What is a Shared Ownership Mortgage?
Shared Ownership mortgages are a government scheme designed to enable people to buy a portion of their desired home. Typically, 25%, 50% or 75% – rather than the whole property.
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- How does Shared Ownership work?
- What criteria need to be met to qualify?
- Can I remortgage a Shared Ownership property?
- How are Shared Ownership mortgages different?
- Shared Ownership considerations
- How to find a Shared Ownership mortgage?
- Shared Ownership mortgage lenders
- What are Shared Ownership mortgage rates?
- Shared Ownership mortgage specialists
- FAQs
How does Shared Ownership work?
Not all mortgage lenders want to get involved with Shared Ownership mortgages, and you could waste a lot of time shopping around until you found one that would look at your application. At The Mortgage Centres, we have advisors who are specialists in the Shared Ownership mortgage area and know exactly which lenders to deal with. We’ll also be able to help you prepare your application thoroughly, so that lenders will understand you have planned for all the costs involved and will meet their affordability criteria.
With our help, you’ll be on the road to getting the right Shared Ownership mortgage to meet your circumstances and get you onto the home you’ve dreamt of.
You’ll find there are many different types of Shared Ownership mortgage, each designed to help a specific kind of buyer take the first step to owning their home.
Specialist Shared-Ownership Mortgages
We’re here to inform you on all the different types of Shared Ownership mortgages, making homeownership a possibility for many.
Can I remortgage a Shared Ownership property?
Despite this not being the most common kind of mortgage, it’s indeed possible to get a Shared Ownership remortgage. The principle is the same as with a standard mortgage – you are being loaned money against the value of your property. But in this case, the property in question is just the share of your home that you own.
If you’re remortgaging to get a better deal or to take advantage of the increased property value and release some equity. Then, the fact that it is a Shared Ownership arrangement should not stand in your way.
- The only issue may arise from the fact that Shared Ownership mortgages are only available from a select range of lenders. Meaning your options are limited. You may also find that many lenders that do offer Shared Ownership mortgages will not want to work with you directly. Preferring to handle applications via a trusted intermediary.
- It’s also a good idea to consult with the co-owners of the property. This could be the Housing Association, local authority, or other approved body. You can then confirm that they permit remortgaging. Rules vary from one local authority to another, so make sure you check your agreement.
- As ever, you must also make sure that any new mortgage deal is the right one for your circumstances. another.
How are Shared Ownership mortgages different?
Shared Ownership mortgages have very similar features to a standard mortgage. Although, there are some very noticeable differences. First being the level of deposit required. This will not be a percentage of the value of the entire property, but only the portion that you will own.
For example, if you are taking a 50% share of a property worth £250,000, assuming a standard 10% loan-to-value ratio, you will only need to supply a deposit of £12,500. To buy the property outright, you would need double that figure for the deposit – £25K.
Another difference with a Shared Ownership mortgage is that you can also use a process known as ‘staircasing.’ This allows you to gradually increase your level of ownership of the property.
It’s common for people to start with a 25% share, then gradually increase their mortgage to 50%, 75%, 90% or full ownership as and when their circumstances permit. Again, check the approved body’s policy on increasing to full ownership.
The final difference with a Shared Ownership mortgage applies if and when you come to sell it. If you partially own the property, the Housing Association will have the right to find a buyer themselves.
If you own 100% of the property, you have the right to sell it yourself. If you are selling within 21 years of buying, the Housing Association usually has the first right of refusal.
Shared Ownership considerations
There are several factors you should consider before buying a Shared Ownership house:
- Buying a Shared Ownership property with a Housing Association, local authority or housebuilder is very different to buying a house with a friend or relative. There is a very clear division of roles, and it is more like a business partnership.
- To find a Shared Ownership property in your desired area, you will need to approach the local Help to Buy agent. They will know what is currently available or about to come on the market.
- If you choose to increase your share of the property, the price you pay will be based on the current valuation. So, if the property’s value has increased since you bought it, the price will be higher. However, the portion will obviously be cheaper if the value has come down.
As with standard mortgages, the best scheme for you may not always be the one with the cheapest headline interest rate. It’s also a good idea to study your options carefully, allowing for the anticipated lifetime of the mortgage.
- Shared Ownership mortgages are usually distinct products offered by specialist lenders. So, their rates will be costed differently to their range of standard mortgages. As ever, the level of deposit that you can provide will have a bearing on the deals available. Having a higher deposit usually opens the door to a more favourable interest rate.
- As Shared Ownership mortgage rates change over time, we are unable to list typical rates here. But you should study the monthly and annual costs associated with the deal. As well as the anticipated rent payments on the portion of the home owned by another party.
Shared Ownership FAQs
You can buy both existing and new-build Shared Ownerships properties under the scheme. Providing they are owned by an approved qualifying body. In most cases, the approved body will be a Housing Association or local authority. But you might also find properties available through housing action trusts, the Northern Ireland Housing Executive, the Commission for the New Towns and some development corporations.
The original Shared Ownership scheme stated you must purchase a minimum share of 25%. Although the updated scheme announced you can own as little as 10%.
The maximum share of the property you can buy under the Shared Ownership scheme is 75%. If you are an older person and reach this stage, you will not have to pay rent on the remaining share.
If you increase your share to 100%, you will own the property leasehold outright. But you may still need to coordinate with the Housing Association, local authority, or other approved body if you plan to sell it.
When you buy additional shares of your property, be aware that the cost will be at the prevailing market rate. If you already own 25% and buy another 25% then the price will be higher if the property value has gone up. Likewise, it will be cheaper if the property value has decreased.
The Government does not place any time restrictions on when you will be able to buy a greater share. However, local authorities or Housing Associations may have their own individual rules. And they may impose other staircasing restrictions.
Individual local authorities or Housing Associations will each define their own methods to calculate your rent. But the typical annual figure is based on 3% of their ‘retained equity’ in your home.
‘Retained equity’ is the approved body’s portion of the Shared Ownership property.
Phil Scott
Director
About the author
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
Qualifications
Financial Planning Certificate: 1,2 & 3
Year Attained: 1992
Certificate in Mortgage Advice and Practice (CEMAP)
Year Attained: 2001
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