Last reviewed on 4th March 2022
Shared ownership mortgages can be a great way to help homebuyers onto the housing ladder. Buying a home can be expensive, but shared ownership alleviates some of these financial pressures by allowing buyers to purchase part of a property. As a result, costs can be kept to a minimum and homeownership can be made a reality.
Getting a mortgage that’s part-buy, part-rent through shared ownership also carries its risks. Although shared ownership is a government-backed scheme, you’ll still need to understand that a mortgage is a long term financial commitment. Speak to an advisor before making any commitments.
- What is a shared ownership mortgage?
- How does a shared ownership mortgage work?
- Am I eligible for a shared ownership mortgage?
- How to apply for shared ownership
- Can shared ownership be used on any property type?
- What are the pros and cons of shared ownership?
- Will I be able to buy a larger share of my home?
- Can I sell my home at any time?
- Shared ownership mortgage rates
What is a shared ownership mortgage?
A shared ownership mortgage is a government mortgage scheme that allows homebuyers to buy a share of a home and pay rent on the remainder. With the scheme, it’s possible to purchase either a 25%, 50% or 75% share, rather than the whole property.
The main advantage of a shared ownership mortgage is that you can use a smaller deposit to become a homeowner. This can allow you to get on the housing ladder where you may have otherwise struggled. You can also purchase larger shares once you’re financially in a position to do so. This can eventually lead to you owning your house outright.
Types of shared ownership mortgages
There are two types of shared ownership mortgages:
- Fixed rate mortgage – This where your mortgage rate will remain fixed for an agreed duration and carries less risk
- Variable rate mortgage – This is where your mortgage rate can go up and down but carries more risk
It’s not possible to get an interest-only mortgage or a buy to let mortgage on a shared ownership property.
How does a shared ownership mortgage work?
Shared ownership is a part buy and part rent scheme. As a result, it works slightly different to traditional mortgages. For instance, you’ll repay the mortgage on the share that you own and pay rent on the share that’s owned by your housing association.
Key features of shared ownership include:
- Shares are purchased from a housing association
- You’d pay rent on the share that you don’t yet own to your housing association
- This is a part-rent, part-buy scheme
- It’s possible to buy a share of a home between 25%-75%
- You can use a shared ownership mortgage to buy your share in the property
- Increasing your shares is possible, this is called staircasing
Am I eligible for a shared ownership mortgage?
To be eligible for a shared ownership mortgage you must meet the following criteria:
- Your household must earn no more than £80,000 a year, or no more than £90,000 if you live in London
- You must either be a first-time buyer or have owned a home but can’t afford one anymore
- If you’re an existing shared owner looking to move, you may also qualify
- You must qualify for the shared ownership scheme
- Have a minimum 5% deposit
- Meet your lender’s criteria (affordability, credit check)
- The property you want to buy must be suitable for shared ownership
To qualify for a mortgage on a part-buy, part-rent home, you must meet other criteria. This can include your income, credit checks and general spending habits.
Older people’s shared ownership (OPSO)
There is a specific scheme for those aged 55 or over called the Older People’s Shared Ownership scheme (OPSO). The scheme is identical to shared ownership but the maximum share is capped at 75%. However, once you own a 75% share of your home, you won’t have to pay any rent for the outstanding 25%.
Mortgages for those aged 55 may be slightly harder to obtain. This is because mortgage terms are often shorter and therefore costs can be higher.
Learn more: How to get a mortgage for over 55s
How to apply for shared ownership
To apply for shared ownership, you will need to contact a Help to Buy agent in the area you want to live. It’s also recommended to speak to a mortgage advisor to ensure that you’re eligible for a mortgage. This is because you may qualify for the scheme, but not a mortgage.
In comparison, you may qualify for a mortgage but may not be suitable for the shared ownership scheme. Either way, a mortgage advisor will inform you of what’s possible. Doing your research beforehand can save you a lot of time, frustration and money. There are other schemes and mortgage types that may be better suited. For instance, if you have bad credit, applying for a mortgage will be far from straightforward.
Can shared ownership be used on any property type?
You can buy a new build property or an existing home with shared ownership through resale programmes. This will typically be from housing associations using the Help to Buy scheme.
To begin with, your shared ownership home will be on leasehold tenure. This is because your shared ownership provider will own the other share of your property. As a result, you’d pay rent each month in addition to your mortgage.
What are the pros and cons of shared ownership?
Each mortgage type has pros and cons which you must consider before making a commitment. Shared ownership is no different and isn’t suited for every homebuyer.
Pros of shared ownership
- Ideal for those with lower incomes
- If house prices increase, you can benefit from any equity gained
- Shared ownership can be cheaper than renting, while giving you more control over the home you live in
- Keep costs low as you’re only repaying the mortgage for the share you own
- A secure, government backed scheme
Cons of shared ownership
- Lenders that offer shared ownership mortgages are limited
- Homes on shared ownership are often leasehold, which can involve additional monthly fees search as service charges and ground rent
- You’ll still have to pay rent to your housing association
- You’ll have to abide by the terms and conditions of your housing association, even if you wish to sell the property or increase shares
Will I be able to buy a larger share of my home?
Yes, it’s possible to increase your shares in a shared ownership home. Furthermore, you can keep buying shares until you own 100% of your property. This process is called staircasing and can be done when you remortgage.
Once you own 100% of your home, you’d be able to get a regular mortgage. Mortgage rates are likely to improve, as you’d own more of your home and are much less of a risk to lenders. You’d also no longer need to pay rent, as you’d own 100% of your home.
Learn more: How to remortgage a shared ownership home
Can I sell my home at any time?
If you own your shared ownership home outright, then you can sell your home whenever you choose to. That being said, some housing associations will have a clause in their terms and conditions where they’ll have the first option to buy.
If you own a share of your home, speak to your housing provider. Each housing association has its own terms and conditions. There are typically no issues with selling your share but it’s likely you’ll have to follow your housing association’s guidelines.
Your housing association will request an independent valuation of the property. This is so they’re able to calculate the exact value of your home and the shares involved. Your housing association will then either decide to sell the property as a whole or with an option for shared ownership. Nonetheless, either option shouldn’t affect you in selling your share in any way.
Shared ownership mortgage rates
It’s important to note that not all lenders offer mortgages for shared ownership. As a result, mortgage rates for shared ownership can be higher than usual. This is especially true if you’re using a 5% deposit.
Speak to a mortgage advisor who has experience with shared ownership. This is because we’ll approach suitable lenders while trying to find the most competitive deals you qualify for. As a result, you’ll be able to compare interest rates across multiple mortgages.