Posted Oct 24, 2023
When buying a shared ownership property as a first-time buyer, you will need to consider several key factors. Our guide will provide you with some costs involved in buying a home through shared ownership.
Taking the first step on the property ladder can be daunting. Shared ownership can make homeownership affordable and accessible, especially for first-time buyers. With shared ownership, you purchase a share of a property (between 25-75%) and pay rent on the remaining share. This helps lower the deposit and mortgage required.
There are always initial costs when purchasing a property. You will also need to consider any ongoing monthly costs to make sure they are within your budget. Some costs associated with shared ownership could include rent and service charge on a monthly basis.
Reservation Fee
Before you can purchase a shared ownership home, you'll need to pay a reservation fee. This reserves the property only for you for a set period, usually around 4 weeks, and takes it off the market while conveyancing is underway.
The reservation fee is separate from your deposit. It ranges from £250-£1000 depending on the property value and location. Some housing associations may charge a higher reservation fee for newly built or off-plan homes. This fee is usually fully refundable if your mortgage falls through. However, it is non-refundable if you simply change your mind.
Aim to save up your expected deposit during the reservation period. This shows lenders you can handle large lump sums. Avoid spending your deposit money during these 4 weeks.
The earlier you pay your reservation fee, the sooner conveyancing can begin. Conveyancing takes around 12 weeks, so reserving your home 1-2 months before your ideal completion date is best. This prevents delays.
Guinness Homes offers one of the lowest reservation fees for shared ownership properties at only £99.
Monthly Rent
The housing association, who owns the remaining share of the property, charges the monthly rent. Rent is based on the rest of the share that you do not own. Rent is typically below market rates and calculated as a percentage of the property's total value - usually 2-3% per year.
For example, if you own 50% of a £200,000 property, the annual rent on the remaining 50% (£100,000) may be around £2,500-£3,000. This equals £210-£250 per month.
It's important to know the starting rent and understand potential increases before purchasing. Make sure that mortgage payments, service charges, housing expenses and the rent fits comfortably within your budget.
Buying larger shares will decrease the monthly rental cost. You could eventually own 100% outright.
Deposit for Shared Ownership
Getting together the deposit for your first home can seem daunting. With shared ownership, you only need a deposit on the portion you are purchasing upfront. This makes it an affordable way for first-time buyers to get onto the property ladder.
The deposit amount will depend on what percentage share you buy. Typically, you will purchase between 25-75% of the property value. The most common starting share is 25%. On a £200,000 home, a 25% share would be £50,000. Your deposit on this would be 10% of the £50,000 share price, which is £5,000.
If purchasing a 50% share at £100,000, your deposit would be 10% of this amount, so £10,000. Some lenders may allow as low as 5%, meaning a £5,000 deposit. For a 75% share at £150,000, you may need a £15,000-£22,500 deposit.
Always check the deposit amount and requirements. The bigger your share, the higher your deposit will be.
Aim to save up your deposit amount over several months or years. Cut back on non-essentials and put away a set amount each month. Pay off any existing debts, so you have a good credit rating.
Consider using a Lifetime ISA which gives a 25% government bonus up to £1,000 a year. Family gifts can help boost your savings for a deposit.
Once you've got your deposit ready, you can confidently start viewing and make an offer when you find the right home.
Owning even a portion of your own place allows you to decorate and make changes as you wish. Your share gives you a foot on the ladder and you can use 'staircasing' in the future.
Solicitor Fees and Legal Costs
A key cost to factor into your budget is solicitor costs. Solicitors handle all legal aspects of your purchase, including conveyancing. You'll need to appoint your own solicitor - the housing association may have their own too. Shop around to find one familiar with shared ownership.
Expect to pay £500-£1000 + VAT in legal fees. The exact cost depends on your property value and location. For a £200k home, fees could be £750-850. In London, you might pay over £1000. Your solicitor will provide a quote detailing their fees. This is binding, so won't change.
You'll also pay disbursements - costs your solicitor incurs on your behalf. These include search fees and Land Registry costs. For a £200k property, disbursements total £300-£500. So in total budget £800-£1500 for solicitors.
You pay solicitor fees yourself - they won't come out of your mortgage. Save up beforehand so you have the funds ready. Fees are due when you instruct the solicitor. You can ask if you can pay in instalments.
The earlier you appoint your solicitor, the better. Buying a home involves a lot of legal paperwork and searches, which takes time. Your solicitor will request these from the housing association once instructed.
The conveyancing process can take around 12 weeks. So instruct your solicitor 2-3 months before your ideal completion date. This prevents delays with searches or enquiries.
Your solicitor will handle key aspects like:
- Carrying out searches - checking for any issues with the property.
- Negotiating terms of your lease and mortgage.
- Transferring funds to the housing association on completion.
- Registering you as the owner with Land Registry.
It's worth investing in a specialist solicitor to ensure your shared ownership purchase goes through smoothly. Their expertise will provide legal protection and peace of mind.
Service Charges
You may need to pay a service charge to cover the cost of maintaining any communal areas, repairs to shared areas and facilities. This may include cleaning, gardening, stairwell lighting, lifts, security systems, etc.
Service charges are usually payable monthly. The amount can vary depending on the type of property, size and facilities, but as a guide, expect to pay £10-£150 per month. Flats and apartments with many communal areas can have higher service charges.
It's important to find out the exact service charge amount before buying a shared ownership home and budget for any increases. Service charges should be transparent and reasonable for the services provided.
Mortgage Broker Fees
A mortgage broker acts as an intermediary between you and mortgage lenders when you decide to take out a mortgage. They can advise on the mortgages available and help you find the best deal. Mortgage brokers typically charge a fee for their services, which can vary depending on the complexity of your situation.
For a standard mortgage application, broker fees often range from 0.5% to 1% of the loan amount. However, fees for shared ownership applications may be higher because of the more complex nature of these mortgages.
There are a few potential reasons mortgage broker fees might be higher for shared ownership applications:
- More limited lender options - Not all lenders offer shared ownership mortgages, so there is less competition. Brokers have to work harder to find suitable deals.
- In-depth affordability checks - Lenders will assess whether you can afford the rental and mortgage repayments. More extensive checks are required.
- Leasehold elements - With shared ownership, you are only buying a share of the freehold. There are extra-legal considerations around the leasehold aspects.
- Ongoing administration - Shared ownership requires ongoing paperwork for rent reviews, buying further shares (staircasing) etc. This can add to the broker's workload.
Because of these factors, broker fees for shared ownership often range from 1% to 2% of the initial loan amount. Some brokers may even charge a fixed fee rather than a percentage.
Monthly Mortgage Repayments
When you get a mortgage, your monthly mortgage payments will be based on the share you own. For example, if you purchase 50% of a £200,000 property, your mortgage would be on £100,000. With a 25-year mortgage rate at 6% (interest rate), the monthly mortgage payment would be around £580.
The bigger your share, the higher your mortgage payments. But they can be much more affordable than buying a property outright with a full value mortgage.
It's advisable to get professional mortgage advice to ensure you purchase an optimal share size you can afford. As your finances grow, you can buy more shares and potentially own 100% in the future. Shared ownership helps first-time buyers who can't purchase a home outright.
The key is budgeting properly for mortgage payments plus rent, service charges and regular home costs.
Stamp Duty
Purchasing a home through a shared ownership scheme can now allow first-time buyers to qualify for stamp duty relief. This might save thousands of pounds. If the value of the property is £500,000 or less, first-time buyers can claim 100% stamp duty relief under the policy. This means you do not pay stamp duty at all on the portion purchased.
For shared ownership homes above £500,000, or for those who previously owned property, standard stamp duty rates will apply on the portion bought. In these cases, it's advisable for your solicitor to offer guidance on stamp duty payment.
Further details on stamp duty rules for shared ownership are available on the government website. You can use the HMRC's online calculator to estimate the stamp duty owed based on the property value and your circumstances.
Contents Insurance
Home insurance is essential for all homeowners, including those with shared ownership. There are a few additional factors to consider compared to owning a home outright.
The housing association who owns the remaining share will probably arrange insurance for the building. You will have to take out contents insurance on your possessions. Be sure to get quotes for adequate contents cover.
Moving Home and Removal Costs
Moving home can be stressful and expensive. Moving costs will depend on several factors, like the amount of possessions you have, the distance you're moving, and the level of service you require. Here are some common removal options and average costs:
Hiring a man with a van or 'one man and his van' service for a local move within the same town or city can cost £30-50 per hour. This is a flexible and budget option for small moves, but you'll have to do most of the packing yourself and help load and unload. Agree pricing upfront.
For a short distance move up to around 50 miles, hiring a small removal van and a driver from a removal company may cost £200-500. They provide the transport and muscle power while you pack. Good for moving 1-2 bedroom homes.
A full service removal company for a long distance move can cost anywhere from £500 for a 1 bedroom home, up to £2000-3000 for a 4-5 bedroom house move. They'll pack and load all your possessions, transport them, and unload at the new property. This takes the stress out of moving.
Always get quotes from a few removal firms to compare pricing. And check if they're members of a trade association. With careful planning, you can reduce removal costs but avoid very cheap 'rogue movers' who may damage your items.
Check our guide on things to do when you move home.
Council Tax
Buying your first home is an exciting milestone! As a new homeowner, you'll need to budget for various housing expenses, including council tax.
Council tax is a local tax charged on domestic properties to help fund essential community services. The amount you pay depends on the valuation band your home falls into. These bands range from A to H, with A being the lowest and H the highest.
To check your council tax band, contact your local authority once you've purchased the property. You can also check it ahead of time by searching online for the council tax band checker for the area and entering the property's address. This will tell you about the band so you can estimate your bill.
On average, those in Band C pay around £150-£250 per month, but depends on your area. Lower bands like A or B will be less, while higher bands cost more. Some councils offer discounts for single occupancy too.
It's advisable to budget slightly above your projected bill.
Utility Bills
Utility costs for gas, electricity and water are a regular household expense. Costs will fluctuate based on factors like size, occupancy, insulation, appliances and heating/cooling systems.
Paying attention to energy efficiency helps control costs. You can check the EPC rating for properties on the government website.
Water bills are relatively steady but increase with more occupants. If you have a garden or pool, landscape watering can drive summer bills up.
Heating and cooling system age and type also influence costs. For example, an old boiler can waste gas versus a new energy-efficient model. Central air conditioning pushes electricity bills way up in hot weather.
Understanding the home's supply situation is wise too. For instance, some electric homes often have higher utility costs. Knowing what to expect helps budget smartly and avoid bill surprises each month.
Disclaimer
The information provided in this blog post is for general guidance only and should not be taken as financial advice or accurate costs. Costs will vary depending on the area and financial situation. It is essential to consult with a financial advisor or expert to understand shared ownership costs before purchasing a property.