Buying your first home might feel like a dream, but the drawn-out process of saving can feel more like a nightmare. If you’re tired of saving and not making any real headway, Shared Ownership could give you the boost you need. Providing a more affordable route to the housing ladder, the scheme allows you to buy a smaller share of your home, and pay rent on the stake you don’t own.

If you haven’t heard of Shared Ownership, getting your head around the various costs involved can be tricky. Time to clear up your confusion with our guide to Shared Ownership finances.

How does Shared Ownership work?

Shared Ownership enables you to purchase a smaller share of your home, while paying subsidized rent on the share owned by your housing provider. Saving you a lot of precious time saving a deposit, it gives you the benefits of home ownership, without the financial headaches.

Am I eligible for Shared Ownership?

Before you get carried away by the perks of Shared Ownership, you might want to start by finding out if you are eligible. Shared Ownership was mainly designed to ease first-time buyers onto the housing ladder, but you can still use the scheme if you’ve bought a home before (provided you are in the process of selling).

To help those home-buyers who really need it, Shared Ownership is more strict on affordability criteria - you should not be able to afford a home on the open market. While in London you need to have a salary no bigger than £90,000, non-Londoners must have a household income less than £80,000.

Buy a percentage share

Shared Ownership provides a more affordable route to the property ladder, but that doesn’t mean you get to skip the saving process completely. Shared Ownership’s crowning glory is that it enables you to buy a home using a much smaller deposit than you’d pay buying a home outright. This is because you are only buying a share of your home, rather than the whole thing.

Instead, you’ll be required to put down a deposit that is around 5% of the share you are buying. For example, if you're buying a 25% share of a property worth £200,000, you'll need a deposit of £2,500. If you want to own your own home without saving a large deposit, this is the way to do it.

 

3 bedroom Shared Ownership home @ Pontoon Reach, Docklands E16

Pay your monthly rent

You might like the idea of paying a smaller deposit, but it’s important not to forget about the rent you pay alongside it. You’ll be paying rent on the portion of the property that your housing association owns, with the annual cost usually amounting to 3% of the remaining share.

So if you buy a 25% share of a property valued at £350,000, you’ll need to pay 3% of the remaining 75% share - £7875. The good thing is that Shared Ownership rent is much less than the average landlord charges in London - you can expect to pay around 80% of the market rate.

Get your Shared Ownership mortgage

Just like with buying a home outright, you’ll need to take out a mortgage to buy a Shared Ownership home. The only difference being that your mortgage will be based on the share of the home you’re buying, instead of the whole thing.

You’ll need to speak to a mortgage lender that offers Shared Ownership mortgages - not all of them do. Your mortgage lender will be able to access your affordability, as well as your capacity to pay rent on your Shared Ownership property.

Additional fees

When you start doing the math for your Shared Ownership home, don’t forget to consider the additional costs of buying a home. You'll need to pay for a valuation, legal fees and possibly a survey of your home. Depending on your housing provider and the services you get, you may also need to pay service charges for things like communal spaces and maintenance.

Future staircasing

Wondering if you can buy a Shared Ownership home outright? While you are unable to buy all of your Shared Ownership home right away, the scheme still gives you a route to future home ownership. Once you’ve bought an initial share, you’ll then be given the option to buy more and more shares through a process known as ‘staircasing’.

If your financial circumstances change, staircasing is a great way to own more of your home. The cost of a share will depend on the property value and the percentage you buy, but usually costs around £2000 per share. You might not look forward to saving more money, but it’s not without reward - the more shares you buy, the cheaper your rent becomes.