Shared Ownership Mortgages

Want to buy a home through the shared ownership scheme? Then you’ll need to find out about shared ownership mortgages. We explain what they are, how to get one and how to find the best shared ownership mortgage deals.

Angela Kerr Director, Editor

What is a shared ownership mortgage?

Shared ownership mortgages are the type of mortgage you’ll need to take out if you buy a property through Shared ownership, a scheme designed to help you buy a home if you can’t afford to buy on the open market.

The shared ownership scheme makes the cost of home ownership more affordable because you can buy as little as a 10% share in a property and your deposit can be 5% of that share (or less in some cases), rather than of the whole property. You’ll rent the remaining share from your local housing association or developer that owns it. The scheme is also referred to as Part Buy, Part Rent or Share to Buy.

When it comes to shared ownership mortgages, while many mainstream lenders do offer these types of mortgages, not all do. So it’s very important to shop around to get the best deal.

Find out how much you can borrow and start your mortgage search online now with our partners at L&C

Who qualifies for shared ownership mortgages?

Before you can apply for shared ownership mortgages, you first need to apply for the shared ownership scheme and be approved. There are criteria you’ll need to meet including:

• Being a first-time buyer, a former homeowner who can’t afford to buy on the open market now or an existing shared homeowner.
• Having an annual household income of less than £80,000 (£90,000 in London).
• Plus, you’ll need to show you’re not in mortgage or rent arrears, have a good credit history and show that you can afford the regular payments and costs involved in buying a home.

You can read more about whether you’re eligible to apply for a shared ownership with our guide Shared ownership: What is it? Is it worth it?

What type of shared ownership mortgages are there?

Just like when you take out a traditional mortgage, with shared ownership mortgages you can choose to take out a:

• Fixed rate mortgage: This means the interest rate you’ll pay on your mortgage will remain the same for an agreed term, usually 2, 3 or 5 years.
• Variable rate mortgage: With these mortgages, the rate you’ll pay can go up or down. With tracker mortgages, if the Bank of England increases (or decreases) the base rate the amount you’ll pay on your mortgage will automatically go up or down. While with discounted variable rate mortgages, these will go up or down in line with your lender’s standard variable rate which it sets.

For more information, read our guide on Understanding mortgage types and what one you need.

Shared ownership mortgages example

So how do shared ownership mortgages work in practice? Here’s an illustration. Say you want to buy a 25% stake in a shared ownership home worth £400,000…

* Calculation based on 25 year mortgage at 5.3%. Rates on shared ownership mortgages can change quicky so speak to a mortgage broker for up to date shared ownership mortgage rates

** First year rent based on 2.75% of the housing association’s share.

*** Service charge can vary widely, this is for illustration only.

Shared ownership mortgage calculator

With shared ownership mortgages, rather than using an online mortgage calculator to find out how much you may be able to borrow like you would if you were taking out a traditional mortgage, your best course of action is to speak to a fee-free mortgage broker. You’ll get detailed information on shared ownership mortgages, tailored to your circumstances and you’ll be able to see your shared ownership mortgage options too.

How do I find the best shared ownership mortgage?

When it comes to finding shared ownership mortgages, a broker can prove invaluable. They know the market and will be able to tell you which shared ownership mortgage lenders will suit your requirements. For example, L&C’s David Hollingworth explains, ‘Some lenders may have specific deals available for shared ownership whereas others will offer their normal range of deals on shared ownership.’

But getting the best mortgage broker is vital. ‘In a similar way to buying on the open market there could be a referral to a mortgage adviser but it’s important to make sure that will offer the best value,’ advises David. ‘Check that the adviser will offer whole of market coverage and check whether they will charge a broker fee. Other brokers like L&C don’t charge a broker fee which could help save money.’

Here at HomeOwners Alliance we have teamed up with fee-free mortgage brokers L&C to offer you expert advice on shared ownership mortgages. You can start by checking how much you can borrow, they’ll then give you a call when you’re ready to talk through the options before using the information you’ve already supplied to apply for the mortgage for you, when you’re ready to proceed.

How does loan to value work with shared ownership mortgages?

With shared ownership mortgages, the loan to value (LTV) works differently than on standard mortgages. The LTV isn’t calculated on the whole value of the property, just the portion you are buying.

For example, if you were buying a 50% share of a flat worth £200,000 you would need to stump up £100,000 from a combination of mortgage and deposit. So if you have a deposit of £10,000 then you’ll need £90,000 in mortgage – making the loan to value 90%.

With shared ownership mortgages you’ll usually need at least a 5% deposit of your share of the property.

How do I apply for a shared ownership mortgage?

Once you’ve registered for the shared ownership scheme and started looking at properties, you’ll need to go to a financial assessment with the housing association to find out the size of share you’ll be able to afford to buy and the rent you’ll pay each month. Then it’s time to look at shared ownership mortgages.

As we explain above, not all lenders offer shared ownership mortgages so we recommend speaking to a fee-free mortgage broker who can provide specialist advice on shared ownership mortgages.

You’ll need to provide certain paperwork as part of your shared ownership mortgage application, such as:

• Proof of identity and address
• Bank statements
• Employment details
• Proof of income, such as payslips or accounts if you’re self-employed
• Proof of any state benefits
• Proof of the deposit you’re putting towards your share of the property

What shared ownership mortgage lenders are there?

Shared ownership mortgage lenders include several High Street lenders, as well as smaller and specialist mortgage providers. For example, share ownership mortgage lenders include:

• Leeds Building Society
• Virgin Money
• Nationwide Building Society
• Skipton Building Society
• Barclays

However, a fee-free mortgage broker will advise you on which lender it are best suited to your needs and find you the best shared ownership mortgage rates too.

Should I buy a home with shared ownership?

For many people who can’t afford to buy a home on the open market, shared ownership is a great way to get on the property ladder. But you must do you research and check affordability. For example, while rent may be set at a discounted rate in the first year, it can only increase following rent reviews and any increases are linked to inflation.

Also, don’t assume you are more protected because it is a government scheme. You still need to keep up repayments on both the rent and your mortgage. It is also down to you to manage the household bills.

Plus shared ownership properties are leasehold. As a result there are extra costs and restrictions such as limitations on sub-letting and you may need to pay ground rent charges too. So do instruct a solicitor not recommended by the developer to check the detail of your lease.

For more information on the pros and cons of shared ownership, read our guide Shared Ownership: What is it? Is it worth it?

How do I increase my share in my shared ownership home?

Once you have bought your share, you can choose to buy a bigger stake in it. You could purchase up to owning 100% if you can afford it and if the housing association allows 100% ownership. This is called staircasing, you can find out more with our dedicated guide to staircasing your shared ownership home.

Shared ownership remortgages

When you come to the end of your current mortgage term it’s time to remortgage. You’ll find the experience is much the same as with a standard remortgage. The only difference is your choice of shared ownership lenders will be more restricted. So you won’t necessarily get the best mortgage rates available on the market. If you can now afford to buy the property outright by staircasing to 100% you will become eligible for a standard mortgage and have a better choice of cheaper mortgage rates to choose from.

5 questions about shared ownership mortgages

1. Can I use a guarantor for my shared ownership mortgage?

This is possible but our experience is it would be a real challenge. Guarantor mortgages are difficult to get for a standard house purchase, it would be even harder for shared ownership. We would recommend that you speak to a mortgage broker. They can look at your circumstances and work out what your best mortgage options are.

2. Can my parents be on my shared ownership mortgage with me?

Unfortunately, not. Mortgage lenders will only allow the people named on the shared ownership lease to be on the mortgage application. This means they have to live at the property as their main residence.

But your parents could help you with your deposit in order to help you get on the property ladder.

3. Can you get a shared ownership mortgages with bad credit?

This depend on what your credit issues have been and how recent they were. In many cases, it is very difficult to get a shared ownership mortgage with a bad credit rating. The local housing association offering shared ownership properties may also not accept your application. But don’t assume you can’t do it without exploring it first. Also, you can do a lot to improve your credit rating. So, take the time to go through your credit report and do what you can to improve it.

4. Can I get a self-employed shared ownership mortgage?

Yes. You can get a shared ownership mortgage if you are self-employed. A mortgage lender will need to see that you have an adequate track record of earnings. However, it can be challenging to find a lender that offers shared ownership mortgages AND accepts self-employed applicants. We would recommending contacting a mortgage broker for help finding a lender who will offer you a mortgage.

5. Can I get a 100% shared ownership mortgage?

Possibly. ‘Many will expect a deposit, usually a minimum of 5%, to be put down on the share that they are buying but some will be prepared to offer up to 100% of the share because they have the security on the full market value,’ explains L&C’s David Hollingworth. However, if you want to do this, you should take advice from a fee-free mortgage broker. Plus you’ll also need a housing association to agree and most require at least a 5% deposit.

How common is shared ownership?

According to the Shared ownership (England): the fourth tenure? report, there are approximately 202,000 households living in shared ownership homes in England. This represents less than 1% of all households.

What are the advantages and disadvantages of shared ownership?

The main advantage of shared ownership is that you can get on the property ladder with a smaller deposit and mortgage. Plus if offers more long-term stability than renting and you may be able to buy a bigger share of the property over time.

But there are some potential pitfalls you need consider carefully. For example, costs like service charge and rent can spiral. Plus there are usually restrictions on what you can do with your property like sub-letting it or making alterations. To find out more information read our guide on Shared ownership: What is it? Is it worth it?

Find a shared ownership mortgage today with our online mortgage service

Frequently asked questions