Shared Ownership Scheme Mortgages

If you’re having trouble finding a home you can afford, shared ownership might be an option. This is a middle ground between renting and purchasing, and it helps first-time buyers resolve their toughest challenge: saving enough money for a down payment.

For many people, shared ownership can be a good way to get off the rental path and onto the property ladder, as well as a steppingstone toward full homeownership. There are some possible pitfalls, so balance the advantages and disadvantages before deciding if this is right for you.

What is the Shared Ownership Scheme?

The Shared Ownership scheme offers first-time buyers an affordable way to buy a home. It’s a great opportunity for those trying to get on the property ladder.

Shared ownership schemes are run by housing associations and are usually open only to first-time buyers. They enable you to take out a mortgage on a portion of your home (ranging from 25% to 75%) and pay rent on the remainder. This means you don’t need as big a mortgage as you would if buying the home outright.

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How does part-rent, part-buy work?

A shared ownership mortgage allows you to rent and purchase at the same time. A housing association sells you a share of a new or existing house, and you pay rent on the rest. Depending on the financial situation, the mortgage will cover anything from 25% to 75% of the property’s value. You’ll need a deposit of 5-10% of the value of the share you’re buying.

For example, if you want to buy a 25% share of a £300,000 property under shared ownership:

  • Your share of the property: £75,000
  • Your deposit: £7,500 (10% of the value of your share)
  • Housing association share: £225,000
  • Mortgage needed: £67,500

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Who qualifies for shared ownership?

Housing associations (and Help To Buy) offer shared ownership schemes that allow you to part-buy and part-rent your house.

You can buy your new home through the shared ownership scheme if:

  • You are a first-time buyer or a home mover who can’t afford 100% of the new one.
  • You currently rent a council or housing association property.
  • Your household earns less than £80,000 a year outside London or less than £90,000 in London.

You must be able to demonstrate that you are not in arrears on your mortgage or rent, that you have a clear credit history, and that you can afford the costs of shared ownership home.

Via government-funded shared ownership plans, military personnel would be prioritised over other categories.

You could be eligible for a shared ownership scheme under the government’s Home Ownership for People with Long-Term Disabilities initiative if you have a long-term disability (HOLD).

How do I apply for a shared ownership scheme?

A good place to start is your local Help to Buy representative, as the government provides a shared ownership scheme through its Help to Buy mortgage scheme. Your local agent can be found at www.helptobuy.org.uk and will be able to guide you through your choices.

Contact Mortgage Saving Experts if you still have concerns about Shared Equity or Shared Ownership mortgages. With a wealth of experience and expertise behind us, we’ll guide you through your purchase.

Shared Ownership & Equity mortgages

Shared ownership mortgages have now been superseded by help to buy equity loan so they no longer exist as shared equity. For first-time buyers looking to get on the property ladder, shared ownership and shared equity mortgages are becoming increasingly common. Traditional mortgages usually require a large down payment, which can be difficult for certain people to come up with.

Buying a shared ownership property will help mitigate some of this tension because you only own a portion of the property at first and pay rent to a housing association or landlord on the portion you don’t own yet. Then, if and when you can afford it, you can buy more shares.

A shared equity arrangement allows you to pay a fraction of the full open market purchase price while still owning the entire property. The balance of the purchase price is provided by an equity sharing lender (shared equity used to exist prior to hel to buy equity loan but is no longer available).

What are the advantages and disadvantages of a shared ownership scheme Mortgage?

The main benefit of shared ownership is that it can be more straightforward than full ownership. Since you need a smaller mortgage, the mandatory deposit would be smaller as well. Even though your mortgage plus rent payments could be the same as (or more than) a full mortgage, the smaller deposit required makes it easier to acquire.

Therefore, shared ownership is preferable to renting because the portion of the home you purchase would appreciate it as the property’s value increases. You’ll have some money to help you take the next step up the property ladder if this happens.

Pros of Shared Ownership

  • Shared Ownership helps you to get on the property ladder as an owner-occupier while still providing long-term security.
  • Deposits are usually less costly than purchasing on the free market.
  • Mortgages are more affordable with Shared Ownership, even though you have a lower income.
  • Your monthly expenses would almost always be less costly than if you had an outright mortgage. Monthly expenses are often usually smaller than if you rented privately.
  • Via a method known as “staircasing”, you will purchase more shares in your home in the future. In most cases, investors will go all the way to 100% financing, which means they don’t have to pay any rent and pay their mortgage plus any related service charges and ground rent.
  • You have the option to sell your shares at any time.
  • On initial purchase, Stamp Duty Land Tax is usually not required. Depending on the value of the share you are buying.
  • You have tenure protection, which is not the case with private renting. You will remain in the property for the lifetime of your contract, which is normally 99 or 125 years, as long as the rent and mortgage payments are received. The leaseholder may seek an extension with their housing provider at the end of the lease. We would recommend appointing a solicitor and surveyor with experience in this area.

Cons of Shared Ownership

  • While not all lenders give Shared Ownership mortgages, the majority do.
  • Regardless of how small your share is, you must pay 100% of the ground rent and service charge on your home.
  • Properties will either be leasehold (flats) or houses are freehold mostly.

Shared Ownership properties are sold on a leasehold basis; leasehold ownership is like a long tenancy where your lease will give you the right to occupy and use the home for a longer period (usually 99 or 125 years). The lease term will be fixed at the very beginning, decreasing in length each year, and the home can be bought or sold during that time.

While you’re free to decorate internally, there may be restrictions on what home improvements you can do. You may need to obtain permission from the relevant housing provider before making any structural alterations to your home.

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Shared Ownership Scheme Mortgages: What to consider.

What deposit do I need for a shared ownership mortgage?

A deposit on a shared ownership mortgage is usually between 5% and 10% of the value of the share you’re buying, rather than the entire purchase price. For example, if you planned to buy a 50% stake in a property worth £300,000, your share will be worth £150,000. So a 10% deposit would cost £15,000, while a 5% deposit would cost £7,500.

Are there any other fees I need to know about?

There are additional fees to consider and the cost of the share if you intend on staircasing (buying additional shares of your property). There will also be a valuation charge, legal costs, mortgage fees, and probably stamp duty to pay. This depends from person to person and in most cases no fees could be payable so best speak with us to find out more information.

Newbuilds are generally where shared ownership properties are located. This can be costly, particularly if the property has high-end amenities like lifts and 24-hour concierge services. Shared ownership properties are everywhere not just new build properties.

Can I part-buy, part-rent any property?

You can’t part-buy, part-rent any property – it has to be a property managed by a housing association, which you can find through a local Help to Buy agent.

How much is rent on part rent part buy?

The rent portion of a part-buy / part-rent agreement is determined by the property price and the share you wish to purchase. It’s normally about 3% of the value of the housing association’s properties. For example, if you purchased 50% of a £300,000 home, you would be expected to pay an annual rent of around 3% of £150,000, or £4,500 per year, or £375 per month.

Can I buy a larger share of my home at a later date?

Yes. You will keep buying chunks of your home from the relevant housing association using a method known as staircasing before you own it all.

The housing association will calculate the amount you pay for additional shares based on your house’s current valuation. If the value of your home has improved, you’ll pay more for the share, and if it has decreased, you’ll pay less.

Can I make home improvements?

Any major renovations, such as a new kitchen or expansion, would almost certainly require approval from the housing association. The good news is that, like any lender, they want you to put money into your home, so they’re more than likely to say yes.

The disadvantage is that if you later wish to purchase a larger share of your house, you will have to pay more because the property’s value has likely risen.

can I sell my shared-ownership home?

You could sell your home if you have 100 % ownership of it. However, for the first 21 years after you buy your house, the housing association has the right to “first refusal”. This means it has the option of buying the property before selling it to someone else. Anyone can sell their shared ownership property at any time no matter what percentage of the proerpty they own. They can do so without approval from the housing association. The housing association will want to try to sell the property for you first. If you don’t own your home outright, the housing association has the choice of finding a buyer on its own.

Want to know more?

For more details, call our Mortgage Saving Experts today.

Selling a Shared Ownership home

A resale is a term for selling a Shared Ownership home, and you can do so at any time. If you own your home outright, you can use an estate agent to advertise it on the open market.

If you own a share of your house, the housing association has eight weeks to find a buyer under your contract terms. They do this so that they can help other first-time buyers get on the property ladder and so that they can provide you with a professional sales service at a fair price.

Any prospective buyer of your share must meet the Shared Ownership eligibility requirements. As a result, they must be part of a family earning £90,000 or less and have an adequate deposit to at least purchase the stock you’re selling.

If they cannot find a buyer after eight weeks, you can opt to continue selling with them or sell your home via an Estate Agent while paying their fees. They must find a buyer that meets the criteria for affordable housing.

The price you sell your home for, like staircasing, will be determined by the current market value. An independent RICS trained valuer can assess this. The value of a Shared Ownership property will rise and fall with the housing market, just like any other home. When you sell your house share, you must notify the housing association in writing of your intention to sell.

What happens if the value of my house changes?

If the property’s value has improved by the time you come to sell it, you’ll share the profit with your lender (the housing association) based on how much you each own.

If the value of your home decreases, you may have to spend more money on a property that is depreciating, or you may have to sell at a loss. Falling house prices, on the other hand, could work in your favour because you’ll be able to buy a greater share of your home for a lower price.

Want to know more?

Get in touch with of our mortgage saving experts today.

Mortgage Saving Experts: We can help you get a shared ownership mortgage

At mortgage saving experts we have extensive experience in helping people buy shared ownership properties through the shared ownership scheme so please get in touch to discuss your options further.

What do I need to get a shared ownership mortgage quote?

You’ll need to know your income (and that of your partner’s if you’re taking out a joint mortgage). You’ll also need to know the price of the property you want to buy.Start a quote

Shared Ownership Q&As

What do you pay with shared ownership?

Initially, a buyer would purchase a share of their desired property – usually between 25% and 75%. A mortgage will be paid on the share you own, while a subsidised rent on the remainder will be paid to the relevant housing association, along with any service charges and ground rent.

Who pays for repairs in shared ownership?

The lease makes the shared owner the homeowner, and they are responsible for all the repairs and maintenance in their home, including major structural works and major repairs.

Is it hard to sell shared ownership?

Selling a Shared Ownership home is known as a resale, and you can sell at any time. If you own 100% of your property, you can advertise on the open market via an Estate Agent. Like any home, the value of a Shared Ownership property can rise and fall according to the housing market.

Can you decorate shared ownership?

Can I decorate my Shared Ownership home? You are free to decorate your Shared Ownership property as you wish. However, the housing association will not contribute to decorative improvements.

Is shared ownership cheaper than renting?

Shared Ownership makes mortgages more accessible, even if you’re on a lower wage. Your monthly repayments can often work out cheaper than if you had an outright mortgage. The monthly payments are also generally lower than if you were to rent privately.

What’s better help to buy or shared ownership?

The main difference is that you would pay rent and mortgage payments with a shared ownership property, whereas you would only pay mortgage payments on help to buy a property. Shared Ownership is cheaper in the first instance as the deposit is only on the share of the property you are buying.1

Is shared ownership just for first-time buyers?

The general eligibility criteria for Shared Ownership is as follows: You must be at least 18 years old. … Shared Ownership purchasers are often first-time buyers, but if you do already own another property (either in the UK or abroad), you must be in the process of selling it.

Can you pay cash for shared ownership?

Yes, buying a Shared Ownership property without a mortgage is possible. To pay for your share, you can either use cash to buy it outright or borrow the funds via a mortgage.

Are there any downsides to shared ownership?

As the name suggests, shared ownership doesn’t grant you all the benefits of complete ownership. As such, as well as pros, there are some cons too:
  1. Stamp duty
As described above, you may not qualify for the first-time buyer exemption.
  1. Service charge
You’ll have to pay a service charge to cover the maintenance of communal parts of the building.
  1. The lease
Shared ownership properties are leasehold, and homes with a short lease (under 80 years) become increasingly hard to sell. Check that you would be able to obtain a lease extension if it becomes necessary.
  1. Sub-letting
You cannot sub-let a shared ownership property (unless you have a staircase to 100 per cent ownership). You can let out one or more rooms to lodgers/flatmates, but you must be living in the property permanently yourself.

What are the alternatives to shared ownership mortgages?

An alternative to shared ownership is the government’s Help-to-Buy scheme, where instead of renting part of the property, you receive an equity loan to cover a portion of the cost. Find out more about Help-to-Buy.

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For more details, call our Mortgage Saving Experts today.

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