Buying a new home has become an unaffordable option for many people on low incomes. This is why shared ownership is now seen as a popular alternative. It allows people to own a share of a property and pay a reduced rent on the remaining portion, with the opportunity to increase their ownership levels at a later stage.
Many people are tempted to take out online loans to help buy more shares in their property but before doing so you should think about some of the pitfalls you may experience. Cash Lady cover it all below:
Increasing your shares may be expensive
If you want to increase the stake held in your property there are other costs involved that may make it more expensive than you thought. This includes:
Those not able to claim Stamp Duty Land Tax (SDLT) reliefs will need to pay a fixed amount in advance based on the current market value of the property. There is also another option to pay stamp duty in phases. You can decide which one is more affordable for you.
You will have to hire a solicitor as the current lease will need to be altered by a legal expert.
In order to get an official valuation of the property’s current value, the housing provider will also have to use a surveyor.
A mortgage arrangement fee and lenders valuation fee will be payable if you want to buy your increase share of the property with a new lender. Or to achieve improved interest rates. Your existing lender may also impose a penalty for the early termination of your agreement.
Falling into Negative Equity
It is worth taking into account how long you plan to stay in the property. If you are not intending to remain there for a number of years, you should give serious consideration as to whether it is worth buying up an increased share.
This is because a new build property purchased through shared ownership comes with an additional premium on the sale price. Once you move in, this starts to depreciate. Should house prices lower, you run the risk of falling into negative equity, and if you move you may lose money in the process.
Building Repair and Maintenance Charges
If the housing association doesn’t own the building, they will also not provide support for repairs and maintenance. This means on top of your monthly service charge, which will cover general caretaking of communal areas, you will have to pay for specific repairs such as roof maintenance.
These charges may also increase over time, which will have to be factored into your budget. Even if you only own 25% of the property, you will be expected to pay 100% of the full repair and maintenance charges.
Property Sale Complications
The housing association usually has the first refusal on whether to purchase the property if you wish to move. This is true even if you own 100% of the property through staircasing. The reason for this is to enable others on the waiting list to have access to the property.
This scenario can cause delays in selling the property and affect how quickly you find a new home. If the association cannot find a buyer, you can then put it on the open market. However, any prospective buyer must meet the association’s specific criteria for shared ownership. This reduces the number of potential buyers available to you and can also slow down you down.
Limits on Desired Property Alterations
Even if you own 40% of the property, there are likely to be limitations on the type of structural alterations you can make. Before doing anything, always check the lease. In most cases, you will have to write to the housing association to seek permission regarding any planned alterations. This may also apply to the simple redecoration of the property too.