Prepping for a Shared Ownership mortgage: How to calculate monthly costs

How to calculate your Shared Ownership mortgage

Are you tired of renting but don’t think you can afford to buy a home? In that case, Shared Ownership might just be the solution for you. But if you don’t have the first idea how Shared Ownership mortgages work, now is the perfect time to get clued up. By working out these complicated equations, you’ll be one step closer to figuring out if you can afford to buy through Shared Ownership.

We’ve rounded up everything you need to know about Shared Ownership mortgages, and how they can make home-buying easier.

Shared Ownership mortgage payments

Shared Ownership mortgages are just like regular mortgages, with a unique twist. While regular mortgages involve putting down a deposit for the full market value of a home, Shared Ownership allows you to pay a mortgage for a much smaller share of the property (between 10% to 75%), alongside subsidised rent to a housing association on the remaining share. This can make getting on the property ladder more affordable, as you’ll only need to take out a mortgage for the share you’re buying!

A quick example:

Imagine buying a 20% share of a home worth £300,000 (£60,000). This means that a 10% deposit of this share would be just £6,000, and the mortgage that you would have to pay off is £54,000. As well as your mortgage payments, you’ll also need to make monthly rental payments.

How is rent calculated in Shared Ownership?

The amount of rent you pay will depend on the overall value of your property. Usually, rent works out at 3% of the property still owned by your housing provider. Say your housing provider owns 80% of a property worth £300,000, you’ll need to divide this amount (£240,000) by 100, then multiply this by three, and divide this sum by 12 to get your monthly rental fee. In this example, your monthly rental payment would be £600!

Are you eligible for Shared Ownership?

Like a lot of good things in life, Shared Ownership mortgages are only available for a select few based on eligibility. In this case, Shared Ownership is prioritised for first time buyers who can’t afford a home on the open market. Specifically, Shared Ownership is only available for people who have a household income of no more than £80,000 across England, or £90,000 in London. Fortunately, Shared Ownership is also available for people who have already owned a home before and are looking for a change of scenery. However, you will need to have already sold your home or be in the process of doing so in order to be eligible for the scheme.

Budgeting for one-time costs

Shared Ownership makes it far more affordable to buy a property than it would be on the open market. However, it’s still wise to pay close attention to the added costs of buying a Shared Ownership property. Alongside your smaller mortgage repayments, you’ll also need to pay rent on the share you don’t own, and monthly service charge payments to cover things like maintenance and upkeep of communal areas.

Stamp Duty Land Tax

Stamp Duty works in a slightly different way if you decide to buy a Shared Ownership home. In general, you can expect more freedom with how you pay for it. Prefer to pay the sum upfront? If so, you can choose the option to pay Stamp Duty for the whole value of your property, which means you won’t need to pay it again. However, you can also decide to pay Stamp Duty on the initial share that you buy – this just means you’ll likely need to pay more Stamp Duty at a later date, often once you’ve staircased to 80% ownership or more. Find out more about Shared Ownership Stamp Duty fees.

Solicitor fees

When it comes to buying a Shared Ownership home, you will need to pay for a solicitor to guide you through the process. This will usually be a fixed one-off cost but fees can vary greatly, so we would recommend getting multiple quotes and doing plenty of research before appointing a conveyancer or solicitor. You may also need to make sure that your chosen legal firm are approved to work with your mortgage lender.

Buying more shares

To make Shared Ownership even more attractive, the scheme makes it possible to own more of your home over time. While you might start out with a 20% share, you will get the option to buy additional shares of your home through a process called staircasing. This can increase your monthly mortgage payments, but also reduces the amount of rent you must pay. If you aren’t quite ready to start staircasing, that’s completely fine – buying more shares is optional and you can make the decision whenever the time is right for you.

Now that you know what to expect from Shared Ownership mortgages, the hunt for your dream Shared Ownership home can truly begin. With Share to Buy, you can take your pick from a selection of stunning Shared Ownership homes in London and popular locations across the country. With plenty of Shared Ownership options available, there’s no better way to find an affordable home in an area you love.

Share to Buy is a one stop shop for affordable homes. On our website, you can search for properties, compare mortgages and find out all you need to know about alternative home-buying schemes such as Shared Ownership via our article index.