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There are a number of schemes available to help buyers to purchase a home, whether you’re moving or stepping onto the property ladder for the first time. Having so many options can be overwhelming and you might not know which gets you the best price. So, is ‘Shared Ownership’ cheaper than buying a home outright?
Yes, ‘Shared Ownership’ is often initially cheaper than buying a property outright. Monthly repayments for the mortgage of your initial share will usually be less than payments for a mortgage on buying the property entirely. The deposit required for a ‘Shared Ownership’ home will also be lower than an outright purchase, with rent often being below market value.
Read on to find out more about shared ownership and how the costs involved compare to buying a home outright.
A number of steps throughout the home buying process require payment, especially when faced with so many options and schemes. It can be difficult to know which will work out cheaper for you in the long run. Below, we’ll list just some of the costs you might see, and how they can differ between shared ownership and buying outright:
You’ll need to put down a deposit, no matter how you’re intending to buy your home unless you’re buying it outright. If you buy a property outright, you’ll typically need 5% or 10% of its total value as a deposit. ‘Shared Ownership’ differs slightly, as your deposit will only be calculated on the share of the home you intend to buy, not the total value. The typical amount will still usually sit at the same percentage, but the amount you pay can be drastically lower for a ‘Shared Ownership’ home.
Stamp duty is often considered the largest additional cost you’ll have to factor in when buying a house. As a first-time buyer, you won’t pay any Stamp Duty on the first £425,000 of any home that costs up to £625,000. Outside of this rule, you have two options when it comes to paying Stamp Duty on a ‘Shared Ownership’ property.
You can choose to pay Stamp Duty on the total value of your home, similar to if you were buying outright. You’ll face a higher initial cost, but you won’t have to pay Stamp Duty in the future, even if you later buy the property outright at an increased value. On the other hand, you can choose to only pay Stamp Duty on the share you’re purchasing. The initial cost of buying your home will be lower this way, but you may increase your overall costs later. Once you own 80% or more of your property, you’ll then have to pay additional Stamp Duty based on the current value.
If you’re a first-time buyer looking to purchase a home outright, you still have some relief. Until April 2025, you won’t pay Stamp Duty on properties with a value of up to £425,000. From this amount, up to £625,000, you’ll pay 5%. This will only apply to the value of the home above £425,000. After this, normal rates apply. If this is not your first time buying a home, but you’re intending to live in it as your main property, you’ll pay a Stamp Duty rate based on the total value. If you’re buying an additional property, an extra 5% will be added to your Stamp Duty. There is, however, an exemption for homes worth up to £250,000 in England and Wales.
If you’re buying a home outright, you will have to source and pay for buildings insurance. Most mortgage lenders will insist on it from the day you exchange contracts, so they can ensure they have collateral for their loan. It covers the cost of repairing or rebuilding your property in the case of major damage, such as fire or a fallen tree.
When buying a home through ‘Shared Ownership’, the Freeholder is responsible for your buildings insurance, which will usually be your housing association. The cost will typically be included in the service charge you pay on a monthly basis.
No matter how you’re buying a home, it’s also advised that you purchase contents insurance. This protects your belongings from damage or theft once you’ve moved in. You are responsible for obtaining this, even in a ‘Shared Ownership’ home, as it’s not compulsory.
Budgeting for the initial purchase of your home is extremely important, but you’ll also need to consider saving for any future expenses. This should also be factored into your choice of buying method, because you need to be sure you can afford to live in the home, not just purchase it. Once you’ve moved in, there can be a number of costs that you were unaware of or weren’t expecting to be as high.
Here are some of the expenses you might have to save for, or at least factor into your budget:
Here at Plumlife, our award-winning team is on hand to help you find your best option for buying a home. For over 20 years, we’ve been making home ownership easier in the North West, Yorkshire and beyond.
There are a number of affordable options, including ‘Shared Ownership’, available to you. We’re bound to find a home that suits your needs and budget but, if you have any questions, get in touch today!
‘Shared Ownership’ is only available on properties purpose-built for the scheme by housing associations, because of the subsidies provided by the government. You won’t be able to make an offer on these properties. They’re valued by a RICS-certified specialist surveyor. There are positives to this, however, as it removes the need for bidding wars and homes should be sold on a first come, first served basis.
You will need to pay for any repairs or maintenance, no matter how much of a share you own. Because of the typical new-build status of ‘Shared Ownership’, some costs might be included in the building warranty. If your home has an ‘initial repair period’, your landlord might also cover repair costs.
Yes, you could potentially be evicted from your property if you fail to meet your obligations, such as failing to pay rent or damaging the home. If you fall behind on rent, your housing association should contact you to to help come up with a solution.
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