Why Do You Pay Shared Ownership Rent?

Article by: emilywilliams

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The Shared Ownership scheme is a government-backed incentive that encourages first-time buyers to begin their journey on the property ladder. Purchasing a property in this way has a number of advantages, and often leads to tenants becoming home-owners. So, why do you pay Shared Ownership rent?

When purchasing a property through the Shared Ownership scheme, you are initially purchasing a share in a home. While you are living there, you must pay rent for the portion of the property which you do not own. You will continue to pay rent until you own 100% of the property.

Keep reading to find out more about why you pay shared ownership rent and other costs that you may encounter along the way.

Jump to:

• Why Do You Pay Rent for Shared Ownership Properties?

• How Much Rent Do You Pay on Shared Ownership?

• What Other Costs Does Shared Ownership Require?

• Is Shared Ownership Better Than Renting?

• How Can I Find a Shared Ownership Property?

Why Do You Pay Rent for Shared Ownership Properties?

Shared ownership is a government-backed scheme that helps first-time buyers to purchase a property. The scheme is particularly useful for those that are unable to afford the cost of purchasing a property outright, as you are instead paying for a portion of a home. This means that the upfront costs are far lower. 

However, the share of the house that you do not purchase is typically held by a housing association; this is the share on which you must pay rent. You can purchase additional shares of the property at a later date, which will reduce the rent you pay on a monthly basis.

How Much Rent Do You Pay on Shared Ownership?

The amount of rent that you pay on a monthly basis will be entirely dependent on how much of the property you own, and the rate can vary between landlords and housing providers.

Example

Below is an example of how the monthly Shared Ownership rent would typically be calculated:

• If you purchase 25% of a property valued at £200,000, you must pay rent on the remaining 75% (£150,000).

• Monthly rent is then calculated as a percentage of the market value of the share owned by the landlord (generally from 2.75% – 3%).

• Calculating 2.75% of £150,000 and dividing by 12 gives the monthly rent (£344).

To get a better idea of what you can afford, take a look at our Shared Ownership affordability calculator.

What Other Costs Does Shared Ownership Require?

One of the key advantages of purchasing a property through Shared Ownership is the massive reduction in upfront costs. This makes Shared Ownership particularly popular with first-time buyers who might not be able to afford the deposit for buying a house outright. Below are some of the other costs involved in purchasing a property through Shared Ownership.

Initial Costs

To initially purchase shares in a Shared Ownership property, you will need to account for the following costs:

• Deposit – For shared ownership properties, you can typically expect to pay 5% or 10% of the share that you are purchasing as a deposit.

• Solicitor fees – There is a large amount of legal work that will be required to complete an application for a Shared Ownership mortgage. To complete this, it is vital that a solicitor or licensed conveyancer is approved to work for your mortgage lender.

• Mortgage broker fees – A mortgage broker will charge a fee for their services, and it may be necessary to contact a specialist broker when applying for a Shared Ownership mortgage.

• Stamp duty – The value of Stamp Duty that you must pay will depend on the value of the property you are purchasing shares in.

• Moving costs – Of course, once you have secured a property to live in, you may have to pay additional costs to transport your items to your new home which can be expensive.

Click here to find out more about the first steps you can take to buying a property through Shared Ownership.

Monthly Costs

Once you have begun your Shared Ownership journey, there are a number of ongoing costs to be aware of:

• Rent – As detailed above, monthly rent for Shared Ownership properties is calculated on a leasehold basis, and your monthly rent will vary depending on how much of the property you own.

• Mortgage – You will not just be making monthly rent payments, however, you will also be making contributions towards your mortgage repayments. The size of this monthly cost will depend on the deposit you put down, the value of the share you purchase, the interest rate and the remaining length of your mortgage term.

• Service charge – These payments are made to the housing association for various services such as necessary maintenance and repairs to the communal areas, insurance of the building, cleaning of communal areas and other essential charges.

• Insurance – Insurance of the building is usually included in the service charge, but contents insurance will be your responsibility to set up and pay for. Whilst it is not compulsory to pay contents insurance, it is highly advisable to ensure your property and belongings are protected.

Future Costs

When you are paying monthly Shared Ownership costs and are more financially stable, there are future costs to be aware of:

• • Staircasing – When you are able to and if you so wish, you can begin to purchase more shares in your home. This process known as ‘staircasing’ can be repeated until you own the property outright, meaning you would no longer have to pay rent.

• Lease extensions – As Shared Ownership properties are sold on a leasehold basis, you may need to extend the lease at some point in your tenancy. Check with your housing provider what the procedure is for extending the lease before purchasing the property.

• Selling – If you choose to sell your Shared Ownership home, there are a number of associated costs involved in the sale process including the cost to hire a surveyor to receive a valuation and solicitor fees.

Find out more about the process of selling a Shared Ownership property by reading our detailed blog.

Is Shared Ownership Better Than Renting?

The cost of renting a home is increasing every day. It is becoming more and more difficult to find reasonable quality and prices on the rental market, and it can be disheartening knowing that you do not own the property you are living in. The Shared Ownership scheme offers a suitable alternative for many people, as the rent that you pay on a monthly basis is calculated based on the market value of the share you do not own. As you make monthly payments, you are also building equity, and you can enjoy the consistency of homeownership without worrying about rent increasing substantially. 

Click here to download our handy guide for some of the key information to consider for Shared Ownership.

How Can I Find a Shared Ownership Property?

At Plumlife Homes, we are proud to offer a wide range of superb Shared Ownership properties. Contact a member of our team to find your dream home, and begin the Shared Ownership journey today.

Article by: emilywilliams

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