What do shared owners want? Part 3

Why do lease extension and staircasing matter for selling a shared ownership home, and for the over-55s?

Selling a shared ownership home is sometimes more complicated than shared owners anticipate. It can act as a trigger for realising the full implications of lease extension and staircasing issues. There are also concerns that over-55s might sell freehold homes to purchase a shared ownership retirement home without a full understanding of the trade-off being made.

Background

I asked people who’ve purchased shared ownership homes about their experiences of lease extension – via social media – and compiled the responses into a formal report with recommendations. This is the third of three articles summarising themes from that report. The previous articles focused on:

  • valuation fees;
  • lease extension premiums;
  • statutory and informal routes to lease extension; and
  • lease extension premiums.

An ad-hoc informal approach can’t substitute for well-funded, rigorous research. Nonetheless, some key themes and distressing stories emerged which warrant greater attention. A selection of quotes from shared owners – and some key recommendations – follow. The full report can be downloaded at the end of this feature.

Shared owners say:

“Nearly pushed me off the property ladder. I lost best part of £17,000 in all to extend the lease and walked away with less for my share than I’d paid.”

“I’m currently selling my SO house… I was sold it three years ago with a short lease. It was not explained to me the cost implications. I cannot afford to extend the lease as it is thousands. Therefore I’m selling at 100%. I am incurring stamp duty and staircasing costs on a house that is only remaining a share to me. It is grossly unfair.”

“I bought a 50% share in 2008. Lease length was 79 years at the time and both [the housing association] and solicitor failed to advise me the implications of buying with a lease below 80 years. I lived there for 12 years, completely unaware. [My housing association] didn’t warn me at any point of the rising costs and depleting house value as the years passed. It was only when I sold it arose as my buyers couldn’t get a mortgage. It cost me £12,800 for the lease premium to add 90 years. I also had to pay: £600 survey costs, £950 for the [housing association’s] solicitor, a £350 permission fee to the [housing association] to extend, plus my own legal fees. It was a horrendous process. I had no rights to extend so had to be informal route.”

“I expected my retirement to be something to savour but it has been a nightmare as we were misled by the housing association’s glossy information that we owned 75% of the property and it was ‘easy maintenance’ and ‘cost effective’ living which it is not”.

“We moved from our freehold property into a shared ownership bungalow due to health reasons… It was advertised as shared ownership for over 55’s and we ‘purchased’ the maximum 75%. We cannot staircase to 100% so we have no statutory rights at all I now know”.

Key Recommendations

  1. Shared owners pay only their proportionate share of the lease extension premium (and of all costs).
  2. Lease extension to 990-years with ground rents reduced to peppercorn as standard for all shared owners; with retrospective application for legacy shared owners with short leases for an affordable, nominal, flat fee of not more than £2,000.
  3. The Zucconi precedent (a change in the method for calculating the cost of leasehold premiums once fewer than 80 years remain on the lease, which can more or less double the cost compared to pre-Zucconi) not to be taken advantage of with immediate effect, with recompense to shared owners who’ve already paid a lease extension fee calculated taking advantage of the Zucconi precedent.

Additional Recommendations

Selling an SO Home

There does not appear to be a great deal of data to assess the experience of selling shared ownership homes. Housing associations do not necessarily analyse data between people who staircase and/or extend their lease in order to sell, and those who do so for other reasons. Which is surprising considering ‘foot on the housing ladder’ marketing rhetoric implies that sale to make a gain towards a subsequent property is one fundamental component of the shared ownership rationale (the other being purchasing a home in instalments). 

  • Analyse statistics on numbers and percentage of shared owners extending their lease to establish how many do so simply in order to facilitate a sale.
  • Clearer explanations of potential risks and long-term costs, as they relate to equity, in marketing materials and at point of sale.

Over-55s

In some cases, this demographic may be more vulnerable to poor outcomes than younger shared owners.

  • Full transparency on all aspects of shared ownership schemes targeted at over-55s, including any limitations on staircasing to 100%, and implications arising.

Click on the icon below to open the full report.

 

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