Shared Ownership costs – understanding your rent and service charges
Shared Ownership rent explained
How is Shared Ownership rent calculated?
As a rule of thumb, Shared Ownership rent is set as 2.75% of the unsold equity – i.e. the portion of the property you do not (yet) own. However, the exact rent for each home will be shown on the property listings or price lists.
If you wish to purchase 25% of a property valued at £200,000, you would pay rent on the remaining £150,000. Simply divide this unsold equity by 100, multiply by 2.75, then divide by 12 (the number of months in a year) to arrive at the monthly rent. In this case the monthly rent would be £344.
Can I lose all my Shared Ownership investment if I cannot/will not pay my rent?
If you are unable to pay your rent you should contact your Management Provider or Legal & General Affordable Homes as soon as possible; they will be able to support you. If, on the other hand, you are unwilling to pay your rent, your landlord – e.g. the registered provider – can take steps to repossess the property from you, meaning you could lose all of your Shared Ownership investment.
“With Shared Ownership, your mortgage repayments and rent even each other out and usually their combined total is sometimes less than you would pay to rent a home fully from a private landlord”
Can I get help with my Shared Ownership rent?
If you are unable to pay the rent on your Shared Ownership property, you may be able to get state assistance. You may also be able to get assistance with paying mortgage interest and service charges if the property is leasehold.
Won’t paying both rent and a mortgage send my monthly outgoings sky high?
No. Paying both Shared Ownership rent and a mortgage can sound overwhelming and complex, but with Shared Ownership, your mortgage repayments and rent even each other out and usually their combined total is less than you would pay to rent a home fully from a private landlord.
You may begin by owning 25% of the property, but as time goes on you could end up owning 75% of it – through the process known as “staircasing”. As you own more of your property, your mortgage will increase and your rent will decrease, maintaining a general equilibrium as regards your monthly costs.
Of course, once you staircase to 100% ownership, there would be no rent to pay.
Can Shared Ownership rent go up?
Yes. Your rent will usually be reviewed every year. Any increases would be based on – and proportionate to – rises in the Retail Prices Index plus an additional amount, usually between 0.5% and 2%. The rises will be in accordance with your lease.
Shared Ownership service charges explained
What is the Shared Ownership service charge for?
If you are buying an Apartment, Maisonette or Coach House, alongside your monthly rent, you’ll be required to pay a service charge. A Shared Ownership service charge covers your share of any costs associated with maintaining and servicing communal areas or items.
This charge covers a number of shared facilities, including:
- A lift in your block
- The servicing and maintenance of fire detection and fighting equipment
- Communal heating and lighting costs
- Maintenance of the wider estate, such as litter picking and gardening costs
If you are buying a House, alongside your monthly rent, you’ll also be required to pay a specific service charge known as an ‘estate charge’. This will only be for the costs of delivering services to the wider estate.
Shared owners also have to pay for buildings insurance and a management fee in addition to the service charge.
The kinds of services provided on each development can vary. It’s important you understand what is provided before you move into a Shared Ownership property. A full service charge breakdown of costs and services is available on every development before you reserve a home.
What is a sinking fund service charge?
Your service charge may also include a contribution to a reserve or sinking fund (The Fund) which is an account maintained to collect money in advance of major or cyclical works being required. This could be for things like replacing a shared roof or a new door entry system as well as any redecoration to communal areas. The fund is collected to reduce the risk of shared owners receiving a large bill when works are carried out.
The service charge should be fair and accountable. At the start of a year, usually in February, you will receive an estimated service charge which you will pay from April. At the end of a financial year, usually in September, you will receive a full account which compares the estimated charge to the actual charges. You will receive a refund if the actual costs were lower than the estimated, or an additional bill if they were higher.
Do I pay the full service charge if I only own a portion of my Shared Ownership property?
Yes, even if you purchase 25% of a property – you will have to pay 100% of the Service Charge as you are receiving 100% of the benefit of the services.
How is the service charge paid?
The service charge is paid at the same time as the rent, typically via one direct debit (though other payment options are available). This is reviewed annually and the new amount payable will be advised in advance, usually in February. The freeholder/service provider is likely to accept a range of payment methods, from direct debit to credit card to PayPoint.
Can Shared Ownership service charges increase?
Yes. Services charges can be increased due to a range of factors including labour costs, unexpected repairs, and rises in the Retail Prices Index.
The registered provider must give you advance warning of any increase, which should be reasonable and fair. A variable service charge can also come down if services are removed or there is a change in the frequency of service delivery.
Ready to get on the property ladder?
Now you know everything about Shared Ownership rent and service charges, you’re ready to start browsing our selection of homes. If you have any other questions about the process, make sure to reach out to our friendly team who will be happy to help.
