Financial Issues When Purchasing a Shared Ownership Property
Purchasing a shared ownership property is not just about securing a cheap mortgage and moving a few boxes of soft furnishings around! It can be tempting to believe that purchasing a shared ownership property is, in some way, less onerous than purchasing an entire property; this is a very dangerous perception to adopt.
Having unrealistic expectations of the costs of owning a property can have far reaching consequences, so accurate budgeting is an absolute must. This is particularly important as the majority of people opting for shared ownership are those who cannot afford to buy a property at full market value and are, therefore, not in a financially comfortable situation. For this reason, very accurate budgeting for the one-off costs and for the ongoing costs is going to be an essential part of the planning.
Failure to make either the mortgage or the rent payments could result in the property being repossessed.
Additional One-Off Costs for Shared Ownership
When purchasing a share in a property, the same costs are applicable as if you were buying an entire property. A survey is always advisable; in fact, a basic survey will be compulsory for those who are applying for a mortgage as part of the application process. Even if you have obtained a basic survey as part of a mortgage application, a home buyer survey which offers more in-depth detail is always desirable to ensure that you are purchasing a valuable property.
Other costs to budget into your calculations are legal fees and conveyancing. Bear in mind that the legal charges are likely to be slightly higher than for a standard property purchase. This is because the solicitor has to deal with the terms of the lease on the remaining percentage that will not be owned as part of the ownership scheme. Stamp duty land tax is also payable, if applicable, but only on the value of the share that you have purchased.
Ongoing Monthly Costs for Shared Ownership
Once the purchase is complete, it will be necessary to ensure that the monthly bills are adequately covered. Firstly, there are the monthly mortgage payments which need to be made and also the monthly rental. This is entirely predictable and can be easily budgeted for. Other costs which are often overlooked include buildings insurance which, as tenants, most people will not be paying. Upon purchase, however, this insurance becomes an additional cost. Other insurances such as life and critical illness insurance will also be necessary as part of any mortgage loan package; these, too, become additional monthly bills.
Owners should also consider keeping a contingency fund to deal with one-off repair and maintenance costs that can cause substantial financial hardship, such as replacement windows or roof repairs.
One-off costs are just as onerous with a shared ownership purchase as they are for a full property purchase, with the exception of stamp duty that is paid on the percentage value, only;
additional monthly costs mainly include insurances and additional bills, but a contingency fund for repairs should also be maintained.