Getting onto the property ladder is one of the biggest steps you’ll ever take, but we all know how tough it can be, especially with the high cost of homes. If you’ve been struggling to save up a hefty deposit or simply can’t afford to buy a home outright, shared ownership mortgages might just be the solution you’ve been looking for.
At Mortgage Bridge, we work with a lot of clients who are looking for alternative options to traditional homebuying. And, a shared ownership mortgage is often one of the best routes for people who need a little extra help getting started. In this post, I’ll explain what shared ownership mortgages are, how they work, who’s eligible, and the pros and cons of the scheme. Let’s dive in!
What is a Shared Ownership Mortgage?
A shared ownership mortgage allows buyers to own a portion of a property (usually between 25%-75%) and rent the remaining share from a housing association. This makes it more affordable to get on the property ladder, as you only pay for the part of the home you own. Over time, you can increase your ownership share through a process called staircasing.
The great thing about this scheme is that the required deposit is usually much lower than traditional home purchases, making it a viable option for people struggling with large deposits. With lower initial costs and the option to buy more of the property later, it’s a fantastic way to start your homeownership journey.
Who Can Apply for a Shared Ownership Mortgage?
The shared ownership scheme is available to:
- First-time buyers who can’t afford a full property.
- Previous homeowners who can’t afford to buy again due to rising property prices.
- Existing shared ownership owners who want to move to a new home.
Eligibility Criteria:
- Income limits: If you live outside London, your household income must be below £80,000 per year. In London, it’s £90,000.
- Affordability: You need to demonstrate you can afford both the mortgage on the share you own and the rent on the remaining share.
If you’ve been struggling to save a large deposit or can’t afford to buy in expensive areas, shared ownership could be the perfect solution.
How Does a Shared Ownership Mortgage Work?
Here’s the basic idea: you buy a share in a property (usually between 25% and 75%), and you pay a mortgage on that share. You’ll also pay rent on the portion of the property you don’t own. The rent is typically lower than private renting, making the overall cost of living more affordable.
For example, if you buy 50% of a £200,000 home, you’ll only need a mortgage for £100,000, and you’ll pay rent on the other £100,000. Over time, as your financial situation improves, you can staircase to buy more of the property, eventually reaching 100% ownership.
Can I get a shared ownership mortgage with bad credit?
Yes, it’s possible to get a shared ownership mortgage with bad credit. You may need to put down a larger deposit, but it’s still a viable option if you’re struggling with traditional mortgage routes.
What is Staircasing in Shared Ownership?
Staircasing is the process of gradually increasing your ownership of the property over time. You can buy additional shares whenever you want, but most housing associations require that you increase by at least 10% per time. You can continue to staircase until you own 100% of the property.
How does staircasing impact my mortgage payments?
When you staircase, your monthly rent will decrease as you own a larger share of the property. However, you’ll also need to arrange additional mortgage finance to cover the new share you purchase. Keep in mind that staircasing can become more expensive if property values rise.
What Are the Benefits of a Shared Ownership Mortgage?
There are plenty of reasons why a shared ownership mortgage could be the right choice for you:
- How can shared ownership help me get on the property ladder?
Shared ownership mortgages lower the upfront costs, making it easier to purchase a home with a smaller deposit. - Can I gradually increase my ownership?
Yes, shared ownership lets you increase your share over time through staircasing. You could eventually own the property outright. - Can I make a profit when selling my shared ownership home?
If the value of the property increases, you could make a profit when selling your share. - Are there priority schemes for military personnel?
Yes, military personnel are often given priority access to shared ownership properties. - Are shared ownership mortgages affordable?
Since you’re only paying for a part of the property, the mortgage and rent payments are generally more affordable than a full purchase. - How quickly can I buy my own home?
Shared ownership allows you to get onto the property ladder much faster than if you had to save up for a full deposit.
What Are the Drawbacks of a Shared Ownership Mortgage?
While shared ownership can be a great way to buy a home, there are some drawbacks to consider:
- Where can I live with shared ownership?
Shared ownership properties are not available everywhere, and you may be limited in where you can live depending on availability in your area. - Does staircasing cost more over time?
If property prices increase, staircasing can become more expensive. This means your share could cost more than expected when you decide to buy additional portions. - Are shared ownership mortgage rates higher?
Yes, the mortgage rates for shared ownership are often higher than traditional mortgage rates. It’s important to shop around for the best deal. - Will I still need to pay rent?
Yes, unless you buy 100% of the property, you will continue to pay rent on the portion of the property that you don’t own. - What additional costs are there?
Shared ownership homes are typically leasehold, so you might be responsible for service charges, ground rent, and other property maintenance costs. - Can I sell my shared ownership property easily?
Selling shared ownership properties can be tricky if you don’t own 100%. You may need to sell your share back to the housing association.
How Can You Apply for a Shared Ownership Mortgage?
Applying for a shared ownership mortgage is straightforward:
- Find an eligible property: Look for shared ownership homes in your area, or contact housing associations to find available properties.
- Check your eligibility: Ensure you meet the income and affordability criteria for the scheme.
- Get mortgage advice: It’s always a good idea to speak with an advisor at Mortgage Bridge to help you navigate the application process and find the best deal.
- Apply for the mortgage: Once you’ve chosen your property and met the requirements, you can apply for a shared ownership mortgage.
FAQs About Shared Ownership Mortgages
Can I buy a house with a bad credit shared ownership mortgage?
Yes, it’s possible to get a shared ownership mortgage with bad credit. You may need a larger deposit or face higher interest rates, but it’s still an option.
How much deposit do I need for shared ownership?
Typically, a shared ownership deposit is around 5% of the share you buy. So if you buy 50% of a £200,000 property, you’ll need a deposit of £5,000.
Can I sell my shared ownership property?
Selling a shared ownership property can be more complicated, especially if you don’t own 100%. You may need to sell your share back to the housing association.