Zahrah Aullybocus is a Property Partner with Nexa (and Shared Ownership Resources sponsor). She acts for purchasers and sellers of shared ownership leases. In this feature she addresses a shared ownership inheritance question which is likely to be on the minds of many shared owners who are also parents.
“Please can you help! I have a short lease: 74 years / 50% shared ownership. It would cost £25,000 to extend it. I am a retired nurse, and not planning to sell. Would my children be able to sell my home when I am gone? “
Zahrah says…. There are a few things to consider here – your options will depend on whether the property is a house or a flat.
The length of the lease
Shared owners should ideally start planning for a lease extension as soon as there are 90 years left on it, and plan to complete the extension before the lease runs down to 80 years. The lease extension ‘premium’ becomes more expensive once 80 years are left on the lease as this is when marriage value is applied, sending up the amount payable for the lease. Many mortgage lenders will require a lease to have 85 years or more left to run on it before they will agree to release monies on a mortgage.
If the property is a flat, you will definitely need to extend the lease in order to be able to sell.
If the property is a house, the other option is to ‘staircase’ to 100%, acquire the freehold and then sell the property at full market value. You do not need to staircase first to sell – a staircasing and sale at full market value can be run in tandem and completed at the same time. The freehold is then transferred to the end buyer (but be prepared to pay additional costs for conveyancing as these are effectively separate transactions!).
Will your children be able to sell it?
Yes, your children will be able to sell the shared ownership property (after they have acquired a grant of probate). However again, the options will depend on whether the property is a house or a flat.
If the property is a house, your children will have the option above for a simultaneous sale & staircasing.
If the property is a flat, however, the amount of equity/inheritance left in the property for your children will dwindle. The longer it is left to extend the lease, the more it will cost your children to sell as they will not be able to sell it to someone who requires a mortgage without the lease being extended. For each year that goes past, the ‘premium’ (lump sum payable to extend the lease) increases. It may be that at the point of sale, even if sold as shared ownership for your remaining share, there may not be much equity left in the property to divide amongst your children as this may be eaten up by the premium for the lease extension, costs involved with extending the lease (solicitors fees – you are expected to pay both the housing association’s solicitors fees and your own solicitor’s fees) and sale costs.
The sale costs will include the housing association’s assignment fee (if selling as shared ownership) and also information pack fees (which can vary depending on where the property is located and if there is a third party management company on site).
Where the flat has cladding, you may need to factor in any large bills for this. Don’t forget also, your rent and service charge does not get suspended when you die. Your beneficiaries will need to pay this every month until the date the property is sold. If your beneficiaries do not pay, they will accrue as ‘arrears’ on your account and the debt will need to be settled with the sale of the property. Depending on the market, it can take several months for the property to be sold. Do ensure you have adequate life insurance or savings to cover (by way of worst case scenario) at least a year’s worth of rent and service charges to allow your beneficiaries time to organise themselves and prepare the property for sale.
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Please click on the image below to download Zahrah’s guide to Shared Ownership Staircasing: Purchasing Further Shares in your Property – How it works.
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