Understanding Shared Ownership Costs for First Time Buyers

Purchasing your first home is a thrilling milestone, but the financial hurdles can be daunting. Shared Ownership schemes provide a more accessible path onto the property ladder, allowing first time buyers to step into homeownership without the need for a full property purchase.

This guide breaks down the costs, processes, and considerations you should understand before taking the leap.

Understanding Shared Ownership

Shared Ownership is a government-backed scheme that allows you to buy a percentage of a property usually between 25% and 75% and pay rent on the remaining share. This makes homeownership more affordable upfront compared to purchasing the property outright.

Learn more about Shared Ownership here.

What are the upfront costs of Shared Ownership?

Before moving in, there are several upfront costs that first-time buyers need to prepare for.

1. Reservation fee

To secure a property, most schemes require a reservation fee, typically ranging from £250 to £500. This fee is paid while legal and financial checks are completed. It is usually deducted from the final purchase price. But if you decide not to go ahead, it may not be refundable.

2. Deposit

The deposit is a percentage of the share you are buying, not the full property value. Lenders often ask for 5-10% of the share. For instance, a 5% deposit on a £50,000 share would be £2,500. It is crucial to save for this amount to secure a mortgage.

3. Solicitor or conveyancing fees

Hiring a solicitor or licensed conveyancer is necessary to handle the legal aspects of the purchase. Including searches, contracts and Land Registry fees. Costs can range from several hundred to a few thousand pounds, depending on the complexity of the transaction.

4. Mortgage related fees

If taking out a mortgage for your share, additional costs include mortgage arrangement fees, product fees, valuation fees and broker fees. These can vary widely depending on the lender but typically amount to several hundred pounds or more.

5. Stamp Duty Land Tax (SDLT)

First time buyers may benefit from Stamp Duty exemptions if the property falls below certain thresholds. Often, SDLT is only applicable to the share being purchased. Some buyers choose to pay SDLT on the full property value upfront to simplify future staircasing.

What are the ongoing costs of Shared Ownership?

Once you move in, you will encounter several recurring expenses.

1. Mortgage payments

Mortgage payments are made only on the share you own. The amount depends on your mortgage rate, term and the share size. It is essential to budget realistically for these payments alongside other monthly expenses.

2. Rent to the Housing Association

You will pay rent on the portion you do not own, typically calculated at a reduced market rate (around 2.75% of the unsold share per year). This rent can increase over time but is generally lower than full market rent.

3. Service and estate charges

If the property has communal areas, you may be required to pay service charges covering maintenance, cleaning and other shared costs. Estate management fees may also apply in some developments. These charges vary depending on the property and location.

4. Buildings insurance

Insurance for the building is mandatory and protects against structural damage. This is separate from contents insurance, which is optional but recommended.

5. Council tax and utilities

As with any property, council tax, water, gas, electricity and other utility bills are ongoing responsibilities.

Future costs: Staircasing

Many Shared Ownership schemes allow you to purchase additional shares over time, known as staircasing. Buying more of the property will increase your mortgage payments but reduce the rent owed. Stamp duty may also apply when increasing your share, so it is essential to plan financially for future staircasing.

Tips for first time buyers

• 1. Request a full list of costs: Before reserving a property, ask the housing association for a detailed breakdown of all upfront and ongoing costs.
• 2. Compare mortgage products: Shop around for the best mortgage rates and fees, as these can significantly impact affordability.
• 3. Budget for ongoing expenses: Rent, service charges, mortgage payments and utilities must all be considered when assessing affordability.
• 4. Consider future plans: Think about whether you want to staircase in the future and how that will affect your financial situation.

Example calculation

Let’s illustrate the costs for a property valued at £250,000, buying a 25% share:

This example shows that upfront costs can range from £5,000 to £6,000. With ongoing monthly costs around £966, excluding utilities and council tax.

In conclusion

Shared Ownership offers a practical and affordable route onto the property ladder for first time buyers. While the upfront and ongoing costs are lower than purchasing outright, it is crucial to understand all associated expenses. Including rent, service charges and potential future costs like staircasing.

By carefully budgeting, researching mortgage options and planning for long-term financial commitments. First time buyers can make Shared Ownership a viable step toward full homeownership. Taking the time to understand these costs ensures that the dream of owning a home can become a sustainable reality.

Explore Shared Ownership listings here.