A Chance to own your own home
The purchase of your own home is often the biggest investment of your life. It will take up a large portion of your income and you may not clear your mortgage for 30 years. Property prices are rising in the Island and, even though many lenders are willing to offer multiples of over five or six times a combined salary, many islanders find it difficult to step up onto the property ladder, especially if they have to find a deposit.
Tenants in the UK have had the right to buy for many years but October 2006 saw a major change when the UK government launched home–buy initiatives for low income families through shared ownership or equity schemes. They are expected to help up to 120,000 people become homeowners. These schemes enable local authority tenants, and those in accommodation provided by a registered social landlord, to acquire a stake in their own homes on favourable terms. Private sector shared equity schemes are also helping 40,000 people invest in their homes. Could it happen here?
In Jersey, the publication of the proposed sale of some States housing to existing tenants has opened up the possibility of such schemes coming to the Island. This has been followed up by recent announcements on the formation of a group (including Ministers) to consider shared equity.
If the States approve such schemes, many States tenants who would otherwise have never been able to have a stake in their own homes will have the chance to do so. It is likely to bring a new dimension to the market for homes in Jersey and this can only have a positive effect.
What is remarkable about the UK shared ownership schemes is that they allow a tenant to buy either 25, 50 or 75 per cent of their home with the help of a loan but without a deposit. The value of the share is calculated on a surveyor’s valuation. As the residual share of the property remains owned by the local authority or housing association, a rent is payable for that share. Owners will also have the opportunity to acquire the remaining share should their financial circumstances improve in the future. This means that the new owner’s outgoings may not significantly increase from the amounts previously paid in rent but, importantly, will give them a stake in their own future. The money, which was once paid as rent, will no longer be "dead money".
Another type of UK scheme, known as HomeBuy, involves the outright purchase of the property with 75 per cent of the purchase price being funded from savings and/or a mortgage but with the assistance of an interest free loan from a housing association for the remaining 25 per cent. It is a similar type of scheme that is being proposed by the Housing Minister for introduction in Jersey, with States rental property being offered for sale to existing tenants at "up to 25 per cent" discount on current value. This discount is recoverable from onward sales to first time buyers or when ownership of the property is transferred in other circumstances. The discount, which will be recovered by the States at that time, is linked to the percentage and market value of the home
There are a number of issues arising out of this proposal and we will watch closely to see what happens. All of these issues would have to be covered in agreements. Lawyers, such as myself, will help with these issues, in particular when sales are forced due to relationship breakdowns
If Jersey later decides to seek the flexibility available in all types of the UK schemes this could potentially extend their local applicability. Some changes to Jersey property law may be required to enable transactions structured in this way to be passed before the Court. I am certain these issues can be resolved if there is the will to do so.
My team at Viberts is keeping pace with the high volume of local property transactions for our clients and we have geared up to respond to the challenges ahead.
Before entering into any property related transactions, I would always recommend seeking legal advice from a locally qualified lawyer. Your home is too precious to risk not doing so.
Advocate James Lawrence,
Property partner
March 2007