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Shared ownership explained

Tom Martin
Written by Tom Martin, Content editor

Edited by Samantha Downes, Content Writer, 3 December 2021

Can shared ownership mortgages be your best chance of getting a foot on the property ladder?
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Woman showing young couple around a shared ownership property
Shared ownership mortgages

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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 shared ownership?

The shared ownership or part rent, part buy scheme 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.

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 in the ownership of the property.

How do shared ownership schemes work

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.

How does a shared ownership mortgage work?

A shared ownership mortgage is designed to help borrowers who want to buy into a shared ownership property.

They are different from standard mortgages because 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.

Shared ownership mortgages explained

Shared ownership mortgages

The pros and cons of shared ownership mortgages

Pros

Low deposit needed

You need less of a deposit which makes the shared ownership scheme 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.

You get more rights than a standard tenant

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 the 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.

Cons

Upgrading comes with costs

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.

Hard to rent if you move

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%.

Rising house prices could be a problem

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.

How to apply for a shared ownership mortgage 

A shared ownership mortgage broker is an expert in the subject and can 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.

Compare first time buyer mortgages

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