12 September 2019
Author: James Nelson
The British dream of home ownership has increasingly become something of a pipe dream for a large number of ‘millennials’. Affordability burdens and an imbalance in supply and demand are some of the factors obstructing the ability of younger adults to get a foot on the ladder or make a move towards home ownership.
Amongst a backdrop of measures designed to assist prospective first-time buyers (such as stamp duty land tax relief), the government has released a discussion paper with the intent of overhauling the Shared Ownership scheme- with a view to bringing more people onto the property ladder.
Shared Ownership was introduced in the 1970s as a tool to get homebuyers, hampered by barriers such as deposit amount and income, on to the property ladder. Under the scheme, homeowners would buy between a 25 per cent and 75 per cent share of their property from a landlord (housing association) and pay a subsidised rent on the remainder. The main attraction of the scheme was that the homeowner had the right to buy extra shares in the property (a process known as ‘staircasing’) – which could ultimately lead to owning the property outright.
However, the scheme has its limitations and shortcomings. For example, homeowners are only able to buy a minimum stake of 10 per cent for each time they staircase (which can sometimes be substantial) and have to pay legal and valuation fees incurred during the process. Furthermore, the current process for selling a shared ownership home is not renowned for its simplicity or efficiency – mainly due to the inclusion of a landlord pre-emption clause which gives the landlord an eight week window to market the property first.
The new scheme proposes to address both of the limitations stated above. Firstly, the steeper 10 per cent minimum share stake would be cut down to a one per cent minimum share stake, enabling homeowners to invest more flexibly in their property. Secondly, the landlord pre-emption clause would be jettisoned in favour of a ‘time limited right of first refusal’, which would provide a window for landlords to repurchase the property.
One challenge that the government will undoubtedly need to overcome will be to address the administrative fees associated with each respective staircasing. For example, a homeowner seeking to buy numerous share increments of say one per cent over a short period of time would be liable for the associated administrative fees for each staircasing transaction. This could provide to be costly.
The government will also need to consider what time period is attached to the landlord’s right of first refusal and the conditions for returning the control to the homeowner to resell, to ensure that it does not just become a re-labelled pre-emption clause.
Whilst the scheme proposal is a purely a discussion document at this stage (and therefore not ground in stone), it is nevertheless a step in the right direction for buyers looking to take their first step on to the housing ladder.
James Nelson is a Solicitor at Sharpe Pritchard, who specialises in matters including Commercial Lease Negotiations, Acquisitions and Disposals of Commercial Property, Asset Management (licences, variations, assignment, underlettings), Development Agreements, Licensing, and Telecommunications Mast Agreements. For more information, please contact him today at email@example.com.
This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.
© Copyright 2019 Sharpe Pritchard