Shared Ownership Finances

Shared ownership offers a route to homeownership for those struggling to afford a mortgage on the open market. It involves buying a share (typically 25% to 75%) of a property and paying rent on the remaining share to a housing association. Understanding the financial implications is crucial before taking the plunge.

Initial Costs

The initial costs are lower compared to buying outright. A smaller deposit is required, typically 5-10% of the share you’re buying. Stamp Duty Land Tax (SDLT) can be paid on the share purchased, or you can elect to pay SDLT on the full market value of the property (allowing you to avoid further SDLT payments if you staircase later). Legal fees, mortgage arrangement fees, and valuation fees also need to be factored in.

Ongoing Costs

Monthly costs include mortgage repayments on your share, rent on the remaining share, and service charges. Service charges cover the upkeep of communal areas, building insurance, and potentially management fees. Rent is typically a percentage of the housing association’s share, often increasing annually, usually in line with the Retail Price Index (RPI) or Consumer Price Index (CPI) plus a percentage. Unexpected maintenance costs can also arise, and understanding who is responsible for which repairs (you or the housing association) is critical.

Mortgage Considerations

Mortgages for shared ownership can sometimes be more challenging to secure than standard mortgages. Lenders may have specific criteria, and fewer lenders offer shared ownership mortgages. Interest rates can be higher. It’s wise to shop around and seek advice from a mortgage broker specializing in shared ownership.

Staircasing

Staircasing refers to buying further shares in the property, eventually owning it outright. This reduces the rent you pay, but requires further investment. Each time you staircase, you’ll need to pay for a valuation, legal fees, and potentially mortgage arrangement fees. The value of the property may have increased, making staircasing more expensive than initially anticipated. While staircasing reduces rent payments, mortgage repayments will increase as you borrow more money.

Resale

When you sell a shared ownership property, the housing association usually has the first right to find a buyer. This can sometimes delay the sale process. The sale price is determined by an independent valuation, and the housing association might charge a fee for handling the resale. In some cases, you might struggle to find a buyer, particularly if the property market is slow or if the share you are selling is small.

Financial Planning

Before committing to shared ownership, create a detailed budget outlining all expected costs. Consider potential future rent increases and interest rate rises. Assess your long-term financial goals and whether shared ownership aligns with them. Speak to a financial advisor for personalized advice tailored to your circumstances. Shared ownership can be a valuable step onto the property ladder, but careful financial planning is essential for a successful outcome.