Understanding Shared Ownership leasehold agreements: What you need to know

If you’ve decided that Shared Ownership is the best way to get on the property ladder, you’re not alone. Thousands of first time buyers are reaping the benefits of this alternative and often more affordable route to buying a home. But before you can enjoy the advantages that this scheme has to offer, you’ll need to acquaint yourself with the details of Shared Ownership leases.

When it comes to things like rent, service charge and lease length, it’s important that you know your lease inside and out. Here’s what you need to know about Shared Ownership leasehold agreements:

What is a leasehold agreement in Shared Ownership?

If you buy a house outright, you will usually own the freehold of the property, meaning that you own both the building and the land it resides on. On the other hand, if you purchase an apartment, whether on the open market or through an alternative housing scheme such as Shared Ownership, you will instead be the leaseholder, meaning you own a lease on the property.

With Shared Ownership, individuals purchase a share of the property and pay rent on the remaining share owned by a housing association, developer or local authority. The amount of rent is based on the share still owned by your housing association, and you’ll also make mortgage repayments on the share you bought. You’ll still get to enjoy the benefits of owning your own property, but the way you pay for your home is structured differently.

Having said that, if you purchase a Shared Ownership house, your lease can change once you own the property outright. You can reach this point by ‘staircasing’, a process where you buy more shares of your home over time. If you go on to buy 100% of your house, you can discuss with your housing provider about becoming the freeholder of your home. This is an option you can take at any time, unless of course you have no desire to buy the whole home as staircasing is a completely optional process.

However, you should be aware that this is usually only available on houses, not apartments, and some housing providers do not offer the freehold of a property once an owner has staircased to 100%. All information will be outlined in the terms of your lease, but we would recommend speaking with your housing provider at the very start of the process, even before you buy the property, to discuss what your options are after staircasing. 

How do leaseholds differ from freehold agreements?

The difference between leasehold and freehold ownership hinges on who owns the land. While freehold grants ownership of both the property and land indefinitely, leasehold provides ownership of the property for a limited period, with the land remaining under the control of the freeholder. Leasehold ownership acts as a long tenancy, with terms typically lasting 99, 125 or 999 years, offering the owner-occupier security and stability in their home. Shared Ownership homes are leaseholds, but you can discuss becoming the freeholder with your housing provider after buying 100% of your house.

Key components of a leasehold agreement

Getting to grips with your Shared Ownership lease is crucial – how else will you know your rights and responsibilities as a homeowner? Three main elements form the core of these agreements: rent, service charges, and lease length.

Rent in Shared Ownership

Buying a Shared Ownership home involves buying a smaller share of your property, while paying rent on the share still owned by your housing provider. This is usually an annual payment that you’ll need to make to the leaseholder, alongside other additional costs.

Wondering how this is calculated? This will be based on the value of the property still owned by your housing provider and usually amounts to around 3% of the share value. However, when buying a home, it’s vital that you work out if your rent increases over time, as this could impact affordability. The terms of your rental payments will be outlined in your property lease, or you can query this with the relevant sales team before you buy a specific home. 

Service charges in Shared Ownership

One aspect of Shared Ownership that you need to be aware of is your service charges. This goes towards the costs of maintaining and managing communal areas in your development. Shared Ownership homes often come with swanky amenities like communal landscaped gardens and onsite facilities, giving you an extra incentive to take advantage of the scheme.

However, service charges can include expenses like cleaning, landscaping, and communal repairs. Your housing provider will generally estimate the cost of communal services at the beginning of each financial year and then divide the amount amongst residents.

Lease length

While renting a home means constantly renewing your tenancy, Shared Ownership grants you far more security as a leaseholder. Leases usually start from 99 years for new-build properties but can often be as high as 125 or 999 years, giving you the opportunity to decide if you want to buy more shares, or even sell your home over time.

As a leaseholder, you will enjoy ownership over everything within your property, from the furniture to the walls and ceilings, and you’re free to decorate your home as you wish. However, your landlord or housing association will still own the land that your property stands on and if you want to carry out larger, structural works, for example, fitting a new kitchen or building a driveway, you will need to check the terms of your lease and discuss the plans with your housing provider first.

OPSO: Older Persons Shared Ownership

If you think Shared Ownership is just designed for first time buyers, prepare for a surprise!

The Older Persons Shared Ownership (OPSO) scheme is another iteration that offers more affordable ownership for older adults looking to move into a new apartment or house. Just like regular Shared Ownership, this operates within the framework of leasehold agreements, giving older adults the chance to downsize to a home more fitting for their needs and finances.

Want to enjoy the flexibility and affordability offered by a Shared Ownership home? At Share to Buy, you can discover the finest Shared Ownership homes located across England and turn your home-buying dreams into a reality. Head over to our property portal to find a home near you today.