How Shared Ownership Mortgages Work in the UK
In recent years, for a lot of homebuyers, having enough money for a full mortgage deposit is like a dream come true. However, shared ownership mortgages are a new way to buy part of a house or apartment and pay rent on the other part. They are flexible and affordable.
This guide talks about how the shared ownership scheme works, who can participate, and how shared ownership mortgage brokers can help you get the best deal.
How Shared Ownership Works
Supported by the UK government, homebuyers who can’t afford the full value of a property can still own part of it and rent the rest through Shared Ownership. You can buy a part of a property, usually between 10% and 75%, and then pay a housing association rent for the remainder of the property.
You can eventually increase your share through a process called “staircasing” (we’ll talk more about this later).
This is how it works:
- You send in your application for the scheme through a developer or a housing association.
- You get a shared ownership mortgage and buy a part of the house.
- You have to pay rent on the part of the house that you don’t own.
- You can slowly buy more of the property whenever your finances allow it.
Most homebuyers use shared ownership calculators, co-ownership calculators, or shared equity mortgage calculators to figure out how much they can afford. These tools are very helpful for figuring out how much money you need for the deposit, the mortgage interest, the rent, and the monthly payment all at once.
Eligibility Criteria
Eligibility for shared ownership is broader than many expect. You may qualify if:
General Requirements
- The total amount of money you make from all sources in the home is £80,000 or less (or £90,000 in London).
- You don’t own another home, or you’re selling it.
- Your credit is good, and you pass the checks on your finances.
Additional Criteria
- You are a first-time buyer, a former owner, or a current shared ownership renter.
- You follow the housing association’s local priority rules, which say that certain groups of people should get housing first (for example, key workers or people who live in the area).
Shared Ownership mortgage lenders use a shared ownership affordability calculator to check that your income is high enough to cover the mortgage, rent and service charges.
Benefits of Shared Ownership
Shared ownership is becoming more popular in the UK because it has a lot of benefits:
1. Lower Deposit Requirements
You will only put down the part of the property that you bought, not the whole thing. So, the deposit is based on the share you buy. This is a big drop in the up-front cost.
2. More Manageable Monthly Payments
You will usually pay a mix of the following:
- Your share of the mortgage payments
- Rent for the other part
- Any service fees
Despite this, the total cost is still lower than the cost of renting privately or getting a full mortgage in most cases.
3. The Path to Full Ownership
You can buy more shares over time with this system. So, you can choose how quickly you want to increase your ownership and eventually fully own the property outright when you’re ready and can afford to do so.
4. Access to New-Build Homes
Most shared ownership homes are new, which means they offer:
- Better use of energy
- Lower costs for upkeep
- Modern styles and finishes
5. Security and Stability
Shared ownership gives you a safe, long-term place to live because you have a long lease. It also lets you benefit from the growth in equity on the part of the home you buy.
Limitations to Consider
Shared ownership has a lot of benefits, but it’s also important to know what its limits are:
- Rent + Mortgage + Service Charge
If you rent, pay a mortgage, and pay for services, your monthly bills could include all three. This could also turn out to be an unexpected cost. So, you need to use a shared ownership calculator to see if you can afford it.
- Leasehold Restrictions
Most of the shared ownership homes are leasehold, which means they may have some rules, such as:
- Fees for services
- Ground rent (depends on the property)
- Rules about subletting
- Selling Can Be Slower
When you decide to sell your home, the housing association almost always has the right to seek a buyer first. This process could take a lot longer than selling on the open market.
- Limited Lender Options
There aren’t many lenders that offer shared ownership. Some specialist mortgage lenders are offering very competitive terms for mortgage shared ownership in the market.
- Staircasing Costs
You might have to pay for valuations, legal fees, and processing fees when you buy more shares. We help you make a decision that is sure and well-informed by weighing all of those factors.
Staircasing Explained
Staircasing is the act of getting more ownership of a property. With the new shared-ownership scheme, you can now staircase in two ways:
- Gradual Staircasing:
You can buy small extra shares of 1% every year for up to 15 years, and the process is easier to plan and budget for.
- Standard Staircasing:
If you want to raise your share by more than 1%, the usual minimum is 5%. However, some older leases may still require larger increases, such as 10% or even 25%.
The minimum share you can buy depends on the terms of your lease and whether your property is part of the newer or older shared-ownership model.
How Staircasing Works
The housing association sets up a valuation to find out how much your home is worth on the market right now. You get to choose how many extra shares you want to buy. To pay the extra share, you get a mortgage (or add to your current one). Then, your rent goes down by the same amount as your ownership goes up. You don’t have to pay rent anymore once you own the property 100%. Staircasing lets you gradually move towards full ownership as your income grows.
How We Can Help
There are a number of steps, checks on affordability, and lender requirements that come with a shared ownership mortgage. But rest assured – we are experts in shared ownership mortgages, so we make the whole thing easier.
Here’s how we do it:
- Overseeing the Best Shared Ownership Mortgage Rates
We don’t just look at the market; we also look at both all the mainstream and niche lenders to find the very best deals for you.
- Opportunity for Specialist Mortgage Firms
A number of shared ownership mortgage companies offer unique products that borrowers can’t get directly. When you work with us, we give you unrestricted access to these specialist lenders and the great deal they offer.
- Carry out Correct Affordability Calculations
We use things like the Shared Ownership Calculator. With these tools, you can be sure that your mortgage will fit your budget.
- Navigating Eligibility & Documentation Alongside You
We help you with:
- Income documents
- Checking IDs and credit checks
- Proof of deposit
- Housing association forms
- Comprehensive Application Support
We liaise with and manage the process amongst all parties on your behalf – including:
stay in touch with:
- Mortgage lenders
- Housing associations
- Solicitors
- Valuers
- Property developers
- Estate agents
We guarantee that every step of the way, from the first question to the last, will be smooth and stress-free.
FAQs
What is a shared ownership mortgage?
A shared ownership mortgage lets you buy a part of a home and pay rent on the part you don’t own. It’s designed to help people who can’t afford to buy a property outright.
Is shared ownership only for first-time buyers?
No, shared ownership is not only for first-time buyers. Anyone who can’t afford a suitable home on the open market may apply, including people who used to own a home.
How much of the property do I have to buy at the start?
You usually buy between 10% and 75% of the property to begin with. You can buy more shares over time if your budget allows.
Do I pay rent as well as a mortgage?
Yes, you pay rent on the share you don’t own and a mortgage on the part you’ve bought. Most people find the total still works out cheaper than trying to buy the whole property outright, but it’s important to look at the full monthly cost so you know exactly what you’re taking on.
Who is eligible for shared ownership?
You need to have a household income under £80,000 (£90,000 in London). You must also show that you can’t afford a suitable home on the open market.
Can I get a shared ownership mortgage with bad credit?
Yes, it’s still possible to get a shared ownership mortgage with bad credit, depending on the lender. Some lenders are more flexible than normal mortgages, but you may need a slightly larger deposit.
What happens if my income changes?
If your income goes down, you still need to keep up with the mortgage and rent, so it’s important to get in touch early if you think you’ll struggle. If your income goes up, it might actually give you the option to buy more shares later on, which can help reduce the rent part of your payments.
Can I sell a shared ownership property?
Yes, you can sell your shared ownership home whenever you want. The housing association normally gets the first chance to find a buyer, and if they don’t, you can sell it on the open market.
Are shared ownership homes freehold or leasehold?
Most shared ownership homes are leasehold, which simply means there’s a management company or housing association that looks after the building or the estate. Alongside that, you’ll usually have some extra costs like service charges or ground rent, so it’s always worth checking what those look like before you decide anything.
