Shared Ownership Mortgages – July 2022

If you’re struggling to save big enough deposit to get on the property ladder – or the numbers are simply not stacking up when it comes to what you can afford – a shared ownership scheme could be an option.

Here’s all you need to know about how shared ownership mortgages work, including how you go about getting one.

What is a shared ownership?

You need a shared ownership mortgage if you’re buying a home through a shared ownership scheme. 

The scheme helps first-time buyers, or those on lower incomes, to buy a home (or move up the property ladder) by purchasing just a slice of a property, rather than the whole thing.

Buyers only need a small deposit to get a shared ownership mortgage and can increase their share in the property over time. 

How does shared ownership work?

Shared ownership mortgages offer first-time buyers an affordable way to purchase a home, which is why the scheme can also be referred to as ‘part-rent, part-buy’.

Traditionally, buyers could purchase between 25% and 75% of a property, taking a shared ownership mortgage to cover this amount. 

But, following rule changes to shared ownership in April 2021, the minimum share you can buy is now just 10%. That said, you will usually be encouraged to buy a larger share if you can afford to.

The remaining portion of the property (the part the buyer does not own) is owned by a housing association. Rent is then paid to the housing association to cover this amount.

Rental rates are usually lower compared to the open market – typically around 2.75% of the property value a year.

Here’s an example. If you buy 25% of a property valued at £200,000, it would cost £50,000 and you would take a mortgage on that amount.

The housing association would own the remaining £150,000, on which rent would be payable. At a rate of 2.75%, the rent would be £4,125 a year, or £343.75 a month.

To get a shared ownership mortgage you will usually need a deposit equal to as little as 5% or 10% of the share you’re buying. So, if your share was worth £50,000, you’d only need to put down between £2,500 and £5,000. 

What mortgage deals are available?

Below is a live table of the kinds of mortgage deals that are on the market right now. To filter them into deals that will support shared ownership schemes, tick the shared ownership box.

You will also need to enter criteria such as the cost of the property you are looking at, how much of that sum you need to borrow, and the kind of deal you want – for example a two-year fix.

What type of property can I buy?

You won’t be able to use shared ownership to buy a home that’s for sale on the open market. It will need to be a property that’s been built specifically under the shared ownership scheme, the majority of which are new-builds.

Alternatively, you can buy a property originally bought under the shared ownership scheme that is now being resold by the housing association. 

Shared ownership properties are always leasehold, which invariably means there will be annual service charges and ground rent to pay. However, this is true of leasehold properties in general, whether they fall under the scheme or not.

What is staircasing?

Shared ownership schemes give you the option of buying a larger share of your home from the housing association at any time. This is known as ‘staircasing’ and, following the April rule changes, you can now buy additional shares in instalments of just 1% – down from the previous 10%. 

You can usually keep doing this until you own 100% of the property. However, some housing associations limit the number of times you can staircase to three, so you’ll need to plan carefully.

The cost of the next share you are buying will depend on the market value of your home at the time. Valuations will be carried out by the housing association’s own panel of surveyors – and charged for.

Who is eligible? 

You can buy a home through shared ownership if your household earns £80,000 a year or less, or £90,000 a year or less if you live in London.

Any one of the following must also apply:

• you’re a first-time buyer
• you used to own a home, but cannot afford to buy one now
• you are an existing shared owner. 

If you’re aged 55 or over, you can buy up to 75% of your home through the Older People’s Shared Ownership (OPSO) scheme. No rent will be payable once you own 75% of the property.

If you have a long-term disability and other Help to Buy property schemes don’t meet your needs, you can apply for a scheme called ‘Home Ownership for people with a Long-term Disability’ (HOLD). This allows you to buy up to 25% of your home. 

How do I apply for shared ownership?

To buy a home through a shared ownership scheme, you first need to get in touch with the Help to Buy agent in the area you want to live in.

As part of your application, you’ll probably be asked about your income and whether you’ve had problems keeping up with credit repayments in the past. 

• If you live outside London in England, you’ll need to apply through Share to Buy or contact your local housing association.  
• If you live in London, you can register through the London.gov.uk website.
• If you live in Wales, you’ll need to check with your local housing association.

What about housing developers?

Although most shared ownership schemes are run by housing associations, some of the big housing developers also offer shared ownership schemes. 

Both Barratt Homes and Bovis Homes, for example, have partnered with the government-backed shared ownership scheme Home Reach.

This allows you to buy a share of between 50% and 75% of a new-build property, with part buy-part rent landlord heylo owning the remaining share.

Annual rent of 2.75% of the unsold value is then paid to heylo by monthly direct debit.

Who offers shared ownership mortgages? 

Once you’ve registered for shared ownership, you can begin your search for properties for sale under the scheme. Your next step will be to look for a shared ownership mortgage. 

The choice is more limited compared to buying on the open market – but not prohibitively so.

Many of the major high street lenders offer shared ownership mortgages under their standard first-time buyer ranges, while some of smaller building societies have their own specific shared ownership deals which are regionally-based.

Some of the lenders that offer shared ownership mortgages include:

• Barclays
• Leeds Building Society
• Lloyds Bank
• Halifax
• Virgin Money
• Skipton Building Society
• Newbury Building Society
• Loughborough Building Society
• Ipswich Building Society.

Whichever lender you choose, you will go through the same process as if you were applying for a mortgage outside of a shared ownership scheme.

This means your income and outgoings (including the rent on to the housing association and service charges) will be scrutinised, as well as your credit score. As ever, the better your credit score the more likely you are to get accepted for the best rates.

Can I sell my shared ownership home? 

If you still only own a share of your home, the housing association has the right to buy it first – this is known as ‘first refusal’. The housing association also has the right to find a buyer for your property.

Only when you own 100% of your home, can you sell it yourself, independently. 

Shared ownership in Scotland

The rules for shared ownership are slightly different in Scotland.

You’ll be able to buy a 25%, 50% or 75% share in a house or flat owned by the housing association, usually in a new-build development.

You then pay a reduced rent on the part of the home you don’t own and after a year, you have the option to purchase further shares until you own the home outright.

Priority is usually given to council and housing association tenants and people on council or housing association waiting lists. While private tenants can apply, the tend to be restricted to first-time buyers only.

To find out about shared ownership schemes in your area, contact the housing department of your local council or a local housing association. 

Shared ownership in Northern Ireland

In Northern Ireland, you can buy a share of a property and rent the rest from Co-Ownership, a registered housing association. 

Through the scheme you can buy a new-build property up to the value of £165,000 as a co-owner.

You can initially buy between 50% and 90% of the property’s price, but you can increase your share at any time in increments of 5%.

The Department for Communities (DfC) sets the rent and any annual rent increases.