If you’re a first-time buyer struggling to get onto the property ladder, shared ownership mortgages could be a viable option. This scheme, backed by the UK government, allows you to purchase a share in a property (usually between 25% and 75%) and pay rent on the rest. You buy a portion of the property and rent the remaining amount.
I was a shared owner for 4 years after buying a flat in London worth £578,000, where I had a 40% share worth £227,000. It has pros and cons, so I’ll try to explain the whole system to you.
Shared ownership mortgages can be a great way to get onto the property ladder, particularly if you need help saving up for a large deposit.
With a shared ownership mortgage, you only need to put down a deposit on the share of the property you’re buying, which is usually around 5%.
This makes it much easier to start as a homeowner, and you can gradually increase your share of the property over time. However, it’s important to note that shared ownership properties are usually leasehold, which means you’ll have to pay ground rent and service charges on top of your mortgage payments.
For me, my shared ownership flat had these rough figures (bear in mind they are London prices)
- Mortgage: £450
- Rent: £780
- Service: £220
Total Monthly Costs: £1450
What is a Shared Ownership Mortgage?
ousing associations or the government often offer shared ownership mortgages designed to help people who can’t afford a home outright. You’ll need to meet specific eligibility criteria to qualify, such as being a first-time buyer or having a household income below a certain threshold.
The general eligibility criteria for Shared Ownership are as follows: You must be 18. Your annual household income must be less than £80,000 outside of London. In London, your yearly household income must be less than £90,000.
The amount you’ll need to pay for your share of the property will depend on its value, and you’ll need to pay a deposit. The required deposit is typically around 5% of the share you buy. You’ll also need to pay a mortgage on the share you own, which will be based on the value of that share. When the lease expires, you must extend it or sell your share of the property.
Most big lenders/banks will support shared ownership mortgages, but only some lenders do! So if you’re looking at smaller, lesser-known lenders, you may struggle. A mortgage broker will be able to help you to make sure you don’t fall into this trap.
Overall, a shared ownership mortgage can be a great way to get on the property ladder if you need help to afford a home outright. However, it’s essential to research and understand all the costs and obligations involved before committing to a shared ownership mortgage.
I was lucky to work with Notting Hill Genesis, who allowed me to have a lodger in my spare room to help pay some of the expensive costs of having a flat in London. However, other housing associations are more kind than this.
Benefits of Shared Ownership Mortgage
If you’re struggling to get onto the property ladder, a shared ownership mortgage could be the solution you’re looking for. Here are some of the benefits:
One of the main benefits of a shared ownership mortgage is that it can be more affordable than buying a property outright. With shared ownership, you only need to put down a deposit on the share of the property you are purchasing. For example, if you’re buying a 50% share of a £150,000 property, you would only need to fund £75,000 through a mortgage and deposit. This could mean a £7500 deposit and the remainder on a mortgage, and this actually becomes quite affordable.
This can make getting a foot on the property ladder easier, especially if you’re a first-time buyer or have a lower income.
Another benefit of shared ownership is that it can offer more flexibility than traditional home ownership.
You can buy a smaller share of a property, meaning you’ll have a smaller mortgage and lower monthly payments. This can be useful if you’re on a tight budget or unsure if you want to commit to a larger property.
Shared ownership can also offer more flexibility when it comes to selling your property. You can do so anytime if you want to sell your share of the property. However, you will need to give the housing association first refusal on buying your share.
That being said – if you have to sell to another shared owner, this can lengthen the process and limit the number of buyers on the market due to the affordability assessment you go through when you purchase a shared ownership property.
Shared ownership can also make buying a property in a desirable location easier. With a smaller deposit and lower mortgage payments, you can afford a property in an area otherwise out of reach. Additionally, shared ownership properties are often built in new developments, which can offer modern amenities and a sense of community.
That’s how I managed to buy a flat in a thriving part of London in the post-Olympic legacy just outside of the Olympic village in London.
A shared ownership mortgage can be a great option if you need help getting onto the property ladder. With lower upfront costs, more flexibility, and the ability to buy in desirable locations, shared ownership can help make your dream of owning a home a reality.
Drawbacks of Shared Ownership Mortgage
If you are considering a shared ownership mortgage, it is crucial to know the potential drawbacks before deciding. This section will discuss some of the main disadvantages of shared ownership mortgages.
One of the main drawbacks of shared ownership mortgages is that you will only own a portion of the property. This means that you will have limited control over the property and may only be able to make certain changes with the approval of the housing association or other co-owners.
Furthermore, if you decide to sell your share in the property, you will only receive a portion of the sale price. This may limit your ability to move up the property ladder and make it more challenging to sell your property.
Potential Additional Costs
Another potential drawback of shared ownership mortgages is that additional costs may be associated with the property. For example, you may be required to pay service charges, ground rent, or other fees not included in your mortgage payments.
Selling also comes with many hidden costs around legal packs, admin charges, and other fees that the housing association may add. When selling my flat, I had to pay about £500 in additional fees not part of the standard conveyancing process – just because the housing association added on their fees.
Additionally, suppose you decide to purchase a larger share of the property in the future (known as staircasing). In that case, you may need to pay additional fees and costs associated with the transaction. This can be a significant expense and may make it more difficult to purchase additional property shares.
Stamp duty can also be a concern, especially if you deferred it when purchasing the property; you’ll then need to pay Stamp Duty as you go up the staircase ladder.
In 2018, a study by housing association Aster found that only 10% of those in shared ownership chose to staircase.
Finally, knowing the resale limitations associated with shared ownership mortgages is essential. If you decide to sell your share in the property, you may be required to offer it back to the housing association or other co-owners first.
This may limit your ability to sell the property on the open market and make it more challenging to get a fair price for your share.
Additionally, if the property has stayed the same since you purchased your share, you may not be able to sell it for a profit. This can be frustrating and may limit your ability to move up the property ladder in the future.
Thankfully when selling mine, the housing association gave me open market permission and allowed me to get a down valuation while selling it for full market value to get some equity out of the property.
Eligibility Criteria for Shared Ownership Mortgage
You must meet certain criteria to be eligible for a shared ownership mortgage. Here are the general eligibility requirements for shared ownership:
- You must be at least 18 years old.
- Your household income must be less than £80,000 a year (£90,000 a year or less in London).
- You cannot own another property.
- You must be a first-time buyer or a previous homeowner who cannot afford a new home.
In addition to these general requirements, there may be additional criteria set by specific housing associations or lenders. You should check with them to see if you meet their specific requirements.
To determine how much you can afford to borrow, a shared ownership affordability calculator can be used. This calculator considers your income, expenses, and other financial obligations to determine how much you can afford to borrow.
When applying for a shared ownership mortgage, you must provide proof of income, such as payslips or tax returns. You will also need to undergo a credit check to ensure that you can make the mortgage payments on top of the affordability assessment to make sure that you can also afford the rental payments, service charges as well as normal household bills.
It is important to note that shared ownership mortgages are unsuitable for everyone. If you are still determining whether a shared ownership mortgage is right for you, you should seek advice from a financial advisor or mortgage broker.
How to Apply for a Shared Ownership Mortgage
If you’re interested in buying a home through the shared ownership scheme, you’ll need to apply for a shared ownership mortgage. Here are the steps you need to take to apply for a shared ownership mortgage:
Step 1: Check if You’re Eligible
When you’ve found a shared ownership property, speak to the housing association’s financial assessor as soon as possible, they’ll look at your finances and situation to determine whether you’re eligible to look at shared ownership properties.
You can find a development you like first, or choose the housing association and see what they offer.
Step 2: Find a Property
Once you’ve confirmed that you’re eligible for the shared ownership scheme, you need to find a property available for shared ownership.
You can search for shared ownership properties on the websites of housing associations and property developers.
Or take a look at www.sharetobuy.com, which is a site where most housing associations put up their properties on shared ownership schemes. I didn’t use this site when first looking, but it’s pretty good for finding shared ownership properties, both new and for resale.
Step 3: Apply for the Scheme
Once you’ve found a property you’re interested in, you need to apply for the shared ownership scheme. You can do this by contacting the housing association or property developer that’s selling the property.
You’ll be asked to provide information about your income, savings, credit history, and preferred location during the application process. The amount you can borrow will depend on your income, mortgage cost, rent, service charges, and ground rent. This is the formal assessment.
Step 4: Apply for a Mortgage
Once you’ve been approved for the shared ownership scheme, and likely the actual flat or house you applied for, you need to apply for a shared ownership mortgage. You can do this by contacting a mortgage lender that offers shared ownership mortgages.
When you apply for a shared ownership mortgage, you’ll need to provide information about your income, expenses, and credit history. The mortgage lender will use this information to determine how much you can borrow and your mortgage repayments.
Step 5: Complete the Purchase
Once you’ve been approved for a shared ownership mortgage, you can complete the purchase of your shared ownership property through the normal conveyancing process. You’ll need to pay a deposit, which is usually 5-10% of the share you’re buying, and you’ll need to sign a shared ownership lease.
After you’ve completed the purchase, you’ll need to pay your mortgage repayments, rent, and service charges each month. You’ll also be responsible for maintaining your property and paying for any necessary repairs or maintenance.
Shared Ownership associations are not involved in repairs or maintenance – that’s all on you!
Shared Ownership Mortgage Providers
Not all mortgage lenders offer shared ownership mortgages, so it’s important to do your research to find the right provider for you.
Here are some of the top shared ownership mortgage providers in the UK:
Halifax is a popular choice for shared ownership mortgages. They offer a range of mortgage options to suit different budgets and circumstances. Halifax also has a dedicated team of mortgage advisors who can help you find the right mortgage for your needs.
Nationwide is another well-known provider of shared ownership mortgages. They offer a range of options to suit different budgets, and their mortgage advisors can help you find the right product for your needs. Nationwide also offers a range of other financial products, such as savings accounts and insurance, which could be useful if you are looking to manage your finances in one place.
Barclays is a popular choice for shared ownership mortgages, and they offer a range of options to suit different budgets and circumstances. They also have a dedicated team of mortgage advisors who can help you find the right mortgage for your needs. Barclays also offers a range of other financial products, such as current accounts and credit cards, which could be useful if you are looking to manage your finances in one place.
Santander is another provider of shared ownership mortgages, and they offer a range of options to suit different budgets and circumstances. Their mortgage advisors can help you find the right product for your needs, and they also offer a range of other financial products, such as savings accounts and credit cards.
HSBC is a well-known provider of shared ownership mortgages, and they offer a range of options to suit different budgets and circumstances. Their mortgage advisors can help you find the right product for your needs, and they also offer a range of other financial products, such as savings accounts and insurance.
When choosing a shared ownership mortgage provider, it’s essential to consider factors such as interest rates, fees, and customer service. Do your research and compare different providers to find the right one for you.
I’d always recommend speaking to a mortgage broker rather than shopping on the high street; a broker will have access to 1000s more mortgages and get access to non-visible rates and products. They’ll correctly assess your finances and find the best product for you.
Shared ownership mortgages can be an excellent option for first-time buyers struggling to raise a large enough deposit to purchase a home. By owning a percentage of the property and renting the rest from a housing association or the government, you can reduce your initial costs and get onto the property ladder sooner.
It’s important to consider the pros and cons of shared ownership before deciding. While it can be a good option for some, some may have better choices. Here are some key points to keep in mind:
- Shared ownership can be a more affordable way to buy a home, but you will still need to pay rent on the portion of the property you don’t own.
- You may be limited in your choice of properties, as not all homes are available for shared ownership.
- If you decide to sell your share of the property, you must find a buyer eligible for shared ownership.
- Your monthly costs may rise if the rent on the portion of the property you don’t own increases.
Overall, shared ownership mortgages can be a helpful way to get onto the property ladder, but it’s essential to carefully consider your options and make sure it’s the right choice for you. If you’re unsure, speaking to a mortgage adviser who can provide more information and help you make an informed decision may be helpful.