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Shared ownership mortgages

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Shared ownership mortgages

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Last reviewed on 27th October 2023 by Martin Alexander (Mortgage Advisor)

Shared ownership is a ‘part buy, part rent’ government scheme designed to help buyers onto the housing ladder. In fact, shared ownership is part of the government’s Help to Buy initiative, so there’s a lot of support available.

Although you might qualify for the scheme, you must also be eligible for a shared ownership mortgage. We’ll explain the process in more detail and how mortgages for shared ownership work.

What is a shared ownership mortgage?

A shared ownership mortgage is a loan used for buying a shared-ownership home. The main difference from other mortgages is that it allows you to buy a home with a lower deposit, as you only buy part of a property.

If eligible, you can buy between 25%-75% of a home from a housing association or local council. Buying a share of a home can be much more affordable than buying a home outright and is one of the main reasons the scheme started.

Lenders each have a separate range of mortgages for shared ownership. However, not all lenders accept the scheme.

How does a shared ownership mortgage work?

Shared ownership works slightly differently from traditional mortgages. For instance, you’d repay the mortgage on the share you own and pay rent on the rest.

If you’re buying a 25% share of a home worth £250,000, you’d need a deposit (10%) of £6,250 and a mortgage for £56,250. You’d pay rent on the remaining £187,500 (75%) to your housing association.

Paying a mortgage and rent together can sound expensive. However, your rent is discounted by up to 80%, making shared ownership an attractive proposition.

Can I buy more of my home by staircaising?

Yes, buying more shares in a shared ownership home is possible. You can keep buying shares until you own 100% of your property. This process is called staircasing and is done when you remortgage.

You can get a regular mortgage once you own 100% of your home. You’d also no longer need to pay rent.

Learn more: How to remortgage a shared ownership home

Am I eligible for a shared ownership mortgage?

You’ll need to meet the following criteria to be eligible for a shared ownership mortgage:

  • Your household income is less than £80,000 a year if you live outside London or £90,000 if you live in London
  • First-time buyers and previous homeowners can apply
  • You’re already a shared owner
  • You must be at least 18, but some lenders require applicants to be 21
  • Have a minimum 5% deposit
  • Meet your mortgage lender’s criteria, such as an income to repay the mortgage and passing a credit check

Before applying for a shared ownership mortgage, you must register with your local housing association to ensure you qualify for the scheme.

Older people’s shared ownership (OPSO)

The Older People’s Shared Ownership Scheme (OPSO) is for those aged 55 or over. It works the same, but the maximum share is 75%. However, once you own a 75% share of your home, you won’t have to pay any rent on the outstanding 25%.

Mortgages for those aged 55 may be harder to obtain. This is because mortgage terms are often shorter, so costs can be higher.

Learn more: How to get a mortgage for over 55s

How to apply for a shared ownership mortgage

To apply, you’ll need to:

  • Prepare your documents – You’ll need to provide documents such as your photo ID, bank statements and payslips or accounts if you’re self-employed.
  • Proof of your deposit – Lenders will want to see where your deposit is from. For instance, you must provide bank statements if you’ve saved your deposit. If your deposit is a gift, you’ll need evidence to show the deposit isn’t being loaned.
  • Speak to an advisor – An advisor can help you with all aspects of your shared ownership mortgage application. We’ll check whether you’ve met the criteria before applying to avoid any nasty surprises.
  • Download your credit reports – If you’ve had credit issues, you’ll need a copy of your credit file. Although getting a mortgage is still possible, you’ll need expert advice, as finding a lender will be far from straightforward.

Read more: Getting a shared ownership mortgage with bad credit

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Which mortgage lenders accept shared ownership?

The following lenders accept shared ownership:

  • Skipton – Will only accept properties that can be staircased to 100% of their value.
  • Newbury – Accept applicants using a 5% deposit under the shared ownership scheme.
  • Virgin – Only open to applicants purchasing a minimum 25% share.
  • Together – Will only lend up to £250,000 on a shared ownership home.
  • Hanley Building Society – Lends up to £500,000 for shared ownership applications.

Many more lenders accept the scheme, each with varying criteria. You’ll need to find a lender that suits your financial situation, which is what our advisors can help you with. Some lenders don’t accept the scheme at all.

What are the advantages and disadvantages of shared ownership?

Each mortgage type has pros and cons, which you must consider beforehand.

Advantages of shared ownership

  • Government-backed – A secure, government-backed scheme with a network of support.
  • Help for low-income households – Shared ownership makes getting on the housing ladder easier. You won’t need a large deposit, and passing affordability checks is easier as you only buy a share of the home.
  • Benefit from equity – If house prices increase, you can benefit from any equity gained, as the share you own in your home can also increase.
  • Cheaper than renting – Although you’ll pay rent in addition to your mortgage, the rent will be cheaper than the market rate. You’ll also have more control over your home, as it’s yours and not your landlord’s.
  • Staircase – You have the option to buy more shares, which you can do when it’s affordable to do so.

Disadvantages of shared ownership

  • Limited options – Not all lenders participate in the scheme so you won’t have as many options as other mortgages.
  • Leasehold – Homes on shared ownership are leasehold, which involves additional monthly fees such as service charges and ground rent.
  • Paying rent – You’ll still have to pay rent to your housing association. With other mortgage types, you won’t need to pay rent.
  • Terms and conditions – You’ll have to abide by the terms and conditions of your housing association, such as selling the property or buying more shares.

How to find an advisor

If you still need help, you can speak to an advisor. We’ll check if you’re eligible for the shared ownership scheme before finding you a mortgage.

Getting a mortgage while using a government initiative can seem daunting. Usually, you’d need to find a property and apply for a mortgage. However, with shared ownership, you first need to qualify for the scheme, find a house that fits the criteria and then apply for a mortgage. Having an advisor each step of the way can make your home-buying journey much more straightforward.

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About the author

Martin Alexander
Senior 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.