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Shared ownership explained

Can shared ownership mortgages be your best chance of getting a foot on the property ladder?

Woman showing young couple around a shared ownership property

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As the overall trend is for house prices to keep rising, opportunities for first time buyers to get a leg up on the property ladder can be harder to come by.

If you’re looking to understand how shared ownership works, this article explores the key questions including:

  • What is shared ownership or part ownership? - A shared ownership mortgage is a government scheme to help lower income households onto the property ladder

  • How does shared ownership work in practice? - You split the purchase with your local housing association

  • What are the pros and cons of a shared ownership mortgage? - You can buy a share of a home with a smaller deposit, but if property values increase you may find it difficult to buy the whole home

What is a shared ownership mortgage?

The shared ownership scheme, or part rent, part buy, was introduced by the government, and is designed to help individuals and families on lower incomes to become homeowners.

However, in recent times more and more people from all backgrounds are taking up shared ownership or using the government's Help to Buy Equity Loan scheme to get on the property ladder.

What does shared ownership mean?

The meaning of shared ownership isn’t always clear, however in the government shared ownership scheme, homes are provided through a housing association. They work by offering first-time buyers a share of the property ownership.

You can buy a share of between 25% and 75%, and then pay rent (less than the rate charged on the open market) on the remaining share.

The shared ownership scheme is open only to first-time buyers, or to those who used to own a home but can't afford one anymore.

Further to this, the scheme is open only to those on salaries lower than £80,000 per year, or £90,000 a year in London.

You'll need a mortgage to help buy the share of the property, but much like the government's Help to Buy scheme, you can get one with a smaller than average deposit.

Instead of forking out a 10-20% deposit, shared ownership mortgages will usually require only 5% of the property's value.

If you part-buy a property from a housing association, make sure you know if it has any further specific requirements.

Pros and cons of a shared ownership mortgage

Essentially, the shared ownership scheme can be one of the cheapest ways to get your first step on the property ladder.

The 5% deposit means you'll only need £7,500 for a property valued at £150,000, and considering you'll be buying a share, rather than the whole property you can get away with putting up less.

For example, for a 50% share in a property valued at £150,000, you'll need a deposit of £3,750.

If you can afford to put up more and keep up with the monthly mortgage repayments then it might be worth going for a 75% share, but you'll need to factor in the cost of rent for the remaining share.

To upgrade your share of the home, you'll need to have the property valued again. If the price of properties in your area has gone up then it could mean that you'll be paying more than what you did for the initial share. You'll also have to pay the valuer's fee each time you wish to upgrade.

If you have part ownership of the home, and depending on your local housing association's rules, you may find difficulty renting out your property should you decide to move on. This could make the idea of moving home tricky, especially if you can't afford to upgrade your share to 100%.

With prices in the housing market regularly rising, a 100% share may be too difficult to attain, so it could leave you forced to stay in the same home for a long time.

However, if you're confident that you'll increase your earnings or savings enough to buy the whole of the property, then the shared ownership scheme can be particularly useful.

It's also worth bearing in mind that the local housing association will have first refusal if you decide to sell the property, and their right to buy the property back first will last for a term of 21 years from the date of 100% ownership.

Shared ownership mortgage brokers

A shared ownership mortgage broker should have an expert knowledge of the shared ownership landscape and be able to match you up with the right deal.

If you do decide to use a broker, ask them if they have the experience of dealing specifically with shared ownership mortgages.

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Compare a huge range of first time buyer mortgages on our comparison tables