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Shared ownership mortgages

Shared ownership mortgages

Shared ownership mortgages are designed to help non-homeowners step onto the property ladder. Part of the Government’s Help to Buy Scheme, they allow you to take out a mortgage on a share of a property currently owned by a housing association.

Tobi Owens
From the Mortgages team
4
minute read
posted 21 MAY 2020

What is a shared ownership mortgage?

A shared ownership mortgage enables you to part rent, part buy. They let you buy a share of a new-build or existing home from a housing association. You then pay rent on the remainder. The mortgage can cover anything between 25%-75% of the property value, depending on what you can afford. You’ll need a deposit equal to 5-10% of the share you’re buying. 
 
For example, if you want to buy a 25% share of a £300,000  property under shared ownership:

  • Your share of the property  = £75,000
  • Your deposit  = £7,500 (10% of the value of your share)
  • Housing association share  = £225,000
  • Mortgage needed  = £67,500

Housing associations charge less than the private rental market (up to 80% of the market value). If the subsidised rent on your property is £80 per week and you own a 25% share, you’ll pay £60 per week in rent to cover the housing association’s portion.

Who can get a shared ownership mortgage?

To be eligible for the shared ownership scheme, you have to be a first-time buyer, or a former homeowner who can’t afford to buy a new one. Your household income must also be less than £80,000 a year (£90,000 in London).

How do I apply for a shared ownership mortgage?

How you apply for a shared ownership mortgage depends on where you live. If you live in England (outside London), visit Share to Buy or contact your local housing association. If you live in London, you can find information on GOV.UK.

For Scotland, see  Help to Buy, and for Northern Ireland, the  Co-ownership NI  website. If you live in Wales, you’ll need to check with your local housing association.

Once you’ve found a property, you’ll then need to find a mortgage lender willing to lend on a shared ownership basis. 

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

Shared ownership mortgages typically require a deposit of between 5% to 10% of the share that you’re purchasing. You’ll also need enough money to cover moving costs, stamp duty, solicitor’s fees and a management fee, also known as a leasehold fee. As the property is leased to you by the housing association, you’ll also have to pay an annual charge known as ground rent.

Can I buy a bigger share of my home at a later date?

Yes. You can keep buying shares from the housing association, until you own 100% of the property. This is called ‘staircasing’. To increase your share, you’ll need to pay your housing association to carry out a mortgage valuation. The housing association will set the cost of your new share based on the mortgage valuation.  
 
You can buy shares in increases of 10%, but these will cost more if your home’s value has gone up, and less if it’s fallen. It’s worth remembering that the more shares you buy, the less rent you’ll pay.

What are the advantages of shared ownership? 

There are plenty of benefits to shared ownership. For example: 

  • Shared ownership can help those with lower incomes to get on the housing ladder – you’ll have more security and be more invested in your home. 
  • You can benefit from any rise in house prices – the value of your share in the property should rise accordingly.  
  • Shared ownership can be cheaper than renting – but it isn’t always, so you’ll need to do the sums.

What are the disadvantages of shared ownership? 

Shared ownership offers many benefits, but there are also a few downsides:  

  • Fewer mortgage lenders will lend on shared ownership properties. That means you'll have less choice and may end up paying more in interest and fees. 
  •  Selling a shared ownership property can take longer. As you don't own the full property, your housing association has first refusal to buy the property back, and it can put it on the market for a period of time before you can do so yourself. 
  • Shared ownership properties are usually leasehold. That means it’s likely you’ll need to pay a monthly service charge. You’ll also need to contribute to any major refurbishments. This can get expensive because even if you own less than half of the property, you’ll still be fully responsible for those repairs.  
  • You can’t rent out the property. In most cases, you’ll be banned from subletting. That means you won’t be able to rent out your house and move somewhere cheaper, for example. Nor will you be able to fund your holiday by putting your home on Airbnb.  
  •  If you default on your mortgage/rent payment, your home may be repossessed. If you get into financial trouble, the housing association is unlikely to help you.  

How do I sell my shared ownership home?  

If you want to sell your shared ownership home, you won’t get to set the price. Instead, the housing association’s property valuer does that.  
 
You’ll also have to give the housing association a period of time to market the property. If they don’t manage to sell it during that time, you can put it on the open market.  
 
When it comes to splitting the proceeds, you’ll each receive a share depending on how much you both own.

What happens if the value of my house changes? 

If, when you come to sell the property, its value has increased, you’ll split the profit with your lender (the housing association) depending on how much you each own.  
 
If the value of your property falls, you could find yourself in the position of having to pay more money into a property that’s decreasing in value, or having to sell at a loss. That said, falling house prices could actually work in your favour, as you’ll be able to buy a bigger share in your home at a lower price.

Can I make home improvements? 

Your housing association will probably need to approve any major refurbishments, such as a new kitchen or extension. But the good news is that, like any lender, they want you to invest in your home so are likely to say yes.  
The downside is that if you then want to buy a bigger share of your home, it may cost you more as you’ll probably have increased the value of the property.

Are there any other fees I need to know about? 

If you’re planning on ‘staircasing’ (buying extra shares in your property) there are other fees to consider on top of the cost of the share. You’ll also need to pay a valuation fee, legal fees, mortgage fees, and maybe stamp duty.  
 
Shared ownership properties are usually in newbuilds. These can involve expensive service charges, particularly if the property comes with fancy features, such as lifts and 24-hour concierge services.

What are the alternatives to shared ownership mortgages?  

If you live in London, Help to Buy is another Government-run scheme. If you can come up with a 5% deposit, the Government will loan you 40% of the purchase price. You can borrow the remaining 55% from a commercial mortgage lender.  
 
London Help to Buy loans are available on new-build properties worth up to £600,000.  
 
Outside London, you could look into a Help to Buy: Equity Loan. Here, the Government could lend you 20% of the property value. You can then borrow 75% from a commercial lender, meaning you only need to come up with a 5% deposit.  

How much do shared ownership mortgages cost? 

Commercial mortgage lenders may well charge you a fee. This could be a lump sum, or a percentage of the total loan value. It might be possible to add this cost to your mortgage debt.

What do I need to get a shared ownership mortgage quote?  

You’ll need to know your income (and that of your partner’s, if you’re taking out a joint mortgage). You’ll also need to know the price of the property you want to buy.

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