A spotlight on shared ownership mortgages

This Q&A on shared ownership mortgages, also known as ‘part buy, part rent’ mortgages, is brought to you by the expert team of mortgage advisers at PIL Southampton.

What is shared ownership?

Shared ownership is a government-backed scheme that helps you to purchase a home by starting off with only buying a share of the value of the home – usually a new build.

Buying a share, rather than the whole of the property, means that your deposit and mortgage payments will be lower than with a standard mortgage, as they are proportionate to the share of the property you are buying.

This makes it a more affordable option for many individuals who want to get on to the property ladder. 

How does the scheme work and what might it cost?

You decide what percentage of the property you can afford to buy, which can be anywhere between 10% and 75% of the value of the property. Usually, a local housing association will own the rest and you will pay them monthly rent for their share.

For example, if you buy a 20% share of a £200,000 flat, you will need to find £40,000, which you might choose to do by paying a 10% deposit of £4,000 and getting a mortgage for £36,000. 

In addition to your monthly mortgage repayments, you will also need to pay rent on the 80% share of the property that the housing association owns. 

This rent will be calculated as an annual percentage, usually 2-3%, of the value of their share of the property. In this case, using 3% as an example, this would be 3% of £160,000 which is £4,800 per year or £400 per month.

Buying a share in a home is treated in the same way as a standard homebuyer process regarding your responsibilities for stamp duty, if applicable, and other legal fees and moving costs.

Can I increase the share of the property I own in the future?

You will need to check the terms of the lease agreement that you have with your landlord, but in most situations you will be able to buy a bigger share of ownership at any point – this is called ‘staircasing’.

Note: the amount it will cost to buy a bigger share in your property, which you can add to from as little as 1%, will be based on its current market value at that time, not the value of the property that it was when you first bought your share of the home.

You will also incur admin and legal fees each time you build up your share of ownership. However, every time you increase your ownership share, your monthly rent goes down as you are paying your landlord for a lower share of the property.

Can anyone get a shared ownership mortgage?

To be eligible to apply for a shared ownership mortgage, you must earn less than £80,000 per year (£90,000 if you are buying in London). This can be a single income, or a combined household income if you are buying as a couple.

You can be a first-time buyer, you might already have a shared ownership mortgage and are moving house, or you could have had a standard mortgage before but now need a shared ownership mortgage on the grounds of affordability.

A percentage of share ownership properties are allocated for key workers. You can ask your local housing association for more information about the categories this includes.

If you are at least 55 years of age, you may be eligible for the Older People’s Shared Ownership (OPSO) scheme. This scheme enables you to buy up to 75% of your home.

When you are applying for a mortgage with the shared ownership scheme, the same mortgage application process of meeting lending criteria, having an acceptable credit score, passing affordability checks and stress tests as with a standard mortgage all apply.

Can I buy any property with the scheme?

No, you can only buy properties that are being offered by housing associations and developers. You can find available properties by searching online for your local Help to Buy agent, or by looking at local housing association websites, your local council’s website and developers’ websites.

Can I do what I like with my shared ownership home?

Just like with any property you rent, even though your landlord only owns part of the property, you still have to comply with any conditions in your lease so make sure you have read it carefully. 

Generally speaking, you are likely to be able to decorate your home however you like, and put shelves and paintings up, etc, but you are unlikely to be able to do structural work like knocking walls down without first getting your landlord’s approval.

If you are in a flat, there may be restrictions about owning pets.

Will I be able to sell my home when I want to?

Yes, you will be able to sell your home when you want to but the process might be a little different, depending on how much of the property you own at that time.

If you have worked your way up to owning 100% of the property, you should be able to sell your property through an estate agent like any other house or flat, but check your lease first as some lease agreements say that you have to first offer it to the housing association.

If you don’t own 100% of the property when you choose to sell, you need to first approach the housing association or developer, who will try to sell it to another shared ownership buyer. If this isn’t possible, you will be able to sell the property yourself, direct on the open market just like any other property.

You will receive the share of sale proceeds proportionate to the share of the property that you own.

Is shareholder ownership right for me?

The key advantages of shared ownership are that by only buying a share of the property you do not need such a large deposit and the sum you need to borrow will be less. It will be easier to obtain a mortgage offer as a result. Ongoing mortgage payments will also be a lot more affordable than if you were taking on 100% of the value of the home.

You have the flexibility of building up your share of ownership as and when you can afford to, and you can sell it any time even if you don’t own all of it.

Shared ownership gives you more stability than standard landlord/tenant leases, as you can stay in the property for as long as it states in your lease agreement without the worry of being asked to leave earlier than you had expected to.

Potential disadvantages of shared ownership are that the ‘part rent’ element of your shared ownership means that you have to comply with the conditions of your lease, including paying ground rent and service charges, and the housing association may have a right to be involved in who you sell your property on to.

Also, not every lender offers shared ownership mortgages so you may have less choice of products and interest rates. 

Shared ownership properties are usually leasehold properties and, as we touched on earlier, you will have less freedom to make structural home improvements than if you were the full homeowner.

Finally, it is worth nothing that you are unlikely to be able to rent out a shared ownership property.

All food for thought!

How PIL Southampton can help you 

We have a team of helpful mortgage advisers who will listen to your needs and use their experience and knowledge to help to find the most suitable mortgage product for you. They have dealt with numerous shared ownership mortgage applications and will be able to advise you every step of the way.

How you can contact PIL Southampton

Our expert mortgage advisers are here to guide you through the mortgage process, every step of the way. You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.