For many people, particularly those on a low income, the dream of being a homeowner can seem out of reach in terms of saving a deposit then securing the right mortgage deal.
Shared ownership mortgages and shared ownership properties were first introduced back in 1980 with the Housing Act 1980, to help people who could not afford to buy a home outright. This government scheme was originally designed to help low income families onto the housing ladder.
House prices have continued to rise. Today, shared ownership mortgages provide a real opportunity for first time buyers, and not necessarily from low income households.
A shared ownership mortgage enables you to buy a share of a property, typically anything from 25-75%. This means a lower deposit, a smaller mortgage and smaller mortgage repayments, which can make taking the first step onto the property ladder easier, quicker and more affordable.
There is usually the opportunity to buy a larger share of the property as time passes, meaning at some stage in the future you may own the entire home.
Here’s an example
A shared ownership mortgage provides an opportunity to make that all-important step towards buying your own home. It’s a hybrid option between buying and selling – the home remains the property of a housing association, and you will pay rent on the percentage that you don’t own, which isn’t covered by your mortgage repayments.
Over time, you have the opportunity to ‘staircase’. As you save or as your income increases, you can increase your percentage ownership of the shared ownership property. This means your mortgage payments will increase, but your rent will decrease proportionately.
Here’s how it works in principle.
- If you want to buy a 25% share in a £200,000 home under a shared ownership arrangement, your share of the property will be £50,000.
- You will typically need a deposit of 10% of the value of your share, at £5,000.
- The housing association owns the remaining share at £150,000.
- You will need a mortgage of £45,000
- The rent on the remaining 75% of the property will be subsidised as housing associations charge less than the private rental market. The monthly cost you will pay for the mortgage and the rent will typically be less than renting, and you are also buying a share of the property at the same time.
There are also schemes available which means some buyers don’t need to find a deposit.
Benefits of a shared ownership mortgage
Shared ownership is a valuable option for those on a low income, first time buyers and people struggling to put together a sizeable deposit whilst already paying significant amounts on rent
- There are zero deposit options available
- As the property increases in value, you benefit as the value of your share increases too
- Although you will pay rent, a shared ownership mortgage is usually cheaper than private property rentals, and you’re paying off your share too with your monthly mortgage payments
- You usually don’t have to pay stamp duty on your house purchase until your share exceeds 80%
- You may be able to afford a larger property and also in a sought-after area, as some housing developments are required by planning permission to include shared ownership properties under their affordable housing commitments
Drawbacks of a shared ownership mortgage
- You don’t own the whole property with a shared ownership scheme
- You have to live in the property – you can’t rent it out
- Shared ownership mortgages can be difficult to secure
- You can’t just decide to sell shared ownership properties, you have to offer it first to the housing association owning the remaining share
- These properties are usually leasehold so may attract monthly service charges and ground rent which will need to be factored into your overall affordability
As with any property, if you default on your shared ownership mortgage/rent payments, your home may be repossessed.
What are the considerations before applying?
Deciding whether a shared ownership mortgage is the right route for you is dependent upon your personal circumstances. It’s a partnership providing an affordable housing opportunity for people who probably wouldn’t qualify for the mortgage on the entire property otherwise.
- There will be fewer choices of property available in most areas, but these will not be in undesirable areas, as some people think
- The price you pay to ‘staircase’, or increase your share, will rise and fall with the market value of the property
It’s a big financial decision. Here at Mortgage360, we can help you to look at the options, and your choices and help you on the road to securing a shared ownership mortgage and your first step on the property ladder.
What are the eligibility criteria for a shared ownership mortgage?
Let’s take a closer look at the criteria for shared ownership and shared ownership mortgages. You can qualify to buy a home through shared ownership if both of the following are true:
- You must be at least 18 years old
- Your household income must be £80,000 a year or less (£90,000 a year or less in London)
- You cannot afford all of the deposit and mortgage payments for a home that meets your needs
At least one of the following must also apply:
- You’re a first-time buyer
- You own a property once but can’t afford to buy again
- You’re forming a new household, maybe after a relationship breakdown
- You’re already benefiting from shared ownership and to you want or need to move
- You own a home and want to move but cannot afford a new home that meets your needs
Remember it’s not possible to get a shared ownership mortgage on any home on the market, only on certain properties, which are usually purpose-built for shared ownership sale.
Before you can apply for a shared ownership mortgage and acquire a shared ownership property, you’ll need to chat with your local Housing Association to see what schemes are available where you live and if you’re eligible for them. You’ll also need to register on an official Shared Ownership scheme.
Can you remortgage a shared ownership property
A shared ownership mortgage is a conventional mortgage product so yes, you can remortgage a shared ownership property. However, as you only own a percentage of the property, you can only remortgage against that percentage.
Your options will be limited because only a few lenders offer shared ownership mortgages, and often only through intermediaries. Obviously, you need the agreement of the Housing Association which owns the remaining share of the property.
Talk to our advisers at Mortgage360 if you want to remortgage a shared ownership property. We’ll talk through your personal circumstances and provide you with advice and recommendations.
As with any mortgage deal, the most suitable one for you will depend entirely on your individual circumstances. Our expert mortgage advisers can help you find the right shared ownership remortgage deal.
What happens if I want to sell?
First, you need to talk to the Housing Association about first refusal on the shared ownership property. The price will be set by the Housing Association’s own valuer, and when the house is sold, you’ll receive a share based on your percentage share of the property value.
The Housing Association will agree to a period of time to market the property. If they don’t sell it within that time, you will be allowed to put it on the open market.
How do I get a shared ownership mortgage?
Start by registering with your local shared ownership scheme, which means you have access to the properties being marketed under the scheme.
This will involve a financial assessment meeting with the Housing Association, which will establish what share you can afford based on your individual circumstances, and also how much rent you may need to pay.
Then it’s time to contact us at Mortgage360. There are a limited number of shared ownership mortgage lenders offering shared ownership mortgages, so we can provide advice on specialist mortgage providers and help you get on the property ladder to secure your own home!