When you purchase a shared ownership property it is important to understand that the property will be leasehold and what this means for you. There are approximately 202,000 shared ownership households already in the UK. It’s an option that is becoming increasingly popular for those hoping to get up the first steps of the property ladder.
When doing your research you may be wondering – what’s all this talk about a leasehold? The topic can get confusing, so we’re here to break it all down for you!
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MPs have recently claimed that the leasehold system needs to be reviewed. In light of this, we thought it would be helpful to explain what leasehold is and what it means to shared ownership homes.
We have discussed further down in the article the proposed changes to this, which have been made in January 2021.
What does leasehold mean?
When you buy a property it can be freehold or leasehold. Freehold means that the homeowner owns the property and the land that it is on. Leasehold means that the property is ‘leased’ to the homeowner often for a set period. You will need to find out what opportunities there are to extend the lease. If you live in a leasehold property, you will be expected to pay ground rent. Also depending on the property type, service charges as well.
Are shared ownership properties leasehold?
Most shared ownership properties are leasehold properties. The occupier owns a share of the home. The remainder, as well as the land, belongs to the housing association.
When you live in a shared ownership home, you will pay your mortgage on your share. You will also pay rent to the housing association for the remainder. You will also pay a service charge. A service charge is the cost for the upkeep of the grounds and any other costs such as administration.
What are my options with my shared ownership?
It is possible for you to increase the shares you have of your shared ownership property in a process called staircasing.
Additionally, you may also have the opportunity to purchase your house outright. This option can be dependent on the property type, and you should always ask for details from the housing association directly. Purchasing your property outright i.e including the land it sits on, will change from leasehold to freehold. This means that you own the entire property and the land it is built upon.
If the housing association are happy for you to buy the leasehold, your property would then become freehold. However, the housing association are not under any obligation to sell it.
What do I need to do about the leasehold on shared ownership?
If you are buying, or considering buying a shared ownership home, you should ask the housing association at this stage whether you will have the opportunity to buy the leasehold later on. Discuss this with your solicitor who will be acting on your behalf and they should be able to get an agreement in writing.
It is also useful to find out the length of the current lease and what the options are to extend it.
If you do not have an agreement, the housing association could refuse to sell the leasehold later on which could impact the value of your property as well as creating delays when you do come to sell.
If you need to find out more, there are some helpful sites available online, such as The Leasehold Advisory Service.
Once you have made your decision use our moving house checklist which lists the things you need to do when moving house.
What are the new leasehold changes?
The Leasehold Reform Act 2022 received royal assent on 8 February 2022, which includes some of the following changes:
- Give leaseholders the right to extend lease agreements as often as they wish, at zero ground rent for a term of 990 years
- Enable leaseholders to buy out the ground rent without extending the lease term
- Launch of a Commonhold Council
- Regulation of all property managing agents
What do these changes mean for shared ownership homeowners?
Long leases will make the buying or selling of a leasehold property much easier; therefore benefiting those seeking to staircase or purchase outright. The changes also benefit those not in a position to staircase; if agreed with the housing association they can remain in their shared housing paying what they are comfortable with, without the worry of the lease expiring.
Currently, shared ownership is unavailable in commonhold properties, but recent developments mean there is a current consultation period ongoing in changing this. This may mean more people will become part of a commonhold, which you can learn more about here.
For an abundance of additional resources regarding shared ownership, head over to the MovingSoon Hub.