Shared Ownership Mortgages

If you are struggling to get on the property ladder, there are a number of affordable home schemes available that are worth looking into. 

One of the most common is shared ownership mortgages, also known as shared equity.  

What is a shared ownership mortgage? 

Shared ownership mortgages are a UK part rent-part buy scheme designed to help first-time buyers purchase a share of a property.  

With a shared ownership mortgage, you buy a share of a property (usually between 25% and 75%) while paying rent on the remaining share to a housing association. 

It helps you get on the housing ladder and start building up equity in the form of your mortgage repayments, but it’s much more affordable compared to buying 100% of a new home. 

Shared Ownership Mortgages Key Takeaways

• Shared ownership mortgages are a part rent, part buy scheme in the UK making it easier to get onto the property ladder. 

• Shared ownership schemes results in a lower deposit and lower monthly mortgage payment compared to a traditional mortgage. 

• To be eligible for a shared ownership mortgage, you typically need a household income under a certain threshold and be able to afford the mortgage payments, rent, and other associated costs. 

• You can buy more shares of the property. This is known as ‘staircasing’. 

• Selling a shared ownership property is a more complex process than a normal home as you need to work with the housing association. It's essential to understand the process and eligibility criteria before putting your shared ownership property on the market. 

How Shared Ownership Mortgages Work

By buying a share of a property, you only need a mortgage for the share you are buying.  

This reduces the deposit and income requirements you need to secure a mortgage. 

In the UK, you can typically only borrow between 4 or 5 times your salary, so if you have a low income your ability to get a mortgage is significantly reduced - especially when you consider the average house prices in the UK.  

By purchasing just a share of a property, you’re more likely to be able to afford the mortgage as it will be much smaller. 

The rest of the shares are owned by a housing association, which you pay rent to.  

The rent is typically lower than what you would expect to pay for a similar property on the rental market, because you have a mortgage on part of the property. 

Over time, you can buy additional shares in the property, a process known as "staircasing," until you own the property outright. 

How shared ownership mortgages work - an example 

Let's take a look at how shared mortgages work on a property valued at £250,000 

When buying a share of a property your deposit of 5% (for example) is based on the shared ownership price, not the total property value, making it more affordable. 

*Note: The deposit and mortgage amounts shown in the table are approximate and may vary depending on individual circumstances and mortgage providers. The table assumes a 5% deposit and a mortgage covering the remaining percentage of the shared ownership price. 

Your monthly outgoings will be your mortgage payment plus your rental payment on the remaining part of the property. Here’s an example of how this would work.  

*Note: The above table assumes a fixed interest rate of 3% on a 25-year mortgage term, and rent is calculated at 3% of the remaining share value. Monthly payments are approximate and may vary depending on individual circumstances and mortgage providers. Rent amount varies per housing association.  

Pros and Cons of Shared Ownership Mortgages 

When looking into shared ownership mortgages you should weigh up the pros and cons and consider discussing your options with a mortgage advisor: 

Pros of Shared Ownership Mortgages:

• Lower deposit required 

• Smaller mortgage required 

• More affordable monthly payments 

• Flexibility to increase ownership over time 

• Easier eligibility criteria than traditional mortgages 

Cons of Shared Ownership Mortgages:

• Limited properties available  

• There can be some restrictions on home improvements 

• Selling is more complicated than a normal property 

• There can be rent increases on the remaining share 

Shared Ownership Mortgages Eligibility  

Shared ownership homes are created to help those who wouldn’t traditionally be able to buy their own home through the normal routes.

As a result there are some eligibility criteria in place: 

Income and Affordability Requirements 

To be eligible for a shared ownership mortgage, you typically need a household income under a certain threshold (£80,000 per year outside London and £90,000 per year within London) and be able to afford the mortgage payments, rent, and other associated costs. 

Property Value Limits and Restrictions 

Shared ownership properties must be newbuild or resales through a housing association.  

The property's value cannot exceed the regional price cap for newly built homes, which varies depending on the location.

To find out what this cap is you can check with your local housing association or homebuilder managing the sale of shared ownership homes. 

Other Eligibility Criteria for Shared Ownership Schemes 

• You must be a first-time buyer, a previous homeowner who can't afford to buy a property now, or an existing shared owner looking to move. 

• You must have a good credit history and be able to obtain a mortgage at the required level. 

How to Apply for a Shared Ownership Mortgage 

A Step-by-Step Guide to the Application Process 

There are extra steps for a shared ownership mortgage compared to a normal property purchase, this typically involves an application with the housing association managing the property.  

• Check your eligibility for shared ownership mortgages based on the criteria mentioned above. 

• Search for shared ownership properties through housing associations or property websites. 

• Register your interest in a property with the relevant housing association. 

• Apply for a mortgage through a lender that offers shared ownership mortgages (or speak to a mortgage adviser if you need help). 

• Complete the necessary paperwork and provide required documentation. 

• Await mortgage approval and property completion.  

Required Documents and Paperwork 

• Proof of income (e.g., payslips, bank statements) 

• Proof of identity (e.g., passport, driving licence) 

• Proof of address (e.g., utility bills, council tax letter) 

• Credit report 

• Property valuation report 

How long does it take to get a shared ownership mortgage? 

The timeline for approval and completion varies depending on the property, mortgage lender, and individual circumstances. It can take anywhere from a few weeks to a few months. 

As many shared ownership properties are new builds this could result in a longer process depending on the stage of property when you make your initial application. 

Finding the Right Shared Ownership Mortgage 

As with normal mortgages, it is recommended that you shop around for the best mortgage offer when buying a shared equity home.  

Compare mortgages, use mortgage calculators or seek independent mortgage advice to find the right deal for you.  

Which lenders offer shared ownership mortgages? 

Not all high street banks and building societies offer shared ownership mortgage, but here’s a few that do:  

• Barclays 

• Virgin Money 

• Skipton 

• Leeds Building Society 

Things to Consider When Choosing a Shared Ownership Mortgage  

Here’s a quick list of factors to keep in mind when you’re comparing shared ownership mortgages: 

• Mortgage interest rates 

• Rental cost 

• Rent to mortgage ratio 

• Fees and charges (product fees, for example) 

• Mortgage term (e.g., 20, 25 or 30 years) 

• Flexibility in overpayments, payment holidays, or portability (check any early repayment charges) 

• Customer service and reputation of the provider (read lots of reviews online) 

How to compare shared ownership mortgages 

When evaluating different mortgage options, consider your current financial situation, future plans, and the property itself.  

Compare the total cost of each mortgage option, including interest rates, fees, and charges, over the mortgage term.

Also, consider the flexibility and ability to purchase additional shares of your home with this particular mortgage lender. 

FAQs 

What is a shared ownership mortgage? 

A shared ownership mortgage is a government-backed scheme in the UK that allows you to buy a share of a property and pay rent on the remaining share. 

How do I find a shared ownership property? 

You can find shared ownership properties through housing associations or property websites that list shared ownership homes. 

If you live in England you can check the official website, Share to Buy where shared ownership properties are listed.

In Scotland and Wales you can find listings through housing associations in the area.  

What is staircasing? 

Staircasing is the process of buying additional shares in your shared ownership property, allowing you to eventually own the property outright. 

Can I sell my shared ownership property? 

Yes, you can sell your shared ownership property. However, this can be more complicated than selling a property you own outright, as you'll need to coordinate with the housing association and find a buyer who meets the eligibility criteria. 

Can I make home improvements on a shared ownership property? 

Yes, you can make home improvements on a shared ownership property. However, you may need to get permission from the housing association for certain types of improvements or alterations. 

What are the income requirements for shared ownership mortgages? 

Typically, your household income must be under £80,000 per year outside London and £90,000 per year within London to be eligible for a shared ownership mortgage. 

Can I buy more shares in my shared ownership property? 

Yes, you can buy more shares in your shared ownership property through the process of staircasing, which allows you to increase your ownership percentage over time. 

Are there any property value limits for shared ownership mortgages? 

Yes, there are regional price caps for newly built homes in shared ownership schemes, which vary depending on the location. Check with your housing association to find out what caps apply to you.  

Can I apply for a shared ownership mortgage with a poor credit history? 

While it might be more challenging, some lenders may offer shared ownership mortgages to applicants with poor credit history.

However, the interest rates and terms may not be as favourable as those for applicants with a good credit history. 

Can I rent out a room in my shared ownership property? 

In most cases, you cannot rent out a room in your shared ownership property without permission from the housing association.

It is important to check the terms of your lease and consult with the housing association before considering renting out a room. 

How does selling a shared ownership property work? 

When selling a shared ownership property, you'll need to work with the housing association, who need to manage the applications for the property.

They may find a suitable buyer who meets the eligibility criteria, or you may be allowed to sell your share on the open market. 

Are there any fees or charges associated with shared ownership mortgages? 

There may be fees and charges associated with shared ownership mortgages, such as arrangement fees, valuation fees, and legal fees as experienced with traditional mortgages.

It's essential to consider these costs when comparing different mortgage options. 

Can I apply for a shared ownership mortgage if I already own a property? 

Shared ownership mortgages are primarily designed for first-time buyers and those who don't currently own a home.

However, if you're a previous homeowner who cannot afford to buy a property now, you may be eligible for a shared ownership mortgage. 

Are shared ownership mortgages available for all property types? 

Shared ownership mortgages are typically only available for specific properties, such as new builds or resale properties through a housing association.

The choice of properties may be more limited compared to traditional mortgages.