Corporation are also known as registered social landlords.
How do you apply?
In London, there is a website that you can use to ascertain whether or not you qualify for shared ownership and a simple process for applications. Share to Buy is a very simple website to use that dispels the myths around the process, provides information on available properties and an easy application and eligibility process.
Who is eligible for Shared Ownership?
You can buy a home through shared ownership if your combined household income is £80,000 a year or less (or £90,000 a year or less in London) that’s around $130,000 Canadian. Keep in mind that properties here in the UK average around £232,000 or $380,000. The following conditions may apply:
- you’re a first-time buyer
- you used to own a home, but can’t afford to buy one now
- you’re an existing shared owner
How it works
Shared ownership properties are always leasehold. In the UK, this means that you never own the land the property sits on you ‘lease’ the land for a period of time and after that time is up it reverts back to the ‘landlord’. Usually leaseholds here go for 99 years and sometimes you have to negotiate those terms if there are only a few years remaining on the leasehold.
If you’re aged 55 or over you can buy up to 75% of your home through the Older People’s Shared Ownership (OPSO) plan. Once you own 75%, you won’t pay rent on the rest.
Disabled people: You can apply for a plan called home ownership for people with a long-term disability (HOLD) if other Help to Buy scheme properties don’t meet your needs, if you need a ground-floor property for example. With this plan, you can buy up to 25% of your home. If you’re disabled you can also apply for the general shared ownership scheme and own up to 75% of your home.
Buying more shares
You can buy more of your home after you become the owner. This is known as ‘staircasing’. The cost of your new share will depend on how much your home is worth when you want to buy the share. The housing association will get your property valued and let you know the cost of your new share. You’ll have to pay the valuer’s fee. Any increase in market value of the property owing to renovations that you have done will be valued at the time and discounted from the price you will be asked to pay. You are then granted a window of three months to arrange a mortgage and purchase the additional percentage. In this way, you can usually purchase 100% of your home and sell it in the normal way if and when you wish to move. Alternately, the housing association may want to buy the property back from you in order to offer it to other people in need of low cost housing. In this case, it will be sold at current market value.
You will pay what is called ‘fair market rent’ on the balance of the property you don’t have a mortgage on. You are responsible for ALL the maintenance and upkeep on the home just like a regular homeowner. You are also responsible for all exterior and interior decoration and most homes here come without carpeting, flooring and appliances so you must pay and install those items. In some cases, there may also be a small maintenance fee similar to condo fees in Canada, which will cover any potential structural costs for shared roofs, communal areas and sometimes recreation facilities. This is known here as a ‘sinking fund’.
Arranging a mortgage
In some cases, the housing association might be able to actually help you arrange a mortgage. As in a normal purchase, your credit rating must be good and you can apply to your bank or credit union to finance the purchase. If you have difficulties in obtaining a mortgage, the Housing Association can assist in some cases.
Purchasing your home
Once your mortgage offer is confirmed, you must contact a solicitor or ‘conveyancer’ to begin the conveyancing process with the housing association. All the legalities such as local authority searches and title searches will be carried out on your behalf (and at your expense) by your conveyancers. Prior to this, you will receive a draft copy of the contract from the housing association via your conveyancers who will explain the ramifications of the contract to you. The housing association, soon to be your new landlord, will advise you of the due and the service charge on the percentage which you have not bought.
A Licensed Conveyancer, is someone who is trained and qualified in all aspects of the law dealing with property. A Licensed Conveyancer can act for buyers, sellers and lenders. The professional who handles your property transaction is still a qualified lawyer, and the client has exactly the same legal protection as with a Solicitor. From Mundy’s of London
Selling your home
If you own a share of your home, the housing association has the right to buy it first. This is known as ‘first refusal’. The housing association also has the right to find a buyer for your home.
If you own 100% of your home, you can sell it yourself.
Shared-ownership: the downsides
- As well as monthly mortgage and rent there’s a service charge, which can be high in an apartment block with amenities such as a pool or a gym.
- You are responsible for all interior items such as stoves, fridges, washing machine and so on. In addition, most homes in England do not come carpeted or with flooring when new, there is a possibility these are in place if the home was previously occupied but be aware you may need to purchase these items.
- Sub-letting, even informally renting out a spare room, is usually forbidden under the lease.
- Buyers must do their own due diligence in terms of location, price and what the neighbours and community are like.
- You can sell your share at anytime, though it is not always as easy as a normal open-market sale. Often housing associations have right of first refusal, typically eight weeks to find a buyer, and will get a surveyor’s valuation.
- Once sold, you pay a minimum 1.25 per cent of full market value, similar to an estate agent’s fee. With high demand, it is easier to sell on than it used to be.
Are there any other ways to get into shared ownership?
Besides the housing association-run initiatives, some private developers run their own shared ownership programs. The details vary between developers but they all let you buy a percentage at the outset with the idea to increase this as time goes by, they then recoup their percentage when you sell up and move on or after a given time period.
Rent-2-Buy is a new idea where you, as the tenant, agree to a fixed, 6-year lease and to take over maintenance of the property. In return for your commitment and work, you receive 6% of any increase to the property’s value on an annual basis. Additionally, you may sign an ‘option to purchase’ contract at the outset of your tenancy. This contract gives you the right to buy, from the end of the third year until the end of the sixth year of your tenancy, at a discount of 36% of the growth in property value. You do not have to buy and you can exit your lease with one month’s written notice after you have lived there for six months. It is not the same as shared ownership but at least you are getting a small return on the money you pay as rent.
Seems to me that this shared property ownership scheme is an idea whose time has come for implementation in Canada. What a brilliantly simple way to get people into the housing market at an affordable price. Habitat for Humanity does a stellar job but can only supply one or two houses at the most. This kind of plan would be ideal in communities that are desperate for affordable housing options and in cities like Toronto and Vancouver where there is no chance to afford a property this could change the face of housing.