Shared ownership mortgages: Buying a share of a property

If you have a low income, find out how a shared ownership mortgage could be your key to getting on the property ladder.

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Shared ownership mortgages are part of a government scheme to help people with low incomes buy their first home. Essentially, you buy a part of your property, which can be anything from 25% up to 75% in England and Wales and then a housing association buys the remaining 25%, which you then pay rent on.

You’ll generally need to put down less of a deposit, for example, a 5% deposit rather than the usual 10–20% deposits required for standard mortgages, as the deposit you pay is only for the part of the property that you’ll own.

Shared ownership mortgages are usually available on new-build properties as they tend to be built for that specific purpose by a housing association.

While shared ownership mortgages might make sense for some people, they’re not without risks so it’s important to get your head around them first before deciding if they’re right for you.

Pros and cons of shared ownership mortgages

Pros

  • These part-buy, part-rent mortgages can be a cost-effective way of buying a property without shelling out a huge deposit which is usually the case if you want to buy a property outright.
  • You might be able to buy a bigger house than you might otherwise have been able to afford.
  • The rent you pay to the housing association on its share of your property is typically less than what you would pay if you were a standard tenant.
  • You’ll get added security throughout your tenure as long as you stay up-to-date with your rent payments.
  • Extra savings in rent could be put towards increasing your portion of the property.

Cons

  • You will generally have to pay any service charges or maintenance on the whole value of the property, not just your share of the property.
  • Buying a larger share in your property can be expensive.
  • Your property could be taken away if you’re unable to keep up with the rent payments.
  • You’ll remain a tenant of your property until you own 100% of the property.
  • You may need to seek approval from the housing association before carrying out any home improvements.
  • As long as the housing association still owns part of your property, it has the right to buy your property first before you decide to sell it to anyone else. It also has the right to find a buyer for your home.

Who qualifies for a shared ownership mortgage?

Not everyone is entitled to a shared ownership mortgage and the eligibility criteria does vary across the UK.
In England, you may be eligible to purchase a home with a shared ownership mortgage if you meet the following criteria:

  • You’re aged 18 or over.
  • Your household earns £80,000 or less a year (£90,000 or less a year in London).
  • You’re allowed to permanently live in the UK.
  • You’re trying to get on the property ladder as a first-time buyer, or you previously owned a property but can no longer afford to buy a property now, or you’re already a shared owner of a property.
  • You haven’t fallen behind with your rent or mortgage payments.
  • You have a good credit history and can afford to make regular payments.
  • You have some savings to cover the expenses associated with buying a property.

All shared ownership properties are leasehold in England and Wales so check your own circumstances carefully to see if you qualify for a shared ownership mortgage.

Increasing my share of the property

You’ll be able to carry on buying more of the rented portion of your home from the housing association, generally until you own 100% of it. This is known as “staircasing” but the amount you pay for the remaining shares of your property will depend on what the housing association charges you. For example, if the value of your property has increased over time, expect to pay more for the remaining share, and if its value has decreased, expect to pay less.

The housing association is likely to get your property valued first and then decide on the cost of the remaining share, though you may be required to pay for any fees associated with this valuation.

What should I consider before applying for a shared ownership mortgage?

Each shared ownership mortgage lender will have its own set of eligibility criteria but it’s also worth considering some of these factors before committing to a mortgage:

  • Do you have any outstanding debt? If so, are you taking steps to regularly pay this debt off?
  • Do you have any savings and if so, how much of your savings can you put towards a deposit?
  • How much money do you need to borrow? And will you be able to make the monthly repayments through a steady job and regular income?
  • Will you be able to afford a mortgage on top of your regular outgoing expenses?
  • Do you have a good credit rating? Could a poor credit rating hinder your application approval?
  • Do you meet the eligibility criteria for a shared ownership mortgage?

What is a shared ownership mortgage broker and why should I use one?

A mortgage broker is a professional with an in-depth knowledge of the mortgage market, who you can instruct to find the best mortgage for your circumstances.

They have a deep understanding of individual lender’s eligibility criteria, so they’ll be able to point you towards the lenders most likely to approve your application.

This can be particularly useful for applicants who have low income or a poor credit score, as it can save them from being rejected by multiple lenders.

It’s possible to work with a mortgage broker that specialises in the shared ownership market. By doing so, you can gain the peace of mind of knowing you’ve secured the best possible deal available to you.

Some mortgage brokers charge a one-off fee, but this is usually eclipsed by the savings you make when choosing the best mortgage over more expensive ones.

What are the pros and cons of using a shared ownership mortgage broker?

Pros

  • It’s fast and stress-free.
  • You’re likely to be recommended a deal that you’ll be approved for.
  • You’ll save time and protect your credit score by avoiding application rejections.
  • As such, a portable mortgage offers you good protection against becoming a “mortgage prisoner“.

Cons

  • Some mortgage brokers charge a fee.
  • Some mortgage brokers don’t search the whole market.
  • You’ll have to work within your broker’s opening hours.

Frequently asked questions about shared ownership

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