Shared ownership mortgages

Shared ownership is a government scheme that allows first-time buyers to own a share of their home and then buy a greater stake over time.

Because only a portion of the property is bought, usually with a mortgage, rent is paid on the remainder, owned by a local housing association.

Shared ownership schemes have been around for decades. Since November 2015 they have come under the umbrella of the government’s Help to Buy scheme, which launched in 2012.

Finding a shared ownership mortgage

To be part of a shared ownership scheme, you’ll need a mortgage to buy your initial share of the property.

Loan to value (LTV) on shared ownership properties works differently to standard mortgages. Your LTV relates to the loan taken on the share you're buying, rather than a percentage of the entire property value.

So, if you want to buy a 50% share of a £100,000 flat, your deposit and mortgage would need to cover your 50% stake. This might involve a 10% deposit of £5,000 and mortgage for £45,000.

Fewer providers lend on shared ownership properties. So you'll have less choice and might end up paying more in interest and fees.

Whether you choose a standard mortgage that allows shared ownership, or a product specifically for shared ownership homes, you'll usually need at least a 5% deposit.

You'll need to pay rent on the remaining portion of the property. Don't forget to factor this into your monthly budget.

How does shared ownership work?

A shared ownership scheme lets you purchase 25%-75% of a property and pay rent on the remaining share to the housing association.

All shared ownership properties are leasehold, so there's an annual management fee to pay.

Staircasing

Staircasing is when you increase your stake in your home by buying more shares. To do this you'll need to pay your housing association to carry out a valuation.

The value of your home may have gone up or down since you moved in, so shares may cost more or less than what you originally paid.

You’ll need to arrange a mortgage for the remaining share, unless you have savings to buy it outright.

Am I eligible for shared ownership?

Shared ownership schemes are mostly aimed at first-time buyers struggling to get on the housing ladder.But they're also open to existing shared owners and people who used to own a home, but can't afford to buy one now.

Your household income needs to be less than £80,000 if you live outside of London, or £90,000 if you live in the capital.

If you're aged 55+ you can apply for the 'Older People's Shared Ownership' scheme. You can buy up to 75% of your home but don't have to pay rent on the remaining 25%.

Problems with shared ownership

There are a number of problems with shared ownership schemes. Before you settle on shared ownership, look into it closely to make sure it's the right option for you.

Limitations

If you enter into a shared ownership scheme, you may be limiting your options for a number of years.

Think about whether you may need to move for work or your family, and if you see yourself living there for the foreseeable future.

You’re not usually allowed to rent out your property. If you’re caught subletting and don’t have written agreement from the scheme, you risk losing your home.

Selling

Selling a shared ownership property can be difficult.

Because you don't own the full property, the housing association has first refusal to buy the property back. It also has the right to market the property for a set length of time, before you can place it on the open market.

This could limit your market and slow things down considerably. The housing association is likely to charge a fee if the property sells, too.

There are even restrictions when you have a 100% share. You can sell the property yourself, but the housing association still has first refusal on buying it back.

Changes in value

Shared ownership means you'll only own the property if you've staircased the rented portion.

The cost of the rented share will depend on how much the property’s worth. If property prices have risen, buying the remaining share will cost more.

Similarly, if property values have fallen, then the rented portion will cost less. But your share will also be worth less.

Staircasing to reach 100% can take a long time due to rising house prices.

If your property falls in value after buying it, you may not be able to sell without making a loss, and staircasing up to 100% may be unaffordable.

This means you may have no choice other than to stay in the property.

Fees

All properties on shared ownership schemes are leasehold, so there may be ground rent to pay as well as rental costs.

There are usually service charges too, which could eat into the money you've set aside to grow your share in your home.

These fees vary from property to property and can be substantial, so make sure you check them with the housing association or council beforehand.

Shared ownership has attracted criticism in the past when rents and fees have increased steeply in a short space of time.

Find out how much management fees and rent are likely to increase by each year before committing to buy.

From April 2016, the government set a limit for the annual housing association rent for shared ownership at 3% of the value of the rented share.

If you decide to staircase, remember that you're likely to face further charges including legal fees.

Home improvements

Improving your home as a shared owner can be difficult, as you're not just improving your own share but the housing association's, too.

This means that while you may spend time and money making your home more attractive to potential future buyers, you may not see the full benefits or recoup the costs.

You may also need to seek the housing association's permission for certain improvements under the lease terms.

Unfortunately, this doesn't work the other way. Even if you only own a 25% share in the property, you're responsible for 100% of repairs and maintenance, while the housing association pays nothing.

Pets

Whether you're allowed pets will depend on the rules of your housing association. You’ll usually have to get permission to keep dogs or cats.

If you live in a shared ownership flat, pets may be completely banned.

Property size

The home you're able to buy from a housing association will depend on the size of your family and the number of rooms you need. If your family expands, you could grow out of your shared home.

You're typically allowed one bedroom more than the number of occupants when you buy the property.

Other housing schemes

A number of other government schemes aim to help first-time buyers get on the housing ladder.

Help to Buy Equity Loan is one of them. It’s different from shared ownership in that you own the entire property from the start. You repay a proportion of its value when you sell it, equivalent to the proportion of government equity you took to buy it.