Shared Ownership FAQs
How much in savings will I need to buy with shared ownership?
Shared ownership is much more affordable than buying outright, however you’ll still need a mortgage deposit. Shared ownership mortgages are usually a minimum of 5 or 10%, based on the value of the share, not the full market value.
So, if you were buying a 25% share of a £300,000 home for £75,000, you’ll need to have a minimum of £3,750 (5% of £75,000) for your mortgage deposit. Versus a 5% deposit of the same home but buying it outright, you’d need to have savings to cover £15,000 so shared ownership can be a much more affordable, and achievable, route to owning your own home.
You’ll also need savings to cover initial purchase costs such as mortgage and solicitors fees; this is normally around £3,000.
To reserve your chosen home, you’ll also need to pay a reservation fee. This will secure the home as yours until a formal offer is made, and will usually be between £250 and £500. This cost will come off the total purchase price when your sale completes.
Do I need to pay Stamp Duty on a shared ownership home?
In effect from Wednesday 8th of July and valid until March 31st 2021, the government announced a “Stamp Duty Holiday”, meaning that any buyer, including anyone purchasing a Shared Ownership home, will pay zero Stamp Duty on the first £500,000, helping you to stretch your savings further for a larger deposit, or boosting what you can now afford to buy!
In a nutshell, you will pay no Stamp Duty on the first £500,000 and 5% on £500,001 to £925,000- so for example, if a home is worth £600,000, you will pay £5,000.
To benefit from the “Stamp Duty Holiday” you must complete the sale by March 31st 2021.
Prior to this, it was only first time buyers who paid zero Stamp Duty on the first £300,000 of any home.
Who decides if a shared ownership home is affordable for me?
Buying a shared ownership home should be affordable in the long run, not just the short term; that’s why the housing association you buy from is required to check your financial situation including understanding your monthly income and your outgoings. A financial check, or ‘assessment’, will be carried out before an offer is made because let’s face it, no one wants to live in a new home if you can’t then afford to enjoy it!
A mortgage advisor, or broker, will help to see how much you can borrow for your mortgage, what deposit you’ll need, and what your interest rate will be; this will be based on your household income (salaries and any other regular income), any monthly payments on debts such as loans or credit cards, as well as other regular monthly outgoings such as child maintenance or contractual payments. Your credit score will also be used to find the right mortgage lender for you. Along with knowing how much you have in savings to put towards your deposit will then help the advisor, the housing association, and just as importantly, you, to establish what percentage share you can buy.
What will my monthly costs be?
The specific monthly amount will depend on what you buy, for what value, and where, however monthly costs will include your mortgage repayment, rent on the remaining unpurchased share, service charges, and other ‘standard’ living costs such as utility bills, council tax and home insurance.
What is staircasing?
Staircasing simply means buying more shares of your home. The more of the home you own, the less rent you’ll be paying each month
You’ll normally be able to buy a minimum of 10% more in your home, or if you can afford to, buy the rest of the home so you then own 100% (or anything in between!). The value of the additional share you buy will be based on the full market value of your home at that time, not the original purchase price.
Normally there’s no restrictions on when you can buy more of your home, but remember there will be costs to pay such as solicitors fees, so it’s often best to buy as much as you can afford from the start.
Will my monthly rent and service charge change?
Yes, they are both subject to an increase (or decrease) annually, but the housing association will be required to give you at least 4 weeks notice of any changes, or as per the terms in your lease.
Unlike privately renting, housing associations are closely regulated so the rent portion of your monthly outgoings will not suddenly jump, just ‘because’; it will normally be in line with any inflation and costs of living changes.
Can I use Housing Benefit, Child Maintenance or Universal Credit to buy a shared ownership home?
Child maintenance payments cannot be used as ‘income’ towards monthly costs, however some other payments and benefits may be able to be used towards the rent on the remaining unpurchased share. For example, if you are able to buy the share ‘outright’ with a cash lump sum, you may be able to use Housing Benefit towards or to cover the costs of the rent on the share of the home you don’t own. Speak to the housing association and/or an independent mortgage advisor for full details before applying for shared ownership.
What if I have a bad credit score or I’ve missed previous rent payments?
This is likely to have an impact on how likely a mortgage lender will say ‘yes’ to letting you borrow money for the mortgage. This doesn’t mean you don’t qualify for shared ownership, but it could mean that you cannot get a mortgage, and therefore cannot afford to buy a home. A financial or mortgage advisor will be able to help you with this, or you can check your own credit score online before applying, often for free.