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What is shared ownership

What is shared ownership?

Shared ownership mortgages are part of a government scheme designed to help people get on the property ladder. Under the scheme, you buy between 10% and 75% of a home from a housing association and pay subsidised rent on the rest. Your mortgage only covers the share you buy, which means a far smaller deposit and lower monthly repayments.

Over time, you can incrementally increase your share in the property, so that you gradually own more and more of your home. This is known as “staircasing”. It reduces your rent and allows you to work your way up to full ownership slowly.

The government recently made a raft of changes to the shared ownership scheme to try and make it more affordable and accessible to homeowners. Under the new model, buyers can start from as little as 10% ownership, whereas previously, you had to buy at least 25%.

New shared owners can buy additional shares in their home in 1% increments for up to 15 years, with heavily reduced fees. Before the changes, you usually had to buy an extra 10% each time. It is possible to buy more of your home in larger increments.

How do shared ownership mortgages work

How do shared ownership mortgages work?

Shared ownership properties are bought from a housing association and arranged by a local Help to Buy agent.

To access the scheme, you’ll need a deposit and a lender who offers shared ownership mortgages. The minimum deposit required is 5% of the share you want to buy.

For instance, if you wanted a property worth £200,000, you’d normally need a minimum 5% deposit worth £10,000 and a £190,000 mortgage. But if you were buying 25% of the home under shared ownership, you’d need a deposit of just £2,500 and a mortgage of £47,500. As the mortgage is so much smaller, the monthly repayments are also far less.

Of course, you have to pay rent on the remaining share, but this is lower than market rates. The maximum rent you can be charged is 3% of the unsold share but some landlords charge less. In the example above, you would expect to pay £375 per month in rent at most.

At the end of the mortgage, you would own 25% of the property outright, and the housing association would own the remaining 75%. You can choose to buy a bigger proportion from the outset – with schemes running from 10%-75%.

You can also choose to buy more shares of your home in the future. Each time you buy an extra chunk, your monthly rent payments will drop accordingly. You have to buy the new shares at the current market rate, not the value when you first purchased the home.

You’ll also need to factor in other fees before you buy. Housing associations recommend that you have between £3,000 and £5,000 available to cover all the costs of moving, which includes the surveys, solicitors and broker fees.

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Who is Mojo?

Mojo is a free online mortgage broker. We partner with them so you can get all the mortgage support you need in one place.

Mojo will find out about your circumstances, check your eligibility, and search across the whole of market to help you secure the best mortgage for your circumstances.

An expert will be on hand to offer help and advice and you will be supported through each step of your mortgage application.

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Who is eligible for the shared ownership scheme?

Because shared ownership is a government scheme, there are strict eligibility criteria. The first factor is income – to qualify, your household income must be less than £90,000 a year in London, or £80,000 anywhere else in the country. 

You also need to show you can’t afford all the deposit and mortgage required for a home that meets your needs without a shared ownership scheme.

The government website also advises that one of the following must also be true:

  • you’re a first-time buyer

  • you used to own a home but cannot afford to buy one now

  • you’re forming a new household - for example, after a relationship breakdown

  • you’re an existing shared owner, and you want to move

  • you own a home and want to move but cannot afford a new home that meets your needs

For some homes, you may have to show that you live, work, or have a connection to the area where you want to buy.

You are allowed to use the scheme to buy:

  • a new-build home

  • an existing home through a shared ownership resale scheme

  • a home that meets your specific needs, if you have a long-term disability - for example, a ground floor flat

Scotland, Wales and Northern Ireland have different schemes with different rules. You can find out more through gov.uk.

Which lenders offer shared ownership mortgages?

Not all lenders offer shared ownership mortgages, but plenty do. Some offer specialist products, while bigger high street lenders tend to open up their first-time buyer mortgages to shared ownership applicants.

Providers will often ask for a lot of paperwork, so come prepared. They’ll also carry out stringent checks to make sure you can afford what you borrow.

 Some lenders to consider include:

  • Barclays

  • Halifax

  • Kent Reliance

  • Leeds building society

  • Lloyds bank

  • Nationwide

  • Santander

  • TSB

The number of lenders available to you is determined by your financial circumstances. The higher your loan-to-value, the more options you’ll have and the better rates you can access. A poor credit history will significantly limit the pool of potential providers. Speaking to a broker can help you find the best lender for your unique situation.

Find out how much you can borrow with a shared ownership mortgages calculator and compare mortgages using the comparison table above. This will help you find the best rates to suit your needs.

How much does shared ownership cost?

Mortgage

If you take out a mortgage to buy your share, you’ll need to make monthly repayments. These include the interest charged by the lender. You can check how much this will cost each month using a shared ownership mortgage calculator. If you borrow extra money to purchase additional shares, your mortgage repayments will also go up. You may be able to remortgage to get a better deal.

Deposit

This is the amount of cash you will need to pay towards buying your home. Deposits are typically 5% or more of the share of the property you buy. For example, if you bought 50% shared ownership of a £200,000 house, your share would be worth £100,000. A 5% deposit on this amount would be £5,000. The higher your deposit, the better the rates available to you.

Additional fees and charges

Getting a shared ownership mortgage and buying a house also comes with several other fees and costs that you will need to take into consideration. For instance, you’ll need to factor in removals, legal fees, the cost of a surveyor, and potentially broker fees. Housing associations advise these could stack up to as much as £5,000.

Stamp duty

First-time Shared Ownership buyers pay 0% Stamp Duty on the first £300,000 of any home that costs up to £500,000. You will need to pay stamp duty on anything above that. If your house is valued at more than £500,000, the usual stamp duty rules apply. If you’re planning to staircase, you can pay all the stamp duty upfront, or do it in instalments. Take advice to work out the best option.

Rent

The housing association will charge subsidised rent on the share of the property they own. The more of your property you buy yourself, the less rent you will pay. The maximum landlords in England can charge is 3%, but many only ask for 2.75%. You can estimate costs by multiplying the value of their share by 0.03 which gives you annual repayments. To work out monthly payments divide by 12.

Service charge

You’ll usually have to pay a service charge to the housing association which covers the services they provide. This includes things like maintenance and repairs, cleaning communal areas, gardening or ground upkeep, and the cost of management. Sometimes the charge will vary from year to year, while other associations offer a fixed fee. Check your lease.

House value: £200,000
Shared ownership pie chartHousing association: 50% share
Shared ownership mortgage for £95,000
Buyer's deposit of £5,000

Advantages and disadvantages of shared ownership

Pros:

  • If property prices increase, the value of your share goes up too

  • You can buy a home with a small deposit or low mortgage capability

  • Your money goes towards your own home rather than just renting

  • Staircasing means you can increase your share over time

Cons

  • Properties can be more difficult to sell on

  • The housing association has first refusal and can set the resale price

  • There are fewer lenders, giving you less choice over your mortgage

  • Less flexibility over your property, for instance, subletting is often banned

couple by front door

Can you buy a bigger share of your property over time?

You can buy additional shares of your home, through staircasing. Each time you buy a new chunk, you will need to pay your housing association to carry out a mortgage valuation. The landlord may charge an administration fee if you buy a share of 5% or more – this can vary from around £150 to around £500.

The more you buy, the less rent you will pay, although your mortgage payments could go up if you need to borrow extra cash from a lender.

Different associations have different rules, but many say you need to increase your share by 10% each time. Some have limits on the total number of times you can buy extra chunks.

Some older leases only allow you to buy shares of 25% or more, while more modern leases let you increase by increments of 5%. New government rules mean if you bought your home after 2021 you may be able to buy 1% extra of the house at a time. 

Before you buy a shared ownership home, ask the landlord for the ‘key information document’ to check the rules around what shares you can buy and when.

Shared ownership vs Shared equity

Shared ownership and shared equity are different schemes designed to help people onto the property ladder. They operate in different ways.

Shared ownership

  • Shared ownership lets you take out a mortgage to buy a share of a property – usually between 10% and 75%

  • You pay rent to a housing association on the share you do not own 

  • The capital and interest are paid back to the mortgage lender on a monthly basis

  • The amount you owe is fixed, based on how much you’ve borrowed from the lender

  • At the end of the mortgage, you only own a share of the property, although you can use staircasing to buy the house outright

Shared equity

  • Shared equity lets you borrow additional money to count towards your deposit

  • This loan (alongside deposit savings) is then used to take out your mortgage, meaning you have two loans at once

  • The loan is either paid back in instalments over a set time period or once the property is sold

  • The amount you owe is a percentage of the house value, so fluctuates if the price goes up or down

  • You own the whole of the house, you just have an extra loan alongside your mortgage

How do I apply for a shared ownership scheme?

There are four steps to applying to a homeownership scheme.

First, you must register with the Help to Buy agent wherever you want to live. Once you’ve done that, you can complete a shared ownership application form, which takes about 10 minutes. The association will confirm if you’re eligible for the scheme.

Once the association has confirmed you qualify, start looking at houses. When you find one you like, register your interest by contacting the landlord.

You’ll then be passed to a mortgage adviser who will assess your salary, income and outgoings to see if you are likely to pass affordability checks. This will let you know what share you’ll be able to buy. You may need a mortgage, so you’ll also need to find and confirm a lender at this stage.

If you meet the affordability checks, you can reserve your chosen home for a fee of up to £500. This will be deducted from the final amount you pay to complete – but you usually don’t get a refund if you pull out.

Finally, engage a lawyer to handle the sale. They’ll explain the terms of the lease to you, and make sure conveyancing is done correctly.

If you’re in Wales, Scotland or Northern Ireland, the rules and processes are different. You can find out more here:

Shared ownership mortgage FAQs

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