Types Of Property Ownership In The UK
With house prices rising, it is becoming more difficult to get onto or climb the property ladder. There are various options available in order to do so. Choosing the right type of property ownership that is most appropriate for your situation can help you get onto the property ladder and avoid problems in the future. This guide will help outline the pros and cons of each type of property ownership in the UK, and help you make the right decision.
1) Sole Proprietorship
Sole proprietorship is the simplest type of property ownership, where 1 person is the sole owner of the property, meaning they have full responsibility.
Pros of Sole Proprietorship
- Complete control over decisions concerning the property. For instance, when to sell. Therefore, discussions do not need to be had with other parties, which may complicate matters.
- There is the option for a joint borrower proprietor mortgage if costs of the mortgage/ownership is too much. This usually comes in the form of a second party such as a parent or relative helping the sole proprietor purchasing the property by being included in the mortgage. While the sole proprietor still retains complete control and ownership of the property.
Cons of Sole Proprietorship
- There is the added complexity of assigning an heir to the property if anything were to happen. In order to pass on the property to an heir, the property will have to be probated. This can be an expensive and prolonged process.
- Sole proprietorship can be an expensive option, especially without a joint borrower proprietor mortgage. All initial property costs and mortgage are solely paid by the owner. Therefore, you will have to be shrewd with your finances.
Joint tenancy means that a property is co-owned. Therefore, all owners will have ownership of the property together with no separate shares. This is the most common method of co-ownership in the UK. Usually people who use this method of ownership are in relationships, marriage or civil partnerships.
Pros of Joint Tenancies
- The main advantage is that it allows the owners to avoid the prolonged and expensive process of probate. As upon the death of one of the tenants the other surviving tenant receives full ownership of the property, this is called survivorship. This gives people the piece of mind, and avoids costs.
- It also can be a much cheaper option compared to sole proprietorship as it equally shares the deposit and mortgages amongst the tenants. Who all have to pay equal share.
Cons of Joint Tenancies
- If another tenant were to become bankrupt or fall into debt. This can leave other tenants exposed to the consequences. Despite not falling into debt or becoming bankrupt themselves.
- You will have a lack of freedom on decisions concerning the property as permission has to be granted from other tenants also. As everyone has equal share of ownership.
- It can become problematic if relationships between tenants become unstable. Such as divorces or breakdown in friendships. Due to co-ownership of the property it becomes complicated to sell or encumber the property without the consent of other tenants.
Shared ownership provides the opportunity for first time buyers to own a property through buying a share. Then paying rent in accordance with the remaining shares on the property. The share owner can increase their share through a process called staircasing, where they can gradually increase their share of the property to 100%.
Pros of Shared Ownership
- The main attraction is that this is cheaper than buying the whole ownership of the property. You can decide whether to buy 25%-75% of the property. This means that mortgage and deposit will be less, as it is dependent on what size of share you buy.
- The rent paid is less than when compared to renting outside of a shared ownership agreement.
- There is an opportunity to increase your share of the property (called staircasing) to eventually have full ownership of the property.
Cons of Joint Tenancies
- There will likely be restrictions on what you can do, as you are not in full ownership of the property. In most cases you will have to ask for permission from other shareholders.
- Staircasing can be expensive, as it is not just buying the share there are other costs involved. Such as, valuation fees, legal expenses, stamp duty and mortgage fees.
- Make sure that the house you go into shared ownership with is for the long run. There is a risk of negative equity. As soon as you move into the property, its value depreciates. Therefore if you move property in the future you will likely lose money. Therefore, be honest with yourself when looking around the property. Are you wanting to start a family? Is there enough storage?
- If you do want to sell you home, there can be issues around selling shares. The house provider has the right to buy back the property before anyone else. In some cases this can still happen despite having 100% share. If your house provider fails to find another buyer you are free to sell the property yourself. However, the pool of potential buyers will be reduced as people have to meet a set criteria to begin a shared ownership.
Tenants in Common
Tenants in common is an agreement between 2 or more people to share ownership of a property. Tenants own a certain percentage of the property, for example Tom owns 25% , Megan owns 50% and Alice owns 25%.
Importantly, tenants in common differ from joint tenancy in the context of survivorship and ownership. Upon the death of a tenant he/she can give their portion of the property to anyone they want. Typically tenancy in common occurs when partners have children from previous relationships and want to secure their inheritances.
Pros of Tenants in Common
- A smaller share of the property does not limit your rights to the property.
- It is a much cheaper option to solely owning the property. As all the deposit mortgages are shared amongst the tenants.
Cons of Tenants in Common
- A tenant can sell their share to anyone without having to discuss with other tenants. This could potentially upset the dynamics of the property.
- When a tenant dies their heir can do what they want with the share.
More first-time house buying articles:
- Home Improvement Ideas on a Budget
- Property Checklist for First Time Buyers
- Finding The Perfect Home
- Buying a House: Exchange & Completion
- Why Buying in London is Different to Elsewhere