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Shared ownership mortgages

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What is a shared ownership mortgage?

A shared ownership mortgage is one specifically designed for people buying a property through the shared ownership scheme. Not all lenders offer them, but many do. 

Shared ownership is a government home-buying scheme designed to help people get onto the property ladder. It’s particularly aimed at those who can’t afford to get a mortgage on an entire home. With shared ownership, you buy part of the property and pay rent on the remaining share.

You’ll find the same types of mortgages for shared ownership as for any other residential mortgage. You’ll be able to choose from fixed-rate deals, where the interest rate stays the same for a specific period, and variable-rate deals, where your interest rate can go up or down. 

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How do shared ownership mortgages work?

Housing associations allow you to buy a share of between 10% and 75% of a leasehold new build or resale home, although different housing associations will set different lower and upper percentages. You then pay rent to the housing association on the remaining share. 

As you’re only buying part of the property, you’ll need a smaller mortgage than if you were buying the whole property, so your deposit can be smaller too. You can borrow up to 95% of the share you’re buying with some lenders, which means you’ll only need a deposit worth 5% of that share.

For example, if you’re buying a 25% share of a £320,000 home this will cost £80,000. If you take out a 95% mortgage for this you’ll only need a deposit of £4,000. 

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Who is eligible for a shared ownership mortgage?

You are entitled to apply for a shared ownership mortgage providing you’re eligible for the scheme itself, although whether you’re accepted will depend on your finances.

The shared ownership scheme isn’t open to everyone. In England, one of the following must apply:

  • You are a first-time buyer

  • You used to own a home but can’t afford to buy a new one

  • You have an existing shared ownership home and are looking to move

  • You’re forming a new household, for example, after a relationship breakdown

  • You own a home and want to move but can't afford a new home that meets your needs

There are also salary restrictions. The scheme is open to people with a household income of less than £90,000 a year in London or £80,000 in the rest of England. You also need to have a good credit history and not be in mortgage or rent arrears.

Advantages of shared ownership

There are a number of advantages to buying a home through shared ownership compared with buying an entire home:

  • You need a smaller deposit to get onto the property ladder

  • The cost of the mortgage and rent is likely to be less than renting

  • It’s possible to increase your share to 100% of the property over time

  • You can sell your home at any time, whether you own 100% or not

Disadvantages of shared ownership

There are a number of potential pitfalls to consider when you’re deciding whether to buy a home through shared ownership:

  • There are fewer mortgages to choose from as not all lenders offer them

  • As shared ownership properties are leaseholds you have to pay ground rent and service charges

  • To sell, you first need to go through your housing association, which means that the process can take longer

  • You won’t be able to sublet your home, although you may be able to have a lodger

What is a shared ownership scheme?

A shared ownership scheme is a government scheme designed to help you get onto the property ladder by buying a share of a property (rather than all of it) and renting the rest. This means you need a smaller deposit, which makes it more affordable. 

Shared ownership is available in Scotland, Wales and Northern Ireland as well as England, although the schemes work differently.

How to apply for a shared ownership scheme

To apply for shared ownership in England, you first need to register with the Help to Buy agent in the area you want to live in. 

Once you know you’re eligible, find a property you want to buy, which you can do on the agents’ websites. They may also be advertised by housing associations, local councils, home builders and on property listing websites. Once you’ve found a home you can apply for a mortgage.

What properties are available for shared ownership?

The homes available for shared ownership are purpose-built by housing associations, usually in a larger development or as part of the regeneration of an area. You can either buy a newly built home or one that’s being sold by someone who bought the property through shared ownership themselves.

Buying a new build means you’ll be the first person to own the property and won’t be part of a chain when you buy it. But you may have to wait for it to be built if you buy “off plan” (before it’s completed).

Buying a resale property means you’ll be able to view the completed property, which makes it easier to see what it’s like. But you’ll need to buy at least the same share of the property as the current owner holds.

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

As mortgages are available for up to 95% of the share you’re buying, the amount you’ll need for a deposit is relatively small compared to buying a whole property. However, it will depend on the value of the property and the share you’re buying.

For example, with a 95% mortgage, you’ll need a £4,000 deposit to buy a 25% share of a £320,000 home but £8,000 to buy a 50% share. If the home you’re buying only costs £200,000, you can buy a 50% share with a £5,000 deposit.

The less you borrow, the lower your interest rate will be. You’ll also have more lenders to choose from, so it’s worth paying as big a deposit as possible. 

Bear in mind that you’ll also have to pay for the costs of buying and moving, such as mortgage arrangement fees, valuation and legal fees, and removals so make sure you factor these into your budget. You may need at least £4,000 to cover all these costs.

Claire Flynn - Senior Mortgages Editor at Uswitch
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Getting on the ladder is hard, so schemes like shared ownership can really help. But your mortgage options will generally be more limited, so speak to an expert to work out what's best for you. ”

Claire Flynn

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