Shared Ownership
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Shared Ownership
James Bull talks us through how a shared ownership mortgage works.
What is shared ownership and how does a shared ownership mortgage work?
Shared ownership is where you buy a percentage of a particular property and a housing association buys the rest. You pay a mortgage on the portion that you own and you pay rent to the housing association on the portion that they own.
The mortgage itself is just the same as any other mortgage, but when you’re applying there are a few bits of extra criteria.
Who is eligible for shared ownership?
The full criteria is on the government’s shared ownership website. That’s probably the best place to look – but just as a broad overview, your household earnings need to be less than £80,000 a year, or £90,000 in London.
There’s also some criteria around property ownership, being a First Time Buyer or moving house, but broadly speaking it needs to be your only property. If somebody already owns a property and they want to buy with shared ownership, they will most likely have to sell the other home.
Which lenders offer shared ownership mortgages?
In terms of lenders, this varies, because new lenders launch and existing lenders tweak their product ranges and policies. What’s important to note is that not every single lender offers shared ownership mortgages.
When you apply for a shared ownership mortgage you would need to be with a lender that accepts that particular scheme. As mortgage brokers we can help with that and guide clients through that process.
Which properties are available for shared ownership?
Not every single property is available via shared ownership. Only specific properties are available through the scheme. What I always say to clients is when they’re searching on Rightmove, they can use the filters to show the shared ownership properties.
How much deposit do I need for a shared ownership mortgage?
This scheme is particularly good for people that don’t have much in the way of savings. Some lenders offer this scheme with 0% deposit – but although there’s no deposit, there are still fees to pay on the mortgage and legal fees etc. You probably need about £3,000 minimum to cover the fees, even if no deposit is needed.
Will my shared ownership property be freehold or leasehold?
They are usually leasehold, because they’re also owned by the housing association as well. The terms of the lease will be set by the association.
Can I buy a bigger share of my home at a later date?
Yes. That’s known as staircasing. We have a lot of clients that do this on a regular basis. To buy a bigger share, you might need to borrow more on your mortgage. If that’s the case, obviously that’s something that we can help with.
Can I ever fully own a shared ownership home?
Yes, you can usually staircase all the way up to 100% ownership. There are a few limited exceptions known as designated protected areas. If the house you’re interested in falls under that, the housing association would usually advise you of the specifics.
What happens if the value of my house changes?
If the value of your property changes, the portion that you own changes in value accordingly. So if you own a 40% share of a particular property, you’d own 40% of whatever the future value is.
What if I have bad credit – can I still get a shared ownership mortgage?
Absolutely – some lenders will accept shared ownership applications if you have bad credit. The definition of bad credit varies quite widely between lenders, so the best thing to do is contact us directly. We can look at your personal circumstances and let you know what might be available.
How do I sell my shared ownership home?
It’s usually best to contact the housing association in the first instance if you want to sell the home. Usually the property will be sold onwards under the same scheme. So, a lot of the time the housing association might want to deal with the marketing themselves. You’d normally have to do it through them.
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Everyone’s different. You might be self-employed. You might have some credit history issues – whatever your situation, we will find the most suitable product available to you from across the whole market.
Can I make home improvements to my shared ownership property?
Broadly speaking, yes, but the terms do vary between different properties and housing associations. It depends what you want to do. It’s best to check with the housing association – they’ll be able to let you know.
How does the remortgaging process work with shared ownership?
It’s basically the same as any other remortgage. The main caveat is that your new mortgage would have to be with a lender that accepts the shared ownership scheme.
The other thing that’s slightly different is that sometimes people want to borrow additional money for various purposes. But there might be restrictions on what you can do when you remortgage a shared ownership property.
How does stamp duty work for shared ownership properties?
There’s actually a choice to make in this instance – you can pay stamp duty on 100% of the purchase of the full value of the house, if you want to. The advantage is that if you do staircase in future and buy additional shares of the property, you won’t have to pay stamp duty each time.
The alternative is to pay stamp duty just on the percentage of the property you’re buying. It’s normally your solicitor that deals with the stamp duty, so it’s probably best to discuss that with them – they’ll advise you which might be the best option for you.
Are there any other fees we need to be aware of?
The fees are basically the same as buying any other property. Around £3,000 in fees is usually about right.
The legal bill from your solicitors is normally a little bit higher because solicitors charge supplements both for leasehold properties and shared ownership properties.
What are the alternatives to shared ownership mortgages?
Various schemes are available and they do vary slightly depending on which part of the UK you live in. Scotland, Wales and Northern Ireland have their own schemes as well as England.
The other thing to bear in mind is that the government is innovating all the time with new schemes, so it’s worth keeping an eye on the news. Currently, there are shared equity schemes, discounted market schemes, the First Home scheme, Deposit Unlock and Rent to Buy. There are quite a few different options out there, for sure. [podcast recorded in February 2024]
What are the advantages of shared ownership?
The main advantage is that this scheme will allow people to buy a property that otherwise they probably wouldn’t be able to get.
How do I apply for a shared ownership scheme?
You’ve actually got to make two applications. You need to be accepted by the housing association for the property you want to buy. They will most likely do their own affordability checks to make sure you qualify for that property. Once you’ve been accepted you can apply for the mortgage.
It’s best to contact us as a mortgage broker as early in the process as possible, because we’ve got a good idea of which properties are going to be suitable for you. We know what the affordability checks are, so we can let you know which properties are going to be right for you. The rest of the process is normal, as when buying any house. We’ll just guide you through it step by step.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS