Shared Ownership Mortgages
Shared Ownership mortgages are a government scheme designed to enable people to buy a share 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
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How does Shared Ownership work?
Shared ownership works by allowing you to buy a certain percentage of a property through a mortgage and then pay rent on the remainder. Essentially, this makes it more affordable for individuals who may be struggling to get on the property ladder.
The share purchased is typically anywhere between 10% to 75% of the property’s value[1]. You will then need to put down a minimum deposit of around 5% to 10% of the share you are buying.
From here, you will then pay a monthly rent to the other homeowner you purchased the property from, typically a housing association or local authority, on top of your monthly mortgage payments.
Over time, you will be able to buy additional shares in the property through a process known as staircasing. Eventually you may be able to own 100% of the property and no longer need to pay rent.
You’ll find there are many different types of Shared Ownership mortgages, each designed to help a specific kind of buyer take the first step toward 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 practice, 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 who do offer Shared Ownership mortgages will not want to work with you directly, preferring to handle applications via a trusted intermediary like us.
- 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. Seeking expert advice can help ensure you are making the right decision, so if you do need help with a shared ownership remortgage, feel free to reach out.
How are Shared Ownership mortgages different?
Shared Ownership mortgages have very similar features to a standard mortgage. Although, there are some very noticeable differences. Below we have listed the main differences you will face when compared to a standard residential mortgage.
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 a 50% share of the property is £125,000, assuming a standard 90% loan-to-value ratio, you will only need to supply a deposit of 10% or £12,500.
To buy the property outright through a standard residential mortgage, you would need double that figure, as the above worked out the deposit based on a 50% share. Therefore a deposit of £25,000 would be required.
This shows how shared ownership mortgages can be much more affordable.
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 property:
- 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, it can be difficult. Only certain house builders participate in the scheme, so it may take longer than if you were looking for a standard property.
- 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 product for you may not always be the one with the cheapest headline interest rate, this is because it could come with higher initial set-up fees for example.
It’s a good idea to study your options carefully, allowing for the anticipated lifetime of the mortgage. You should keep in mind the following points before applying:
- 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 – 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.
Stamp Duty Land Tax (SDLT) on Shared Ownership properties can be a bit complex. Below we have done our best to simplify the options you will face and how it works. Your two main options are:
- Pay on the full value:
You pay SDLT on the entire market value of the property as if you were buying it outright. This can be a higher upfront cost, but it avoids potential future SDLT payments when you increase your share through staircasing.
- Pay on your initial share:
This option is usually cheaper upfront in the short term and it involves you paying SDLT only on the value of the initial share you’re buying. However, you will need to pay Stamp Duty again if you want to reach a share of 80%[3].
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.
On top of this, you will need to pass a mortgage lenders affordability checks again, as they will reassess your situation to ensure you can afford the new mortgage payments.
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.
[1] Gov.uk, Shared ownership homes: buying, improving and selling (n.d.)
[2] Gov.uk, Right to Buy: buying your council home (n.d.)
[3] Share to Buy, Shared Ownership: Costs and affordability (n.d.)
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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