First time buyer guide
Shared Ownership Mortgages
What Is a Shared Ownership Mortgage?
Shared ownership mortgages are part of a government initiative which aims to help first-time buyers and those on lower incomes buy a home.
If you can’t quite afford a mortgage on 100% of the value of the property you’re after, they offer the possibility of buying a share – usually between 25% and 75% of its value – and pay rent on the rest. If later on you want to buy more shares you’re entitled to do so.
Most of the homes available to buy through this scheme are new builds. But you can sometimes get your hands on a previously-owned Shared Ownership home through housing associations (re-sell).
How Do Shared Ownership Mortgages Work?
Since you’re buying a percentage of a home, you will need a mortgage to buy that share of the property. But the advantage is that, with a shared ownership mortgage, you will only need to put down a 5% deposit – and that’s only on your share rather than the total property price.
So basically you:
- Buy between 25% and 75% of the property from a housing association
- Get a mortgage for that percentage and pay rent on the rest to the housing association
- Can buy a larger share later from the housing association
For example, on a 25% share of a £200K property:
- A 25% share of £200K is £50K
- The deposit would be 5% of £50K, which is £2,500
- The rent would (typically) be 2.75% of £150K (the value of the share of the property not owned), which is £4,125 a year
Not all lenders offer these types of mortgages, but some of the major ones do. Using a mortgage adviser to find the best shared ownership mortgage deal can be invaluable. These professionals are best equipped to approach the right lenders.
Do I Qualify for Shared Ownership?
You will be eligible to buy a home through a shared ownership scheme if:
- Your income is less than £80,000 a year (£90,000 if you live in London)
- You’re buying for the first time, or you’re a previous homeowner but can’t afford to buy now
- You currently own a shared ownership home and want to move
- You have the right to live permanently in the UK
- You’re over 18 years old
- You can prove that you’re not in rent or mortgage arrears
- You have a good credit history
- You can show that you’re able to afford the regular payments and costs of buying a home
It’s also worth noting that the housing association that is selling the property may also have their own eligibility criteria, so make sure to check their requirements.
Shared Ownership Need-to-Knows
Here are a few points to bear in mind about the scheme:
- Shared ownership homes are leasehold, which means you’ll have to pay ground rent and service charges each month
- You can buy a bigger share of your property from the housing association at any time. This is called staircasing and the cost is linked to the market value of the property when you increase your share
- If you want to make any changes to the property you may have to ask the housing association for permission
- Once you reach 100% ownership of your property, if you decide to sell it, the housing association will have the right to first refusal
- If you’re a first-time buyer you may not have to pay stamp duty when purchasing a shared ownership home
The choice of shared ownership mortgages is more limited than the general range of mortgages available to first-time buyers. But there are still plenty of options to consider if you want to take this route.