Lesley Price FCILEx of CGM Solicitors sets out the recent changes to shared ownership schemes which are designed to make the scheme easier to understand for first time buyers.
Shared Ownership Scheme – The Basics
All shared ownership properties and many retirement properties will be leasehold; whether they are houses or apartments. This is because the mechanism that creates the ownership “shares” is a model form lease that is approved by most mortgage lenders in advance and designed to regulate fairly the relationship between a housing association and its shared owner. The amount you will pay towards the upkeep of your home will vary depending on whether it is a house or apartment, but estimates should always be obtained so you can fully budget for the ongoing costs involved.
Key Information Documents
The housing association is now obliged to provide more detailed information at the stage you reserve your new home so that you can confirm the property will be suitable for your needs. These include a basic outline of the rules of the shared ownership scheme, a breakdown of the key terms that apply to your individual property, and a financial breakdown confirming the amounts you will have to pay for not only your purchase but other costs such as estate management charges. This should also confirm the date that your annual rent will be first reviewed. There are also separate packs for shared ownership, designated protection areas, older person’s shared ownership, and shared ownership for people with long-term disabilities.
Repairing Obligations
By far, the biggest change contained in the new model leases from a leasehold management perspective is the introduction of the 10-year Initial Repair Period (IRP) during which shared owners cannot be required to contribute via service charge to the cost of repairs to the external/structural parts of their building and can apply for a £500 contribution from the landlord each year for the cost of internal repairs for which the shared owner would otherwise be responsible.
During the initial repair period, the landlord is responsible for the cost of some repairs and cannot:
- Use the reserve fund (sometimes called the “sinking fund”) to pay for repairs that are its responsibility.
- Use the service charge to pay for external and structural repairs.
You’ll still need to pay the service charge if your home has an initial repair period. An initial repair period usually lasts for 10 years and only applies if you own less than a 100% share of your home. After the initial repair period ends, all repairs are your responsibility.
Smaller Percentage Shares
The other measure introduced in the new model lease is the ability to staircase (buy a further percentage of your home) in smaller amounts than previously. All shared owners can staircase in the “traditional” way but under the New Model Shared Ownership lease, you’re also eligible for a 1% annual staircasing transaction without any legal or valuation fees:
- Each year, the housing association should automatically send you a valuation based on the UK House Price Index – you can also request a valuation statement at any time – a valuation lasts for three months.
- You can accept this valuation or challenge it (you’ll need to pay for a RICS valuation if you want to challenge the housing association’s valuation).
- You bank transfer 1% of the full market valuation to the housing association.
- It will send you a statement of your new shares and reduced rent payment.
Specialist Advice
When deciding what type of property to buy, whether freehold, leasehold, or shared ownership, it is important that you seek experienced legal advice from a solicitor who understands that type of property. They will be able to go through the Key Information with you and explain any matters about which you are not sure.
Our friendly specialist team can provide a no-obligation quotation for your purchase, whether it’s a new property or an existing shared ownership home. Just drop us a line on newhomes@c-g-m.co.uk for more information.
