A Shared Ownership – or Share to Buy – Mortgage is a Government scheme that allows first-time buyers and people that don’t currently own a residential property the chance to buy a share in a new-build or resale home. Shared ownership mortgages might be a good option for people who either don’t have a big deposit or aren’t eligible for a large mortgage, for whatever reason.
The way they work is that the buyer purchases a share in a property which is owned by a council, housing association or private landlord.
The buyer takes out a mortgage on the share they own and then pays the landlord rent for the remaining share.
Over time, the buyer has the option to increase the share they own, until they own the property outright should they choose to do so. As their share increases, so will the amount of mortgage they need, but the rent they owe decreases, as it will be based on a smaller share. At the end of the process, if the buyer has bought 100% of the property, they will no longer be required to pay rent but will have to continue paying their mortgage down, along with any other fees associated with the purchase.
Share to buy mortgages are useful to buyers who might be struggling to save a big deposit as the amount they need will usually be a lot lower because they are only buying a share of the property. Plus, because they won’t need a mortgage for the property’s full value, they may also be able to access the more competitive rates on the market.
Of course, if you are considering a shared ownership mortgage, make sure you get some proper advice from an expert mortgage broker with experience of Share to Buy, to ensure it’s the right option for you.
Why might I need a Shared Ownership Mortgage?
Shared ownership mortgages are a good choice for anyone who would like to own their own home but can’t afford a mortgage to cover the full asking price of the property upfront. In most cases, you can start with a 25% share in the property you are buying, and work your way up to increase your share, up to 100%, via a process known as ‘staircasing’.
You will typically be required to find a deposit of between 5% and 10% of the share you are buying, not the value for the entire property – so, if you are buying a 25% share in a house worth £150,000, a 5% shared ownership deposit would be £1,875, compared to the £7,500 you would have to find if you were paying full price.
The rent you pay on a shared ownership property is usually less than it would be charged on the open market. You might also be eligible to defer any Stamp Duty payments until you have a share of at least 80% of the property. There are some drawbacks though. If your overall aim is to ‘staircase’ your way to a 100% share but the property increases significantly in value, this may be difficult to achieve if your earnings and/or savings don’t increase in line, leaving you forced to stay in the property for a longer period. It’s also worth bearing in mind that the landlord or housing association will have the first refusal on the property if you decide to sell, which may prevent you from realising a better sale price.
Am I eligible for a Shared Ownership Mortgage?
Anyone interested in buying a Shared Ownership property needs to register with Share to Buy in the first instance. You must also meet some general eligibility criteria. You must be at least 18 years old, with an annual household income of less than £80,000 (or less than £90,000 if you live in London).
You must be either a first-time buyer or a homeowner in the process of selling your current property. You’ll also need to demonstrate that you can’t afford a property outright on the current market, that you are not in mortgage or rent arrears and that you have a good, clear credit history. You should also have enough money saved to cover a deposit, fees and any other costs associated with the purchase.
Once you have lined up a property, you’ll also need to get a Shared Ownership mortgage and ensure you can afford the repayments. Shared Ownership mortgages are widely available, but you should always seek help from a mortgage professional with expertise in this area, who will be able to connect you with the best lenders and deals from the whole of the mortgage marketplace.
Although Shared Ownership mortgages can help make home ownership a reality for you, you need to understand all your options before you take the plunge. My Mortgage Pro can connect you with an expert mortgage broker who can help you find the best solution. To find out more, fill out the form below to request a call and we’ll be in touch.