How Much Does Shared Ownership Really Cost: Find Out Here

The Right to Shared Ownership scheme allows eligible tenants in England to buy a share of their rented home. However, before applying, it is essential to understand the costs involved. This guide outlines the expenses you need to consider when purchasing a shared ownership home, including deposits, mortgage payments, rent, service charges, and lease extensions.

Assessing Your Affordability

Before proceeding with your application, you must ensure you can afford the costs associated with shared ownership.

• You will discuss these costs during a home ownership meeting with your landlord.
• Your landlord will refer you to a mortgage adviser or financial adviser, who will assess your income and outgoings.
• Once you apply, you will receive an offer notice listing the costs you will have to pay after buying your share.

Buying Costs

When you buy a share of your home, you will need to cover the following expenses:

Deposit

• A deposit is required when you exchange contracts.
• This is typically 5% to 10% of the share you are buying.

Other Costs

• Solicitor’s fees – Legal fees for conveyancing.
• Monthly mortgage repayments – If you take out a mortgage to buy your share.
• Rent to the landlord – Payable on the portion of the property you do not own.
• Monthly charges – These can include service charges, estate charges, management fees, and contributions to a repairs reserve fund.
• Stamp Duty – Your solicitor will confirm if this applies to your purchase.

Your solicitor will provide a detailed list of all buying costs and explain what you need to do.

Ongoing Costs After Purchase

Once you own a share of the home, you will have additional financial responsibilities, including:

Buildings Insurance

• You must have buildings insurance to cover potential property damage.

Service Charge

• If you live in a flat with communal areas, you will likely need to pay a monthly service charge.
• This charge covers cleaning, maintenance, and repairs for shared spaces, such as gardens or external windows.
• You can request a breakdown of how your landlord calculates this charge.

Estate Charge

• Some homes require an estate charge to cover the maintenance of communal areas not covered by the service charge, such as roads.

Management Fee

• Some landlords charge a management fee to cover their administration costs.

Repairs Reserve Fund

• Also called a sinking fund, this covers major repairs, such as replacing the roof.
• This fund mainly applies to flats, though some house developments may also have it.
• If you sell your home, you usually cannot get back any contributions you made to this fund.

Understanding Rent Payments

When you buy a shared ownership home, you must pay rent for the share you do not own.

• If you do not pay rent or break the terms of your lease, you risk losing your home and the money you invested in it.
• Rent increases every year based on the terms of your lease.

Rent Limits

• The maximum rent a landlord can charge is 3% of the value of the share you do not own, though most landlords charge 2.75%.

Example Rent Calculation

	Home 1	Home 2
Total Home Value	£400,000	£200,000
Your Share (40%)	£160,000	£80,000
Remaining Share (60%)	£240,000	£120,000
Rent for First Year (2.75%)	£6,600 per year	£3,300 per year
Monthly Rent	£550	£275

Rent Reviews and Increases

Your landlord will review your rent annually as per the terms of your lease.

If You Signed Your Lease Before 12 October 2023

• Rent can increase by the percentage increase in the Retail Prices Index (RPI) plus 0.5%.
• If RPI is 0% or negative, the rent increase will be limited to 0.5%.

Example Calculation

• Your rent is £360 per month.
• RPI increase for the past 12 months is 4%.
• Your rent could increase by 4.5% (4% + 0.5%).
• New rent: £376.20 per month.

If You Signed Your Lease On or After 12 October 2023

• Rent increases will be based on either:
  • Retail Prices Index (RPI) plus up to 0.5%, or
  • Consumer Prices Index (CPI) plus 1%.
• If CPI is -1% or lower, rent will not increase.

Example Calculation

• Your rent is £550 per month.
• CPI increase is 2.1%.
• Rent increase limit: 3.1% (2.1% + 1%).
• New rent: £567.05 per month.

Buying More Shares and Reducing Rent

You can increase your ownership share over time through a process called staircasing.

• When you buy more shares, your rent decreases since you are paying rent only on the portion you do not own.

Example Calculation

• You own 40% of your home and pay £360 in rent for the remaining 60% share.
• You buy an additional 30% share, increasing your ownership to 70%.
• The remaining 30% share is half the original 60%, so your rent is reduced by half.
• New rent: £180 per month instead of £360.

Extending Your Lease

If your lease length drops below 80 years, it can become more expensive to extend and may make it difficult to sell or remortgage your home.

• You will need your landlord’s permission to extend the lease.
• Check with your landlord before buying to understand the rules and costs for extending.

The Right to Shared Ownership scheme provides a pathway to homeownership, but it comes with various financial responsibilities. Before applying, ensure you fully understand the upfront buying costs, ongoing expenses, rent payments, and lease extension rules.

If you plan to buy more shares over time, staircasing can reduce your rent and increase your ownership. Always consult a mortgage adviser, solicitor, or financial expert before making a decision.

FAQ’s