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What is a shared ownership mortgage?

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Leanne Macardle

Freelance Contributor
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At a glance

  • Shared ownership mortgages enable you to get a foot on the property ladder by owning a share of your property that you can build up over time.
  • You may find attractive deals offered by a partner of the local authority or housing association.
  • Note that these mortgages aren’t available from all lenders and there may be additional criteria for you to qualify.

Shared ownership is part of a Government scheme that allows you to buy a portion of a property from a local authority or housing association, usually with a mortgage, and rent the remaining part.

The aim is for you to gradually build up the amount you own to essentially “buy out” the other party, and it can be a great way to get on the housing ladder for those who may find it difficult to secure a full mortgage at the outset.

How do shared ownership mortgages work?

The first thing to note is that you only need a mortgage for the share of the property you’re buying, not the full value. The share can vary depending on the property and location, but the minimum initial share you’ll be able to buy is typically around 25% and the maximum 75% (though it can be a 10% minimum for some properties).

You’ll still need to provide a deposit for the mortgage, normally of between 5 and 10%, but this will be based on the share you’re actually buying.

You’d make monthly repayments as you would for any other mortgage, and would also pay rent on the share of the property that the housing association owns (rent is typically calculated at around 2.75% of their share).

Let’s say that you’re looking at a shared ownership property worth £200,000 and you want to buy an initial share of 25%, which in this case means you’d be seeking a mortgage of £50,000.

The minimum deposit you’d need is £2,500 (based on a 5% deposit/95% LTV mortgage). You’d then need to make mortgage repayments on the remaining £47,500 mortgage balance, and would also pay rent on the £150,000 share owned by the housing association.

For an idea of what your monthly repayments could be, you can use our mortgage repayment calculator.

Bear in mind that these guidelines relate to shared ownership properties in England; rules may be different in Scotland, Wales and Northern Ireland, so make sure to check.

Can you fully own 100% of a shared ownership house?

Eventually, yes. Normally you start off with buying around 25% of the property, and over the years you’ll be able to increase your share to 100% if you wish, meaning you no longer need to pay rent (but may have a larger mortgage instead).

This process, of buying a small amount of your property and then increasing your stake later, is what’s known as 'staircasing'. The amount you’ll be able to increase your share by and when can vary depending on the property and housing association, but you’ll typically be able to buy shares of at least 10% at any time.

However, different housing associations have different rules and some may put a cap on the number of times you can staircase, so always check your lease so you know how much you can buy and when.

It’s important to note that even if you own 100% of your shared ownership home, it will still be a leasehold property. Shared ownership properties are always leasehold – as opposed to freehold – which means although you own the property, you don’t own the land it stands on.

Leases normally last for a defined period of time and may need extending, and there’ll usually be service charges and ground rent to pay as well (ground rent is banned on new leases, but can still be paid on older properties).

Who can get a shared ownership mortgage?

In order to be eligible for a shared ownership mortgage your household income must be £80,000 a year or less (£90,000 or less in London), and you must be able to prove that you can’t afford the deposit and mortgage repayments for a standard property that’s suitable for your needs.

Note that the maximum income requirement applies whether you’re buying jointly or individually.

You’ll also need to meet at least one of the following criteria:

  • You’re a first-time buyer
  • You’ve previously owned a home but can’t currently afford to buy one
  • You’re already living in a shared ownership property and want to move home
  • You’re forming a new household
  • You currently own a property and want to move, but can’t afford one that meets your needs

There are slightly different rules and options available for older homeowners, those with disabilities and members of the armed forces, and the options may be location-dependent too. You can find out if you’re eligible on gov.uk.

These mortgages are designed for those who can’t afford a traditional mortgage, and so minimum income requirements will be lower (there’s no set minimum but you’ll be required to show that you can afford the repayments). Bear in mind that you’ll also need to pass all the usual mortgage affordability checks.

What credit score do I need for a shared ownership mortgage?

There’s no set credit score that you need, though as with all mortgages, the higher your score the greater your chances of being accepted.

That’s not to say that you’ll automatically be declined if your score isn’t so great – it may instead be the case that you have a smaller choice of lenders or face higher mortgage rates, or that you need to wait a bit longer to work on improving your credit score.

Make sure to check your credit score before you apply so you know what to expect.

What type of property can I buy?

Shared ownership properties are typically new build, but you may be able to buy an older property through a resale scheme.

If you have a disability you can also apply for properties that meet your specific needs, such as a ground floor flat or bungalow (though bungalows are less common in shared ownership schemes).

No matter what kind of property you’re buying, you want to make sure you stand the best possible chance of securing a mortgage. Read our guide on how to increase your chances of being accepted.

Costs of shared ownership

Aside from the rent and mortgage repayments, there are a lot of additional costs you’ll need to be prepared for when buying a shared ownership property. These can include:

  • Reservation fees, which will be paid to the landlord to secure the property for a limited period, during which time no-one else will be able to reserve it. You’ll get the fee back on completion day – usually it will be taken off the amount you pay for your home – but if you don’t end up buying the property you normally won’t get it back.
  • Service charges, which are usually paid monthly and are used to cover the maintenance and cleaning costs of communal areas (such as gardens).
  • An estate charge can sometimes be payable to cover maintenance of things not covered by the service charge (such as roads on the estate).
  • Management or admin fees.
  • You may need to pay into a reserve or sinking fund to cover major repairs, such as replacing the roof on a block of flats.
  • Associated costs of buying a home, such as mortgage fees and legal costs.
  • Insurance policies associated with owning a home, such as buildings and contents and home emergency cover.

Do you pay stamp duty on shared ownership properties?

Technically yes, though you have different options in terms of how you pay it. Your first option is to pay stamp duty on the full market value of your home at the outset, and your second is to pay it in stages, initially only on the share you’ve purchased and then once you’ve staircased to at least 80% ownership.

The advantage of the first method is that you get the full cost out of the way at the outset, and you needn’t worry about rising property values potentially meaning you’ll have to pay more later down the line.

Yet the advantage of the second option is there’s a chance you won’t have to pay any stamp duty at all. This is because you’ll only pay the tax if the initial share of your property exceeds the nil-rate threshold – which is currently £300,000 for first-time buyers and £125,000 for other borrowers – and if you eventually own 80% or more of the property.

However, it can be a complex area and there may be other scenarios where you’d need to pay stamp duty (such as if the total amount of rent you’ll pay exceeds the nil-rate threshold), so it’s important to speak to a financial adviser or mortgage broker who could advise fully.

Should I speak to a mortgage broker?

Mortgage brokers remove a lot of the paperwork and hassle of getting a mortgage, as well as helping you access exclusive products and rates that aren’t available to the public. Mortgage brokers are regulated by the Financial Conduct Authority (FCA) and are required to pass specific qualifications before they can give you advice.

 

Speak to a mortgage broker today

 

MAB is the preferred mortgage broker of moneyfactscompare.co.uk

 

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Pros and cons of shared ownership mortgages

  • Shared ownership mortgages give people who may not be able to afford a full mortgage an opportunity to get on the property ladder.
  • You’ll be able to pay a lower deposit than you would for an ordinary mortgage product.
  • You can build up to full ownership over a timeframe that suits you.
  • Your rental payments will reduce the more of the property you own.
  • Shared ownership mortgages aren’t available from all mortgage lenders and there may be additional criteria.
  • Mortgage rates can be higher for shared ownership deals.
  • Properties are normally leasehold and can come with additional fees.
  • Needing to cover the mortgage as well as rent payments can be costly.
  • Even if you only own a share of the property, you’re responsible for 100% of the maintenance and repair costs (though you may be able to claim some help towards costs if you have a building warranty or ‘initial repair period’).
  • Selling can be complex if you don’t own 100% of the property.

Is shared ownership cheaper than renting?

Renting is notoriously expensive and so in many cases, shared ownership can be cheaper than private renting, even after things like service charges have been taken into account. It can potentially be cheaper than a mortgage as well, particularly when you consider that you’ll have a lower deposit to pay and potentially a much smaller stamp duty bill.

Therefore, this type of mortgage can often be ideal for those on lower incomes who are unable to get onto the housing ladder in the usual way, but it’s still important to do your calculations.

Having both rent and mortgage payments to cover, not to mention the additional costs of shared ownership, can mean that the total can quickly add up, so it’s essential to make sure you know what to expect.

Seeking advice is key, and heading to a broker or independent financial adviser could be a great place to start.

How to get a shared ownership mortgage

There are a few steps involved in getting a shared ownership mortgage:

  1. Check you’re eligible for the scheme on the gov.uk website.
  2. Find a shared ownership property you want to buy by contacting a relevant organisation in your area (typically housing associations or local councils), who will then send you details of available properties and arrange viewings. You can start your search here.
  3. Reserve the property.
  4. Find a suitable mortgage. Shared ownership deals are commonly offered by building societies but you may find other options as well. However, not all lenders offer mortgages for shared ownership, so it’s best to speak to a broker who can point you in the right direction.

Once you’ve applied for the mortgage all the usual steps will come into play – you’ll need to appoint a solicitor/conveyancer to deal with the legal aspects, conduct the necessary searches and deal with the transfer of funds. Just remember that you’ll need to deal with the housing association as well as the mortgage lender to ensure everything runs smoothly.

Is shared ownership worth it?

This can be a difficult question to answer as it entirely depends on your circumstances, but for those who only have a small deposit and can’t afford to get on the housing ladder by traditional means, shared ownership could be a good way to achieve that.

But it can’t be denied that it can be complicated and may come with more costs and fees than you were expecting, so it won’t be right for everyone. It’s important to consider your options fully, ideally by speaking to a mortgage broker ahead of time so you can decide if this option is right for you.

Moneyfacts tip Image of Leanne Macardle

Not sure if shared ownership is for you? It could be worth considering other options to get on the housing ladder, such as Right to Buy, the First Homes Scheme or even a Lifetime ISA.

FAQs

How much deposit do you need for a shared ownership mortgage?

You typically need a deposit of between 5 and 10%, but this will be based on the proportion of the property you’re actually buying, not the full market value.

Do you pay full council tax on shared ownership?

Yes, you’re responsible for paying council tax on the property, regardless of how much you own.

Who is responsible for decorating and repairs?

You are responsible for all maintenance costs with the property, though if it’s a new build you may be able to claim some help towards the cost of repairs. However, you’re free to decorate however you choose, and will need to pay for it accordingly.

Are shared ownership properties hard to sell?

It can be a lot more complicated to sell a shared ownership property, unless you already own 100% of it (in which case you should be able to sell it in the usual way). If not, you’ll need to notify the housing association in advance and give them the option to find a buyer themselves; they’ll typically have up to 12 weeks to do this depending on the lease. If they can’t you’re free to sell your share on the open market, but you’ll normally be restricted to buyers who want to buy a shared ownership property, and things can get complex. Find out more on the gov.uk website and make sure to seek suitable advice.

Can someone live with me in a shared ownership property?

Yes, much like with a property you own outright, anyone can live with you should you wish, though you may have to check your lease agreement for the specifics and will need to inform your housing association.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

post it notes with shared ownership written on top

At a glance

  • Shared ownership mortgages enable you to get a foot on the property ladder by owning a share of your property that you can build up over time.
  • You may find attractive deals offered by a partner of the local authority or housing association.
  • Note that these mortgages aren’t available from all lenders and there may be additional criteria for you to qualify.

Moneyfactscompare.co.uk will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by Moneyfactscompare.co.uk will always be from news@moneyfacts-news.co.uk. Be ScamSmart.

Moneyfactscompare.co.uk will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by Moneyfactscompare.co.uk will always be from news@moneyfacts-news.co.uk. Be ScamSmart.