Posted 20 September 2016 by Keith Osborne
Shared Ownership Week is well under way and the government-backed scheme to help people on a modest income get onto the property ladder has been keenly discussed across the media. But what does it actually cost to buy a home through the Shared Ownership scheme? We take a look.
Our Shared Ownership guide can take you through the details of how the scheme works in detail, but in general terms, it is open to house-hunters trying to get onto the property ladder who can’t afford a suitable home on the open market. Shared Ownership allows an initial share of 25%-75% to be purchased, depending on the buyer’s budget, which means a far lower budget needed for a deposit, but there are still other costs to consider:
Let’s start with this, as it is undoubtedly the single largest payment of the lot. You’ll generally need 10% of the value of your share (you may be lucky and only be asked for 5%), so if you are buying 25% of a property with an open market value of £300,000, you’ll typically need to pay 10% x 25% x £300,000, which is £7,500. This is a lot less than if you were to buy a similar property through Help to Buy (5% x £300,000 = £15,000) and significantly less than 10% of the full value (10% x £300,000 = £30,000), often required as a minimum deposit on an ordinary purchase.
The legal process is known as ‘conveyancing’, and the expertise can be sought out from specialist firms or from solicitors, though the latter tend to be more expensive. Prices will vary significantly, with online conveyancers offering packages from around £700 for a £250,000 (market price) property. This will include a number of expenses and disbursements, such as local authority fees, search fees and money transfer costs – but check that that is the case before committing and finding an unwelcome extra charge later.
Stamp Duty Land Tax (SDLT), to give it its full name, was overhauled in 2014 to provide a fairer way to calculate it. The rates change in price bands from £125,000 up to £1.5m (see full details here).
With Shared Ownership, stamp duty is still calculated on the full market value of the property, but you can choose whether to pay it all up front (and not have to pay again if you ‘staircase’ to a greater share later) or to pay it in stages, in which case, you may start at a level that reduces the charge to zero.
If you do pay up front, stamp duty is charged at 2% for the full market value of the property between £125,000 and £250,000 and 5% on the portion between £250,000 and £925,000. So a property with a market value of £300,000 with have a stamp duty charge of 2% x £125,000 + 5% x £50,000 = £5,000.
There is, of course, considerable competition in the mortgage market, so you might get away with a fee-free mortgage, but some of the arrangement fees on the headline-grabbing low interest rates can be hefty – in the region of £1,500 in some cases. There may be arrangement fees, valuation fees and lenders’ fees to add up. Check with your mortgage lender as to whether they want their fees paid up front or whether you might be able to add them to your loan and pay them back over the period of the loan.
There are generally three types of survey to choose from on a resale property, but when buying a new build, the usual option is a snagging survey. This involves a professional looking over the property to check for any faults that the housebuilder can fix before handing the property over to you. This can be anything from an ill-fitting door or scratched skirting board to more serious structural problems. This kind of survey usually costs around £300.
Again, prices can vary enormously depending on what you have to move and what you need to move it. Paying to feed and water some friends and utilise a hired van is probably among the cheapest options, whereas a professional removals team in a lorry might bring costs up to the £1,000 mark. Shopping around will secure the best deal.
Up-front rent and service charges
You’re likely to be asked to pay one to two months’ rent and service charge up front, so ensure your savings includes enough to cover that at the time you complete the purchase transaction
Utility sign-up fees
You’ll need to budget for installation costs for utilities for power and telecommunications. You may benefit from a special deal, or from something being ready-installed when you move in, but make sure you set aside any fees you may need so you’re not without electricity, television or broadband.
Check here on the pros and cons of the Shared Ownership scheme: