Understanding Shared Ownership Home Buying Jargon
22 October 2023
If you’re thinking about buying a new home through Shared Ownership, it’s a good idea to gain an understanding of the key house buying terminology that’s used.
The government-backed Shared Ownership scheme comes with its own set of home buying jargon, so even if you’ve bought a property before, it’s likely there will be some terms that you won’t have come across.
If you’re buying for the first time, a lot of the following terminology will probably be new to you, so it’s even more important that you take the time to familiarise yourself with the various jargon and definitions.
In this article, we identify the main Shared Ownership home buying terms – and what they mean.
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Shared Ownership
The obvious place to start is with the term Shared Ownership itself! Shared Ownership is effectively an achievable route to home ownership for those who might otherwise struggle to step onto the housing ladder.
Through the scheme, you buy an affordable percentage share of your new home (usually between 25% and 75%) and pay a 2.75% annual rent on the remaining share. Your deposit and monthly repayments are generally lower than if you were to buy the same property outright, so for many people purchasing a Shared Ownership home is a quicker way to secure a place of their own.
Deposit
A deposit is the amount in cash that you pay upfront when buying your new home. This can vary from lender to lender, but generally ranges between 5% and 20% of the property purchase price.
With Shared Ownership however, it’s important to know your deposit starts from just 5% of the share you buy – not the full purchase price of the property – so it’s smaller and easier to save up.
If you’re thinking about buying a Shared Ownership home, our Shared Ownership calculator can give you an indication of the deposit amount you would need, based on the percentage share you purchase.
Agreement in Principle (AIP)
Also known as a ‘Decision in Principle’ or a ‘Mortgage in Principle', an Agreement in Principle is confirmation from a mortgage lender that they agree to lend you a certain amount of mortgage money. It’s the first step in the mortgage application process, and one you should take sooner rather than later if you’re serious about buying a Shared Ownership home, since some housing associations require you to have this before you can proceed with your purchase.
Having an Agreement in Principle doesn’t mean you have to continue with your application either – it just makes things easier if you decide to go ahead.
Why not read more about How to get a mortgage for Shared Ownership?
Housing association
In the UK, housing associations provide homes and support for almost six million people around England. They offer social homes, Shared Ownership homes, some market homes to rent and buy and essential supported and specialist housing.*
Leasehold
All Shared Ownership homes are sold as leasehold. This means that if you buy a Shared Ownership property, you will have the right to live there for a set number of years, but the land your home is built on belongs to the freeholder, namely the developer or housing association.
As a leaseholder, you will have a contract (lease) with the freeholder, but if you are able to and you decide to increase your share ownership all the way up to 100% (see Staircasing), you may be able to buy the freehold of your home as well.
Independent Financial Advisor (IFA)
An Independent Financial Adviser (IFA) provides specialist advice on how to manage your money.
In terms of finding a mortgage, they will research the marketplace and recommend the most appropriate products based on your individual needs. What’s great about going with an IFA is that they have access to a wide variety of lenders along with exclusive deals.
If you decide to buy a Shared Ownership home with Places for People, we can put you in touch with one of our experienced Shared Ownership specialists to help you find the best mortgages.
Subsidised rent
When you buy with Shared Ownership, you will need to pay rent on the share of the property that you don’t own. This is often referred to as ‘subsidised rent’ because it’s lower than what you would pay if you were renting privately.
The rent you pay is calculated at between 2.5% and 2.75% annually of the percentage share owned by the housing association. So, for example, if you own a 40% share (£80,000) of a £200,000 property, your annual rent will be £3,300 (2.75% of the remaining £120,000), which works out at £275 a month.
Equity
This is the amount of your property that you actually own. For Shared Ownership homeowners, this is worked out by the difference between the value of your percentage share and the amount of mortgage you still owe.
As your home increases in value, your percentage share – and the equity you hold in your home – will increase in direct proportion to that.
Service Charge
This is a fee paid by a leaseholder to cover the cost of maintaining communal areas and providing services such as cleaning, gardening and repairs.
When you purchase a Shared Ownership property, you will need to pay your share of the costs of managing and maintaining the area where you live. This is a legal duty set out in your lease and you should factor this into your budget when you’re planning the move to your new home.
Conveyancing
Conveyancing is all the legal work that needs to be done when buying your new home. You will pay a conveyancing solicitor to do this on your behalf.
This process involves legally transferring ownership of your Shared Ownership property and running checks not just on the property purchase but also on the lease covering the share of the property you will be renting. Your solicitor will also examine the process for buying future shares in your home (also known as staircasing) and any clauses or restrictive covenants in the lease.
Stamp duty
This is the tax that buyers need to pay when purchasing a property. The thresholds and percentage amounts payable are the same for Shared Ownership home buyers as they are for those buying their home with a traditional mortgage. The key difference however is that when you’re buying a Shared Ownership home, the stamp duty thresholds and percentage amounts relate only to the share you’re purchasing – not the full property price.
So – if you’re selling a Shared Ownership home or you’ve bought a home before – providing your share of the Shared Ownership property you’re buying doesn’t exceed £240,000 you will have no stamp duty to pay. If your share is worth more than this, you will need to pay 5% of the excess (up to £925,000).
The good news for first-time buyers is that the threshold is much higher – you only pay stamp duty if your share is worth more than £425,000, and even then the amount payable is just 5% of the excess.
Staircasing
After a certain amount of time living in your Shared Ownership home (which will be determined by your lease) you can decide to purchase more shares in your home. This is a process known as ‘staircasing’, which gives you the flexibility to increase your share in the property as and when finances allow. An obvious advantage to owning a bigger share of your home means that as your home increases in value, the value of your share will be higher.
Depending on the development you choose to live at, you may be able to staircase the property all the way up to 100%, enabling you to own your home and stop paying rent. At this point, there may be the option to buy the property’s freehold as well.
Find out more about Shared Ownership
We hope this guide has helped you familiarise yourself with the key house buying terminology for Shared Ownership. You can find out more about this affordable and accessible pathway to home ownership on our website.
When you’re ready to make your move, our team of friendly experts can walk you through the entire process, step-by-step. At Places for People, we can also recommend independent financial advisors who are Shared Ownership specialists, to help you find the best mortgage deals.
We want our Shared Ownership homeowners to be part of sustainable, inclusive and thriving Communities and we’d love to answer any questions or concerns you might have.
Start the journey towards securing the brand-new home of your dreams. Find out more
*www.housing.org.uk