Shared ownership mortgages: How does shared ownership work?

Couple eating sushi new shared home

If you’re starting to seriously think about purchasing a property, but aren’t certain that you can afford the necessary mortgage right now, shared ownership might offer the perfect solution.

This involves buying part of a property and renting the rest, often with the intention of increasing your share over time. It does tend to be more complicated than getting a traditional mortgage, but it can be a great way to get on the property ladder — particularly for first-time buyers — if you aren’t quite in a position to go the standard route.

If you are interested in pursuing shared ownership, it’s well worth having a mortgage broker on hand to support you through the application process. And, our experts are here to help! At The Mortgage Genie, we’ve helped people just like you to secure the loans they need to begin their journeys as homeowners. So, if you would like our help, get in touch today.

And, we’re sure there are still some questions you have about the intricacies and logistics of shared ownership mortgages, too. So, we’ve put together this guide to help answer them. Here, we’ll cover:

Read on to learn everything you’ll need to know before deciding whether shared ownership is going to be the right choice for you.

What is shared ownership in the UK?

So, what does “shared ownership” mean? If you have shared ownership — otherwise known as part ownership — of a property, this means you buy part of it and rent the rest. This typically involves taking out a mortgage or using your savings to cover the cost of the part you’re buying and then paying reduced rent on the part you aren’t. Depending on your situation, you can buy between 10% and 75% of your chosen property’s market value, and then eventually buy part or all of the remaining share once you can afford to do so.

You will only be able to secure shared ownership of either new-build homes or some existing properties that are available through special resale programmes offered by housing associations. It’s also worth noting that these properties are always leasehold — this means you won’t own the land your home sits on, which can incur additional costs for ground rent and maintenance.

Shared ownership can be an attractive option if you’re only able to save a small deposit, as you’ll only need enough to buy a fraction of the property you want. Then, through a process known as staircasing (more on that later), you can increase your share of your home over time to eventually own all of it.

Taking out a shared ownership mortgage is more complex than usual, so it’s a good idea to enlist the help of an expert shared ownership mortgage broker who can help you through the process. If you would like some help with this, get in touch with our team today by calling 033 33 44 33 72. We would love to help you in your property buying journey.

What do you need to know about the shared ownership scheme?

If you think going down the part ownership route is going to be the best choice for your situation, you’ll need to take advantage of the UK’s shared ownership scheme.

Through this, you’ll have access to homes offered by a housing association, local council, or other specialist organisation. And, you’ll be able to buy:

  • A new-build
  • An existing home available through a shared ownership resale scheme
  • A home that meets your specific needs if you have a long-term disability — for example, if you have limited mobility you may need a ground floor flat

The scheme will require you to pay a deposit, and you can then buy more shares in your home over time. The more of the property you own, the less rent you’ll pay on the rest. And, eventually, you’ll be able to own the entirety of your home.

How much money do you need for a shared ownership deposit?

The deposit required to take out a shared ownership mortgage will typically be between 5 and 10% of the equity share you’re planning to purchase. This is one of the biggest reasons shared ownership properties are particularly popular among first-time buyers — because you won’t be taking out a mortgage for the full value of the home you wish to buy, your deposit can be significantly smaller.

If you need help with saving for a deposit, make sure you read our mortgage deposit guide. It will take you through some of the most effective ways you can save as much as possible, so you can buy a larger portion of your property and get access to the most affordable mortgage rates.

Do you pay Stamp Duty on a shared ownership mortgage?

If you’re buying a shared ownership property, you will typically need to pay Stamp Duty. The main exception is if you’re a first-time buyer, your property is valued at less than £300,000, and you choose to pay your Stamp Duty upfront.

The other option you have is to pay any Stamp Duty that’s due in stages. If you choose to do this, you’ll pay the Stamp Duty that’s due on the first sale amount, as long as the premium is above the threshold of £125,000. Then, you won’t pay any further shared ownership Stamp Duty until you own more than 80% of the property.

Shared ownership pros and cons

It’s vital that you carefully consider the ins and outs of having a shared ownership mortgage before you take the plunge, as you need to ensure it’s going to suit your situation. Here, we’ll take a look at some of the different advantages and disadvantages you can expect to encounter so you can make an informed decision.

Pros of shared ownership

While getting a shared ownership property can be more complicated than taking out a traditional mortgage, there are some reasons why you may wish to use the scheme. The main benefits of shared ownership include:

  • The deposit required is generally lower, making shared ownership mortgages more accessible
  • You only need to be able to afford the portion of the property you’re buying to begin with, which is ideal if you’re on a lower wage
  • The monthly repayments will often be lower than if you took out a full mortgage or rented a property privately
  • You’ll have the option to buy more shares of your home through a process known as “staircasing” so, eventually, you could own 100% of the property. At this stage, you can stop paying rent and will only need to cover your mortgage repayments as well as any ground rent and maintenance costs that are required
  • You will have the right to sell the shares you own whenever it suits you
  • You usually won’t be required to pay Stamp Duty on your initial purchase
  • Unlike with private renting, as long as you make your mortgage repayments and pay your rent on time, you can live in your shared ownership home for the duration of your lease, which will usually be 99 or 125 years long. The leaseholder can organise an extension of this with their housing provider, too.

If you’re on a low income, have a small deposit, or are tired of the unpredictability of privately renting, these advantages could make shared ownership a great option for you.

Cons of shared ownership

There are sometimes cons to shared ownership, though, and it’s important that you know what these are so you can decide whether it’s the best option for you. The disadvantages of shared ownership can include:

  • Not all lenders offer shared ownership mortgages, which can limit your options
  • You will be required to pay 100% of the ground rent and any necessary service charges for your property, regardless of how much you own at the time
  • If you don’t pay the required Stamp Duty upfront, you’ll be required to pay it on the whole value of the property when you own 80% or more of it
  • Your property will be leasehold, although it may become freehold once you own it all — this will need to be discussed and arranged with your housing provider
  • There may be some restrictions on what kinds of home improvements you can carry out on the property. For instance, it’s likely you’ll need to get the permission of your housing provider if you want to make any structural changes.

Some of these points could have a huge impact on the affordability of your home, as well as what it’s like to live in. So, it’s well worth taking everything into account before you decide to take the leap.

Is shared ownership a good idea?

Now that you understand the pros and cons, as well as some of the more complicated elements of part owning a property, you may be wondering: “is shared ownership worth it?”. And, the answer is that it entirely depends on your current circumstances.

The main situation in which shared ownership tends to be a particularly fruitful option is if you’re currently privately renting and are tired of feeling like you’re simply paying someone else’s mortgage without having a real chance to save for your own. Because shared ownership usually requires a much smaller deposit, you may be able to get on the property ladder for less than you think. And, although you will still be paying rent on part of your property, you’ll also be making mortgage repayments on your share. As a result, you’ll be making more of an investment in your future.

It could also be an option if you’re in a position where you definitely need to move, but you haven’t quite had the time to pull together enough money to take out a standard mortgage. With shared ownership, you’ll be able to buy your property gradually over time so, even if you don’t have the deposit you wish you had right now, you can eventually get to where you want to be.

However, if you have a healthy income, a suitable deposit, and a good credit history, it will typically make more sense to buy a home with a traditional mortgage. Usually, this will mean that you don’t have to cover as many property costs each month, and you’ll have more control over what you do with your home.

Shared ownership eligibility: What is the shared ownership criteria?

Whenever you’re looking to purchase a property, you will need to fulfil certain criteria to be eligible. And, this also applies to shared ownership mortgages. While the housing association you’re planning to buy your home through might also have some of its own requirements you need to satisfy, here is what you’ll generally need to be aware of:

  • You must be 18 or over
  • If you live outside of London, your annual household income must be below £80,000
  • In London, your annual household income must be below £90,000
  • You cannot own another home — if you already have a property, you must be in the process of selling it
  • You should not be able to afford a property that fits your requirements on the open market
  • You must be able to prove that you aren’t struggling with mortgage or rent arrears
  • You should ideally have a good credit history — if you don’t, you may require a bad credit mortgage instead
  • You need to be able to afford the regular payments required, as well as the other fees and charges associated with buying a property
  • You will typically need a deposit that’s at least 5–10% of the equity share you plan to purchase

If you feel that you fit all of these criteria, it’s likely shared ownership is going to be a great option for you.

How to apply for a shared ownership property

If you do decide to apply for a shared ownership property, there will generally be four steps you need to take. Here, we’ll talk you through them so you know exactly what to expect.

1.Register with a Help to Buy agent and complete an application form

Your first step will be to register with a Help to Buy agent in the area you’re looking to buy a property in. You can find a suitable agent through the government’s Own Your Home website.

Once you’ve registered, you’ll then be able to sign in to an account on your chosen agent’s website and complete a shared ownership application form — also known as an affordable home ownership application form. It’s possible to do this online, or you can request to receive the necessary documents in the post.

This stage shouldn’t take you too long. The form will only take around 10 minutes to fill out and your agent will then get in touch to let you know if you’re going to be eligible.

2.Get in touch with the landlord of the property you’re interested in

If it’s confirmed that you’re eligible for a shared ownership property, you can then register your interest in a particular house by contacting the relevant landlord. You’ll be able to find their contact details in the advert for your chosen property.

You’ll then need to speak to a mortgage advisor who will help you to work out how much of the property you can afford to purchase to begin with. You can either pay for this with a mortgage or your savings — this is something else that your mortgage adviser will be able to help you make a decision on.

3.Reserve the property

If you’re happy with everything at this point, you can then pay a fee to your landlord to reserve the property. This can be up to £500, and it will be taken off the final amount you pay on completion day. After this, nobody else will be able to reserve the home for a fixed period, and the landlord will let you know how long the time frame is.

Usually, you won’t be able to get the fee back if you eventually decide not to go ahead with the purchase. It’s worth asking your landlord about this before reserving the property.

4.Find someone who will handle the legal work for you

Finally, there’s a lot of legal work involved in purchasing a property, and you’ll need to find a professional who will handle the conveyancing for you — this is the process of transferring the ownership of the property from the seller to you.

For this, you can hire a solicitor or a licensed conveyancer who will explain the terms of the shared ownership lease to you, as well as check the conditions of your mortgage offer if you’ll be taking one out.

Can you get a shared ownership mortgage with bad credit?

It’s not impossible to secure a shared ownership mortgage with bad credit, but it can be a lot harder. So, if you’re starting to think about purchasing a property through the scheme but have had credit issues in the past, we would recommend taking some steps to improve your rating first.

Always conduct a free credit check (free for 30 days, then £14.99 a month - cancel online any time) before applying for a mortgage to see where you stand. You can then decide whether you’re going to work to boost your rating or still want to go ahead as it stands. Here are some of the most effective ways you can increase your score before applying for a shared ownership mortgage:

  • Register to vote
  • Correct any errors on your file, and look out for future fraudulent activity
  • Make regular payments on time
  • Keep your credit utilisation low
  • Try to avoid moving home too often

It’s also worth looking into whether a bad credit mortgage might be more suitable for your situation. Even if you’ve been bankrupt or faced a CCJ or IVA, there will often still be mortgage products you can access.

Can you make a profit on a shared ownership property?

Purchasing a shared ownership property is an investment, and it can provide you with a profit. If the value of the house you buy goes up, so will the value of your share. This means you could then stand to make money when you decide to sell.

Staircasing with shared ownership: How does it work?

Once you’ve lived in your shared ownership property for a set amount of time, which will be outlined in the terms of your lease, you’ll be able to buy additional shares in your property. This is known as staircasing, and allows you to build up your share of your home. Lots of aspiring homeowners follow this process until they eventually have 100% ownership of their properties.

Depending on your arrangement, there may be some restrictions to your staircasing process, so this is something you need to check before committing to a purchase. These restrictions can include a staircasing cap of 80%, which is sometimes put in place to prevent a property becoming a second home.

While staircasing is totally optional, there are a lot of benefits to going through the process. For instance:

  • While your mortgage will increase, the rent you have to pay will decrease
  • A lot of the time, you can build up to owning 100% of your property, so you no longer have to pay rent to your landlord
  • The more you own, the more you’ll benefit if the value of your property rises
  • If you choose to continue staircasing until you own 100% of your home, you’ll gain access to a wider range of mortgage options designed for standard home purchases. These tend to come with better interest rates, so you could end up paying less overall.

If you do decide that you wish to buy extra shares in your property, you’ll need to get in touch with your housing provider and let them know. Then, you’ll have to arrange for an independent surveyor to visit your home to determine the current value of it.

Once you have been given this figure, you can decide whether you definitely want to go ahead with staircasing right now. You will typically have three months to make this decision — if you take longer, a new valuation is likely to be required.

What do you need to know about selling a shared ownership property?

You will be able to sell your shared ownership home at any time. If you own 100% of it when the time comes, you’ll usually be able to sell it on the open market in the typical manner. On the other hand, if you haven’t yet staircased to 100%, you will need to let your landlord know about your intentions to sell and they will start to look for a buyer to take your share. They will have what’s known as a “nomination period” — four, eight, or 12 weeks, depending on your lease — to sell your share. But, if they are unable to do so, you’ll be able to sell it yourself on the open market. Alternatively, the landlord may offer to buy back your share, but this is rare and relies on them having the funds to do so.

It’s also worth noting that your landlord may require you to pay a fee when you sell your home. If so, this will be outlined in your home’s key information document or lease. You’ll be responsible for all of your legal fees, too.

Are shared ownership properties hard to sell?

If you staircase all the way up to owning 100% of your house, you will be able to sell it on the open market with the help of an estate agent. Plus, prospective buyers won’t need to satisfy the usual shared ownership criteria — all of this can make it much easier to sell your property.

There’s no denying that selling a shared ownership property can be trickier if you don’t own it outright. There are more hoops you’ll need to jump through and the pool of suitable buyers will be smaller, but it’s certainly doable. Just remember that you will only receive a share of the sale price that’s proportional to the share you owned.

Can you rent out a shared ownership property?

You usually won’t be able to sublet your shared ownership property, unless under exceptional circumstances, which you would need to discuss with your housing association.

On the other hand, you will usually be able to take in a lodger as long as you’re still living in your property. You’ll just need to inform your housing association, and shouldn’t provide your lodger with a tenancy agreement.

We hope you now have a better idea of whether going down the shared ownership route is going to be the best choice for you, and that you know what to expect if you do go ahead.

Here at The Mortgage Genie, our expert brokers can hold your hand at every step of the way, so you can make the best decisions to suit your circumstances. If you would like us to help you secure a mortgage for a shared ownership home, get in touch with us today by calling 033 33 44 33 72. We would love to help you turn your property dreams into a reality!

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