Shared Ownership Mortgage

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Shared Ownership Mortgages – a guide

What is Shared Ownership?

Shared Ownership is a home ownership scheme that allows those people who cannot afford a Standard Residential Mortgage for a home that meets their needs, to get onto the property ladder. Simply put, you buy a share of your home, rather than the entire property.

When you apply for a mortgage, it will only be necessary to cover the cost of a share of the property, making it more attainable if you have a low income or cannot meet the deposit requirement of a larger loan. The remainder of your property will be owned by a housing association, whom you will pay rent to for the rest of the property.

You can purchase either a new build home or one available for resale through a housing association that offers the Shared Ownership Scheme.

Shared Ownership eligibility/Who qualifies for Shared Ownership?

There are a few criteria that you will need to fulfill in order to be eligible to buy a property through the Shared Ownership Scheme:

  • You must have a total household income below £80,000 or £90,000 if you live in London
  • You must be unable to afford either the deposit/repayments or both for a property that meets your needs
  • Some housing associations will require that you have a connection to the area where you are intending to buy a home, such as living, working or having family in the region
  • It is also essential that you can meet one of the following needs:
  • Be a First Time Buyer
  • Have owned a home previously, but now cannot afford one
  • Already own a Shared Ownership property, but want to move home

If you are over the age of fifty-five or disabled, there are separate schemes that may accommodate your needs better, we can advise you about these.

How does a mortgage work on Shared Ownership?

With a Shared Ownership home, your mortgage will need to cover the percentage of the property that you can afford to purchase. Until recently you would be expected to buy between 25% and 75% of the property and pay rent on the remainder. However, from 2021, there will be a small number of homes available under the updated scheme, which allow for you to buy as little as 10% of the property. These properties are not widely available at the current time and are expected to increase in number throughout 2022. 

The housing association will refer you to a Mortgage Broker like ourselves, who will be able to confirm the amount of your chosen property that you will be able to afford to purchase. We will assess your affordability by looking at your income against your outgoings and calculating financial availability.

Through a process known as staircasing, you will be able to increase your share of the ownership as and when you can afford to do so. Through the new scheme which is available from 2021, you can purchase increments as small as 1% of the property at a time and it’s possible to eventually purchase 100% of the property, should you want to do so.

Is it easier to get a Shared Ownership mortgage? 

A Shared Ownership mortgage should be easier to attain than a traditional mortgage, as they only require that you borrow a small percentage of the purchase price. The scheme is intended to help people to afford properties that they could not otherwise afford.

What are the advantages of Shared Ownership?

Easier Deposits

Whilst there is a 5-10% deposit requirement, this will be calculated on your share of the property. For example, on a £300,000 home, the usual deposit would be around £15,000-£30,000. 

If you purchase 25% of the property, the purchase price is reduced to £75,000, making the deposit requirement as low as £3,750 – £7,500.

Less Debt

Whilst you will have a monthly rent payment and service charge to consider for your home, the amount of debt that you take on is only a small percentage of the cost, leaving you less vulnerable to debt issues, should your circumstances change.

Shared Liability

As the housing association retains ownership of a percentage of the property, this means that they share liability with you. All Shared Ownership properties will be leasehold for this reason, but it will be possible to transfer to freehold, should you purchase the entire property.

Housing Association Support

The new scheme rules introduced in 2021 outlines that the landlord will provide support with the costs of any essential repairs required to the property within the first ten years of ownership.

Why Heritage Mortgages?