Shared Ownership Mortgages
Shared ownership allows you to buy part of your home while renting the rest. That means you need to borrow less and can buy with a smaller deposit. Here’s everything you need to know about getting a shared ownership mortgage.
What is shared ownership?
Shared ownership is a government scheme aimed at helping people who would like to own their own home but can’t afford to buy on the open market. Under the scheme, the cost of home ownership is made more affordable because you can start by buying as little as 25% share in a property and your deposit can be 5% of the price of that share, rather than the whole property.
Buyers then rent the rest of the property from the local housing association, which is usually less than the rate charged on the open market (usually 2.75% of the property value per annum). And in addition to that, stamp duty can generally be deferred until you increase your share of the property to 80%.
According to the Council of Mortgage Lenders, there are over 200,000 shared ownership properties in the UK. And the number is set to grow. The scheme is also referred to as Part Buy, Part Rent or Share to Buy.
How do I qualify for shared ownership?
You should generally be a first time buyer or if you do already own, you must be in the process of selling your home. Your annual household income needs to be less than £80,000 (£90,000 in London), you need to have enough money to pay a deposit (usually 5-10% of the equity share you are buying) and you need around £4000 to cover the costs of buying a home (legal fees etc)
You can read more about whether you’re eligible to apply for a shared ownership with our guide about Shared Ownership schemes: new build
What is a shared ownership mortgage?
In order to buy a shared ownership property, you need to pay for at least 25% of your home – and rent the remaining share from your local housing association.
A lot of mainstream mortgage lenders don’t lend on shared ownership properties so you may need to find a specialist mortgage. It’s worth noting that fewer lenders offer shared ownership mortgages and as a result the interest rates are a bit higher than the best rates available with a standard mortgage.
How do I find the best shared ownership mortgage?
When it comes to finding a shared ownership mortgage a broker can prove invaluable. They know the market and will be able to tell you which lenders will suit your requirements. They can also help you find the lowest possible interest rate for your circumstances.
Here at HomeOwners Alliance we have teamed up with fee-free mortgage brokers London and Country to offer you expert advice. 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?
The loan to value (LTV) on shared ownership properties 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%.
You usually need at least a 5% deposit of your share of the property to get a shared ownership mortgage.
Can I afford a shared ownership mortgage?
When you apply for a mortgage the lender will make an affordability calculation to decide if you have enough money coming in each month to cover the mortgage repayments.
They will look at your outgoings including bills, commuting costs and car costs and calculate whether you can afford a mortgage repayment on top of this. With a shared ownership mortgage, they will also factor in the rent you will have to pay on the part of the home you don’t own.
Get help working out if you can afford a shared ownership mortgage with our guide to the basics of affordability.
Shared ownership mortgage calculator
Unsure what you can afford with a shared ownership mortgage? You can see how much you would need to borrow and get an idea of what your monthly repayments would be with the official Help to Buy shared ownership mortgage calculator.
Just type in the market value of the property you want to own and what percentage you want to buy. The shared ownership mortgage calculator will then tell you the deposit you’ll need, the mortgage you will need and what your repayments could be.
For example, if you wanted to buy a 25% stake in a shared ownership home worth £200,000 the shared ownership mortgage calculator breaks down your costs as follows:
Value of the property: £200,000
Share you want to buy: 25%
Share price: £50,000
Deposit needed (10%): £5,000
Mortgage needed: £45,000
Remained of property owned by housing association: £150,000
Monthly rent: £312.50
Approx monthly service charge: £80
Estimated mortgage per month: £257.85
Estimated monthly costs: £650.35
Should I buy a home with shared ownership?
Shared ownership is a great way of helping people that can’t afford to buy a home outright to get on the property ladder. But you must do you research and check affordability. 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. Shared ownership flats are usually sold leasehold – make sure you understand what this means. As a result there are limitations on sub-letting and ground rent charges. So do instruct a solicitor not recommended by the developer to check the detail of your lease. And see our guide on the common pitfalls of shared ownership.
How do I increase my share in my shared ownership home?
Once you have been living in your shared ownership house for a set period of time, 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 and it does come at a cost. So, it’s a good idea to work out the costs and what’s involved before buying.
Shared ownership remortgage
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 lenders will be more restricted as fewer offer shared ownership mortgages. So you won’t get the best 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.
Shared ownership mortgage FAQs
- 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.
- 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.
- Can I get a shared ownership mortgage with bad credit?
Unfortunately, it would be 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.
There are specific bad credit mortgages, but most don’t lend on shared ownership properties. You can do a lot to improve your credit rating though. So, take the time to go through your credit report and do what you can to improve it before you start looking for a mortgage.
- Can I get a shared ownership mortgage if I’m self-employed?
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. 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.