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Shared ownership mortgages

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What is a shared ownership mortgage?

Any mortgage that can be used with the shared ownership scheme may be referred to as a shared ownership mortgage. They are no different to any other residential mortgage, and you will still be able to choose from fixed-rate deals, where the interest rate stays the same for a specific period, or variable-rate deals, where your interest rate can go up or down. 

Lenders who are happy to accept mortgage applicants looking to use the shared ownership scheme may advertise their products as a shared ownership, or part rent, part buy mortgages, but they are simply highlighting which type of applicants will be accepted. Not all lenders offer mortgages for this purpose, but a mortgage broker will be able to help you find one that does.

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How does a shared ownership mortgage work?

The mortgage itself will work the same way as it does for any other home purchase - you borrow the amount needed from a lender, using a deposit of at least 5% of the cost of the share that you are buying. You will then repay this loan monthly throughout the term of the mortgage, which is typically around 25 years, but can be longer or shorter. 

Because you’re buying a smaller share in the property, however, the loan amount and deposit will be much lower than you would need for a standard mortgage. For example:

A 25% stake in a £200,000 property would cost you £50,000 in total. 5% deposit would therefore be £5,000 and you would borrow the remaining £45,000 from the mortgage lender.

The remaining share (75% in this case) will stay under ownership of the housing association. You can increase the share that you own over time, in many cases up to 100% of the property, as and when you can afford to do so. 

Because you don’t own all of the property, however, you’ll need to pay rent to the housing association on their share.

Rental costs

It might seem a little daunting to have to pay rent and a mortgage at the same time, but the good news is that housing associations charge less than the private rental market. They cannot charge rent equal to more than 3% of the total property value each year. 

So if we stick to the example of a £200,000 property:

the maximum rent they could charge would be £6000 per year, or £500 per month on the entire property. If you’re buying 25% of that property, however, they can therefore only charge you for the remaining 75%, so the rental cost would be £375.

Service charge

On top of your rent, the housing association may also apply a service charge to cover the upkeep of communal areas. Sometimes the charge varies annually, whereas some charge a fixed fee. Always check your lease to make sure you understand the full costs.

Who is eligible for a shared ownership mortgage?

Anyone who is eligible for the shared ownership scheme will be able to apply for a relevant mortgage, however, they will need to apply with a lender that is happy to accept shared ownership applicants. If you’re unsure, a mortgage broker will be able to help you find a lender that supports the scheme. 

It’s important to recognise that being eligible for the scheme itself is only part of the equation, as you will also need to qualify for the actual mortgage. This should be easier than qualifying for a full mortgage, as the amount you need to borrow will be much lower, but you will still need to meet the lender’s criteria. Criteria vary from one lender to another, but ultimately you will need to meet their affordability requirements for the loan and pass a credit check.

How do you apply for a shared ownership mortgage?

In order to find the best shared ownership mortgage, it’s best to seek expert advice from a mortgage broker, as they will know which lenders offer mortgages for shared ownership purchases and whether you will meet their criteria. 

You can also apply directly with a lender, once you have been approved for the scheme. However, you run the risk of missing out on a more suitable mortgage if you haven’t searched the market and compared all of the shared ownership mortgages available.

What is the shared ownership scheme?

The shared ownership scheme is a government initiative that allows you to buy a share of a property that is currently owned by a housing association. The initial share you buy can be between 10% and 75%, meaning the mortgage loan you’ll need to borrow is much smaller. This both reduces the deposit requirement you'll need to find, and makes it easier to qualify for mortgage affordability. 

The scheme is intended to help people who are struggling to get onto or move up the property ladder. There are certain criteria to meet, and you can only use it with specific properties, not to buy a home from the open market. 

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

Who qualifies for the scheme?

Before you get to the mortgage application stage, you will need to register for the scheme in your region. Although each scheme varies a little, the eligibility criteria is similar, for example, in England you need to:

  • Be either a first-time buyer, no longer own your own home and be unable to afford a new one with a traditional mortgage, or be unable to afford a home that meets your needs

  • Have a total household income of less than £80,000 per year, or less than £90,000 per year in London

  • Not be in rental or mortgage arrears

  • Be able to afford the costs associated with buying a home

How do you apply to the scheme?

To apply for the scheme you will need to register with your regional shared ownership contact. Follow the links below for further information:

England - outside London 

London

Scotland

Wales

Northern Ireland

If you apply and find out you’re eligible, the next step is to find a property that you want to buy. Suitable properties will usually be advertised on the agents’ websites, by housing associations, local councils, home builders and on property listing websites. 

Once you’ve chosen a home, it’s time to look for a suitable lender and decide what percentage of the home you would like to buy. A broker will be able to help you calculate how much a lender is likely to offer you and what size of share you can afford to purchase.

Lenders that offer shared ownership mortgages

Not every lender will accept mortgage applications from shared ownership scheme buyers, however, there is a good mix of high street banks and building societies, as well as more specialist lenders that do. For example, Barclays, Halifax, Lloyds, Nationwide, Santander, Virgin Money and Leeds Building Society all offer suitable options at the time of writing*. 

Each lender has different criteria, so before you apply, it’s a good idea to speak to a mortgage broker who will be able to find you the best deal for your needs.

*please note individual lenders may change their available products at any time, so always check their website for up-to-date information.

Deposit needed for shared ownership mortgages

This will depend on the value of the property and the share you’re buying, although 5% of the total amount you’re borrowing will be the absolute minimum. If you can afford to put more than 5% down, however, this will typically give you access to better interest rates.

On a £200,000 home, a 5% deposit will vary depending on how much of that home you decide to buy. So for example, the minimum share you are able to buy using the scheme is 10%, or £20,000. In this case a 5% deposit would only be £1000. However, if you chose to buy 50% of the property you would need to borrow £100,000, making a 5% deposit £5,000.

When budgeting to buy your new home, bear in mind that you’ll also have to pay the costs involved with buying and moving home, such as mortgage arrangement fees, valuation and legal fees, and removals.

Shared ownership mortgage properties

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 previously. This page lists some properties available for sale under the scheme.

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, which means that this option is less flexible in terms of cost.

Fees involved with a shared ownership mortgage

As you are taking out a mortgage, albeit for a percentage of the home, rather than the whole property, you will have to pay the typical mortgage fees involved with buying a home. This includes:

  • Arrangement fees

  • Legal fees

  • Valuation fees

  • Stamp duty

How does Stamp Duty work for shared ownership properties?

If you’re a first-time buyer and the home you’re buying is worth £425,000 or less you won't have to pay Stamp Duty. If you’ve owned a home in the past, however, you will be charged stamp duty if the property is above £250,000.

As you aren’t taking on the full property, you won’t have to pay the total stamp duty charges when you buy the home, however, and will be able to make payments in stages - Or you can choose to make a one-off payment for the value of the whole property at the outset. 

If the price you pay for the property is above the stamp duty threshold you will make one payment at the start of the mortgage, then you won’t need to pay any more towards the stamp duty that you owe until you own more than 80% of the property.

Can you buy a bigger share of your shared ownership property?

Yes, you can, in most scenarios. Once you’ve lived in your home for a certain amount of time, which will be set out in your lease, you’ll be able to buy more shares so that you own a bigger portion of the property. You can do this in stages, usually until you own 100% of the property if you wish. This is known as staircasing. 

You’ll need to increase your existing mortgage or remortgage for the new amount. Whether you can do this will depend on whether you meet the lender’s criteria. There will be costs involved that you’ll need to budget for.

There are some instances where you won't be able to buy 100% of the property, so always ensure that you know where you stand before you proceed. This is typically when you take out a shared ownership scheme mortgage over the age of 55, although some housing associations will have rules that prevent all scheme users from owning the entire property.

As you will need to pay valuation fees, legal fees, mortgage fees and maybe stamp duty fees when staircasing, you may wish to make fewer increases at a larger percentage at a time, As opposed to multiple 1% increases, for example.

Can you sell a shared ownership home?

You can sell your shared ownership home at any time, however, you will usually need to do so through the housing association unless you own 100% of the property. Even then, there are likely to be terms that means you have to offer it to the housing association first before putting it on the open market, so be sure to check the scheme details.

The housing association will value the property and set the price, and either buy the property back from you, or advertise it for resale to other shared ownership applicants. If it doesn’t sell after a certain period (set by the housing association) you may be able to advertise it for sale yourself. 

Can you make a profit?

You can make a profit from selling your shared ownership home, if your home has risen in value since you bought it, however, you will need to bear in mind that you will only be entitled to profits directly linked to the share that you own. 

If you own 50% share of your home, the proceeds of sale (including any profit) will, therefore, be split equally between you and the housing association.

You are not allowed to make a profit through renting the property out.

Can you remortgage a shared ownership home?

You can, but will only have the option to do so with those  lenders that offer shared ownership mortgages. Like any remortgage, this will be easier to qualify for when you have gained significant equity in your home. 

Many people choose to remortgage so that they can increase the percentage of their shared ownership property, however, it's also possible to switch mortgages simply to access a better interest rate, or to borrow money for another purpose. 

Something to be aware of when considering this is that lenders offering shared ownership mortgages tend to charge slightly higher rates and fees for remortgages than other lenders, as there is less competition in this area of the market. A broker will be able to help you access the best rates available to you.

Advantages of shared ownership

There are a number of advantages to buying a home through shared ownership rather than buying a complete home, such as:

  • You will need to borrow much less and therefore need a smaller deposit and meet the affordability criteria more easily

  • The mortgage and rent charges combined will typically still be less than renting an equivalent property privately

  • It’s usually possible to increase your ownership to 100% of the property as and when you can afford to do so

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

  • If the value of your home rises, so will the value of your share in the property

Disadvantages of shared ownership

Although this can be a great way to get onto the property ladder if you can’t otherwise afford to, it’s important to be aware of the potential pitfalls when you’re deciding whether to buy a home through shared ownership:

  • Shared ownership properties are sold on a leasehold basis, meaning you will also need to pay a service charge for the upkeep of grounds and communal areas

  • Not all lenders offer mortgages to suit the shared ownership scheme, so you will have less choice than the average mortgage applicant

  • When you come to sell your home, the housing association typically has to have first refusal to buy it back from you, and this can make the process more difficult than advertising it on the open market

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

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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