How I bought my first home with Shared Ownership

This is part 1 of my guide to buying through the UK government’s shared ownership scheme and what you’ll need to know.

You can read more detail about the process I’ve been through to make this happen in part 2 here.

January 2019 marked the start of my journey into home ownership.

Since moving to London in 2013 aged 21 this has been on my big life bucket list.

So to mark the occasion I will be documenting the journey of being a single woman buying & doing up a home for the first time. I’ll be honest, I’m a little nervous.

Buying in London has always felt like one of these hairy audacious goals that wouldn’t be achieved until ~30 years old, with a settled lifestyle, relationship and significant salary increases.

Aged 26 and single I hadn’t been predicting that home ownership would be a viable option for me. 

It’s only in the last 2 months I learnt how I could make it happen, and moved the pieces forward to make it a reality.

The secret?

I’m only buying 35% of a flat.

This is thanks to the UK government’s Shared Ownership scheme; designed to help first-time buyers like me get onto the housing ladder.

So how does it work?

1. Buyers (often first-time buyers but not always) purchase a share of a property. This share is anything from 25% to 75%.

2. The remaining share that you do not buy is owned by the government and/or housing association so you rent this portion of the property from them

3. Over time you can increase your level of ownership by buying more shares. This is called stair-casing

4. Once you’ve stair-cased to 100% you own the entire property
NB. Many people never staircase or own their property outright. Each time you wish to buy another share of your property you buy at the value of the market, so if the property price increases significantly during your tenure you may find you cannot afford to buy the remaining shares. 

5. Shared ownership buyers are the legal owners of their share of the property and still have to get a mortage approved and go through the usual hoops for buying a home.

6. Generally shared ownership properties are leasehold, meaning you’ll be paying for the communal costs of the building (even once you own 100%) such as repairs and maintenance e.g carparks, lifts & stairwells, roofs, communal boiler repairs. This fact is often so off-putting to some people, who as a result often view shared ownership as a con.

The Costs

Monthly outgoings on shared ownership properties are therefore broken down into the following:

Mortgage repayments on your share + Rent on the share you don’t own + Service Charge fees on general property + Bills (council tax, gas & electricity, water etc.).

Sounds expensive right?

Whilst there are multiple costs incurred on S.O. properties, there are good reasons why the scheme is still good value for money. 

I will break down each of these & include the costs for mine, for full transparency:

Mortgage
You are only paying mortgage repayments on the share you own, not 100% of the property. So monthly mortgage repayments are proportional to the amount you can actually afford to buy.

Cost for 35% of a 2 bed S.O. flat in Hackney: £550 per month.
 
 NB this is amount is based on personal circumstances such as my personal outgoings, credit rating, and length of the mortgage term.

Rent

Rent on the portion you do not own benefits from being priced significantly lower on the open market — anywhere from a third to a half of its usual price.

Cost for 35% of a 2 bed S.O. flat in Hackney: £418 per month.

Service Charges

Monthly services charges are usual for any freehold buildings with communal areas (most blocks of flats). So even if I get to 100% ownership, I can still expect to pay into this communal pot of money that gets reinvested back into paying for building upkeep.

Cost for 35% of a 2 bed S.O. flat in Hackney: £158 per month.

Bills

Wherever you live, whether renting or buying, you will have to pay bills. So no difference here.

For 35% of a 2 bed S.O flat in Hackney: £215 per month 

This is calculated on an estimate made to include everything e.g contents insurance, internet, TV license, utilities and so on.

So the estimated total monthly costs for my upcoming 2 bed S.O flat in Hackney: £1,400.

Roughly the same cost as renting the place (but probably still cheaper as bills would still come on top) but with the important distinction that I’m paying into my property through monthly mortgage payments. 
In year one I will be investing £6,600 into my mortgage = investing in my future.

With renting, this would effectively be dead money with no return on value.

The other great thing is that with a 2 bed, I can get a lodger in to cover the costs of the spare room. When you factor in money from this, it brings monthly costs down to around £700 per month: similar to the cost of renting a 1 bedroom place in a shared flat or house.

So if it’s so great, why doesn’t everyone do this?

There are many reasons that more people don’t buy through shared ownership schemes more often:

  • You can’t earn too much money
    There is an income threshold for buyers on the scheme: up to £80,000 in England or £90,000 in Greater London. This is a combined household income, so couples buying would have to earn less than that amount put together.
  • You still need a deposit & salary to pay for your share
     Whilst it’s not designed for those with loads of cash, you do still need a certain level of savings to get the deposit together on the share you are buying, and then be able to afford the monthly outgoings on the mortgage. So really this suits people on decent incomes or couples where neither one earns too much.
  • There’s less choice
     
    Typically S.O. properties are new builds which generate a long waiting list — causing more demand than supply. These can then be sold again on the S.O. market, known as resales. 
    The resales market has much less choice available than the public market. For me, in Hackney (where I wanted to live) and within my price bracket, there were only 2 properties available during the 2 month period I searched.
  • Priority is given to those on ‘waiting lists’
     The housing associations have criteria to allocate properties based upon. Priority goes to those living & working in the borough, being on council waiting lists, serving in the MOD or public sector. 
  • It’s not a money making scheme
     It’s hard to buy property and make any serious money through S.O. 
    You buy to live in the place, not flip it and make a profit. You cannot sublet the flat so you must live there at all times.
    Buying conditions like this are in place to prevent profit made from the scheme: it’s designed to help those unable to afford to buy without it.
  • You can’t negotiate on price 
     Similar to the above point, this means that you have to pay the price being asked, and so it’s hard to drive any real bargain, or leverage buying power by offering more money. Properties get allocated based purely on certain criteria.

Want to know more about how I made it happen with my place? Check out this post about my buying intricacies for the deets!

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