First time buyer guide

 

Shared Ownership Mortgages

Shared ownership is a way to buy part (a share) of a property that you want to live in. Buying through this scheme means you can apply for a smaller mortgage and the deposit you will need will also be smaller. 
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What Is a Shared Ownership Mortgage?

Shared Ownership mortgages were put forward by the government to reach out, under their Help to Buy scheme, to first-time buyers and households with low income.

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.

Shared Ownership homes can be found via the Property Booking and Share to Buy websites in England, or Homes for Londoners website if you live in London.

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 typically only need a 5% deposit, instead of the 10 to 20% that’s usually required for most mortgages.

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

For example, on a 25% share of a £200,000 property:

  • A 25% share of £200,000 is £50,000
  • The deposit would be 5% of £50,000, which is £2,500
  • The rent would (typically) be 2.75% of £150,000 (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 can be invaluable, as they will be able to find you the right deal for your individual circumstances.

Can I Apply for a Shared Ownership Mortgage?

You can apply for a shared ownership mortgage 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 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

Shared Ownership Need-to-Knows

  • Since shared ownership schemes are offered by housing associations, you’ll have to look for a Shared Ownership house in the area you’re interested in
  • Shared ownership homes are always leasehold so you’ll have to pay a monthly service charge
  • In order to buy your share of the property, you must be eligible for the scheme and prove it
  • When and if you decide to buy more share of the house, if its price has gone up, you’ll end up paying more for adding to your share whereas if the price of the property drops, you’ll be paying less
  • Because the property doesn’t belong to you out-and-out, if you’d like to make any changes to it you may have to ask consent from the housing association
  • When you reach the desired 100% ownership on your property, if you want to sell it, the first buying option will go to the housing association

As you can see, shared ownership mortgages can surely help you climb onto the housing ladder if you’re eligible. The smaller deposit and the lower repayments might be useful towards buying a bigger property than you expected. Moreover, since you’ll be saving money on rent, you’ll probably find it easier to put some pounds away towards boosting your share of the property later on.