29 July 2021
If you purchased a home using the Shared Ownership scheme and the value of the property changes over time, you will probably left wondering what this means for you.
True Solicitors explain what the consequences are if your property increases or decreases in value.
Shared Ownership works by allowing buyers to purchase a percentage of the value of the property. This is typically between 25% and 75%. The remaining share of the property will be owned by a private developer or housing association.
You will pay mortgage repayments on the portion of the property that you own, plus a reduced rent on the rest. You may also be eligible to purchase a greater percentage share of the property over time. This is a process known as staircasing, for example if you originally purchased 25% of the property but then go onto purchase more of the property incrementally, i.e. 5% at a time.
If you’re staircasing you are required to get a Shared Ownership valuation. Should the value of the property have increased to a point that means you are unable to afford the percentage share that you were planning to buy, you may decide against increasing your share. Alternatively you may decide to take out a bigger mortgage to cover the additional costs or buy a smaller share.
It is also important to bear in mind that if the value of the property you have purchased has increased, the housing developer or housing association that owns the remaining share, may decide to increase the rent that you pay on the part of the property that you don’t own.
If you’re selling your portion of the property and the value of the property has increased this is good news for you as it means you should make a profit on your initial investment. However, if the value of the property has decreased this could mean that you are left in negative equity.
Negative equity is the term used to describe the situation when the amount you sell your property for is less than the amount that you originally purchased it for.
If your property is valued at an amount less than what you purchased it for, if practical, it might be a good idea to postpone the sale until the market picks up again.
Although it isn’t always possible to protect yourself from negative equity, for example if there is an unprecedented economic downturn which results in a crash in the property market. However there are things you can do to best mitigate falling into a trap of negative equity in the future. This can include:
True Solicitors can help you with your shared ownership conveyancing needs. We offer a no completion, no fee guarantee. Use our free, conveyancing fee calculator to get an idea of the legal fees you may pay for purchasing your new home.
