In this Shared Ownership mortgage guide, we’ll explain what it is, how it works, and whether Shared Ownership is suitable for your circumstances.
Bear in mind
Your home could be repossessed if you don't keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Any savings will vary depending on personal circumstances.
If you’re researching your options when it comes to buying a property, then you may well have come across Shared Ownership.
While Shared Ownership isn’t so common in the UK right now, its popularity is expected to rise. And it could be a perfect solution for prospective buyers with a limited budget.
If you’re considering this option, you may be wondering how Shared Ownership works. What are the pros and cons, and what happens when it comes to selling Shared Ownership houses?
Keep reading for our overview of Shared Ownership properties and find out if a Shared Ownership mortgage could be the right choice for you.
Shared ownership schemes allow you to purchase a share in a property, and pay rent on the remaining share.
It’s a way for first-time buyers, or others who can’t currently afford to buy a home, to get on the property ladder, with a much smaller deposit than they‘d usually need.
Buyers can purchase between 25% and 75% of the property, with the option to buy a bigger share at a later date.
Shared Ownership properties are offered on a leasehold basis, and the majority of Shared Ownership homes are new builds, although increasingly housing associations offer resold properties.
Shared Ownership homes are offered through housing associations as part of a government initiative to help people who would usually find it impossible to buy a home of their own.
The rules are slightly different in each country within the UK, but generally it’s possible to put down a small deposit of around 5% of the property’s value. Then you take out a mortgage to cover the rest of your share in the property.
You’ll co-own your house with the housing association and will pay both your mortgage repayments and a certain amount in rent each month.
You can later increase the percentage of the home that you own, with the option to eventually own the whole property.
Once you own the property, you can continue to live there or sell it on, although your housing association will have “first refusal” for 21 years from the initial purchase. This means that you’ll have to give them the opportunity to buy it first before you can offer it for sale to anyone else.
You can also sell the share of your home that you own, even if you haven’t purchased 100% of the property. Then the housing association will still own a share in the property and can choose to buy back your share or find its own buyer.
Not everyone is eligible for a Shared Ownership mortgage.
You may be eligible if you have a household income of less than £80,000 (or £90,000 in London) and are a first-time buyer or a previous homeowner who can’t afford to buy a property now.
If you’re currently renting a council or housing association property, then you may be eligible for the scheme.
You’ll also need a good credit history, with no rent arrears, and you may have to submit financial details to prove that you can afford the costs of a Shared Ownership house.
If you’re over 55 you might want to look into the Older People’s Shared Ownership scheme. Similarly, if you have a long-term disability, then you could be eligible for a the Home Ownership for People with Long-term Disabilities scheme (HOLD).
Lastly, although it doesn’t matter what your job is, military personnel will be given priority over other applicants.
As mentioned above, there are restrictions when it comes to selling Shared Ownership properties, but many potential buyers aren’t put off by these.
It simply means that you’ll have to work with the housing association you purchased through when it comes to selling your home.
They’ll usually have first refusal on the property, even if you now own it outright. If you don’t own the whole house, your housing association may want to buy your share back from you, or find their own buyer.
While these issues may slow down the process, you’ll still be able to sell whenever you want to, and realise the equity you have in the house, whatever that might be.
A big advantage of Shared Ownership schemes is that they allow people on lower incomes to get on the property ladder, or buy a bigger property than they’d otherwise be able to afford.
Shared ownership also lets you purchase a home gradually, by buying a bigger share if and when your finances change and you’re able to afford it.
Plus, depending on your deposit amount and mortgage terms, your monthly outgoings may be cheaper than when just paying rent.
The down-sides include the restrictions on selling your home, which could prevent you from getting a quick sale in the future. And as you won't own your home outright, you might need permission to make improvements or changes to it.
With Shared Ownership, you might find that pets, or renting a room to another tenant, aren’t allowed.
There’s also the chance that the combination of rent as well as mortgage end up being the same or more than the rent you would be paying, and you may find yourself liable for service charges if you’re in a flat or other shared community of properties.
In short, there are some great reasons to consider Shared Ownership, as well as some not-so-good factors to bear in mind.
If you think you meet the criteria, it’s worth discussing it further with a mortgage broker.
Bear in mind
Your home could be repossessed if you don't keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Any savings will vary depending on personal circumstances.