One of the main benefits of buying through Shared Ownership is that you have unlimited flexibility in when you take the next step. You get to choose when you're ready to buy more shares in the property, with the end goal ultimately being 100% ownership.
What are the costs involved in Shared Ownership?
Part rent, part shares, initial deposits. We appreciate it can seem a little confusing at first. So, let’s break down the costs and assess the financial side of shared ownership. What does it actually mean?
Initial costs when buying.
- Legal fees (to your solicitor)
- Valuation fees (for a survey of your home required by your mortgage lender)
- Stamp duty if applicable (check with your solicitor)
- Mortgage arrangement charges (check with your lender)
- Deposit (check with your lender)
Ongoing (living) costs.
- Rent
- Mortgage payments
- Service charge (includes building insurance)
- Council tax
- Gas, electricity, water, telephone charges and other typical household bills (e.g. TV license, broadband)
- All repairs, decoration and maintenance costs (you would be responsible for these after the initial defects period expires)
- Contents insurance
Can I own more of my home in the future?
Simple answer – Yes! You can increase your share at any time! This is known as ‘staircasing’. You must increase your share by at least 10% of the total market value of the property at that time. Each time you increase your share your rental payments will be reduced. But note, if you pay for your additional share with an increased mortgage, your monthly mortgage repayments may go up. In most cases, you will be able to staircase up to 100% and own your home outright.
Staircasing
Once you've bought a property through Shared Ownership and lived there for a set amount of time, you have the option to buy more shares in the property. For example, if you bought 50% of the property at the time of purchase, you could buy an additional 25% in the future, and you'd own 75% of the property. Obviously, the main benefit of staircasing is that as you buy more shares, you start paying less rent on the remaining share owned by the lender and you get one step closer to full home ownership.
And don’t forget, you do not have to increase your share, it is entirely up to you. Shared Ownership is flexible and allows you to choose if and when you want to increase your level of ownership.
What are the benefits of staircasing?
There's a wide variety of benefits to increasing how much of your Shared Ownership home you own.
Firstly, if you increase your share of the property, your mortgage payments may go up but your rental payments on the other shares will decrease, ensuring an affordable route to full home ownership and once you reach 100% ownership, you no longer pay any rental payments.
As you build your ownership of the property, you benefit more from any property price increases that your home experiences. Owning 100% of the property makes the selling process much easier and ensures that you receive the full benefit of house prices going up.
Staircasing to 100% means you gain access to a wider selection of mortgage products and won't be restricted to a Shared Ownership mortgage.
How much does it cost to staircase?
There are 4 important costs to consider each time you wish to purchase more of your property.
- Valuation - Every time you choose to buy more shares via staircasing, you'll need a valuation of the property. This allows us to understand how much to charge for the share you'd like to buy. The valuation is particularly important when staircasing as the overall value of the property may have changed significantly since you last had it valued, especially if you've made structural improvements or the local area has risen in value.
- Stamp Duty - Stamp Duty Land Tax (SDLT) is a mandatory tax paid on the majority of property transactions in England. Whether you have to pay SDLT when you staircase depends on how much you paid initially and how much you're staircasing. When you buy the initial share of the property - and that share is worth over £125,000 - you'll pay some SDLT upfront. From that point on, until you reach 80% share ownership of the property, you won't pay any SDLT on any transaction. Once you go over that 80% ownership threshold, you'll pay SDLT on each transaction until you have full ownership.
- Conveyancing - While it's not a full property purchase, staircasing is still a property transaction and requires the support of a conveyancer or solicitor.
- Mortgage Fees - When you buy a new share of the property, you'll probably need an updated mortgage. There are typically two options here - extending your existing mortgage on the property or remortgaging. Both options have various costs around them, typically dictated by the firm you work with and the size of the share you're purchasing.
According to research by the Homeowners Alliance, the average cost to staircase is around £2,000. This takes into account legal fees and other associated costs but can differ wildly depending on where you buy, the size of the property, how much you're staircasing by and most importantly - how much Stamp Duty you end up paying.
Staircasing is a great way of working towards full home ownership and can reduce monthly payments as you work towards a 100% share of the property but it's important to budget around it and ensure you can cover the costs.
Why do I need to undergo an affordability test to qualify for Shared Ownership?
Shared ownership uses public funding to help build new homes and needs to ensure that these funds are being used in the right way. The affordability criteria is in place to make sure that the right people are able to access this funding. The scheme’s main aim is to enable those who just cannot afford to buy a home on the open market, to be able to buy a new home without the need for that massive deposit up front.
As we’ve seen there are lots of advantages to Shared Ownership and it’s a great affordable way to get out of the renting cycle and become a homeowner in your own right. So, if this sounds appealing to you,
get in touch with our friendly team and let’s discuss what options are available to you or continuing learning about
Shared Ownership with Space Homes in part three of this mini series.