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Shared ownership mortgages

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Shared ownership mortgages

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Last reviewed on 7th September 2021

A shared ownership mortgage is a government mortgage scheme that can enable you to buy a share of a home and pay rent on the rest. 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.

Getting a mortgage that’s part-buy, part-rent through shared ownership also carries its risks. Speak to an advisor before making any commitments.

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How does shared ownership work?

Key features of shared ownership include:

  • Shared ownership is where you’d buy a share in your home 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 the property 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

Will I qualify for a shared ownership mortgage?

To qualify for the shared ownership scheme:

  • 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

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.

To apply for a shared ownership mortgage:

  • 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

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

Can shared ownership be used on any property?

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.

Will I be able to buy a larger share of my home?

Yes, you’re able to buy a larger share of your home once you’re able to. 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

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How to apply for the shared ownership scheme

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.

On the other hand, you might 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 available that may be better suited.

For instance, if you have bad credit, applying for a mortgage will be far from straightforward.

Read more: Getting a shared ownership mortgage with bad credit

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 they’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.

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About the author

Mortgage Advisor | More Articles

Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.