What Is a Shared Ownership Mortgage?
A shared ownership mortgage is part of the UK’s shared ownership scheme, designed to help people buy a portion of a property while paying rent on the remaining share. Shared ownership is commonly used by first time buyers and those who may not be able to purchase a property outright.
This guide explains what shared ownership is, how a shared ownership mortgage works, how lenders assess applications, and the key points to understand before entering into this type of arrangement. The information below is provided as general guidance only.
Shared ownership is a government-backed scheme that allows eligible buyers to purchase a share of a property, usually between 10% and 75%, and pay rent on the remaining portion, which is owned by a housing association or registered provider.
Over time, it may be possible to increase the owned share by buying additional portions of the property, a process known as staircasing.
Key features of shared ownership include:
- Buying a percentage of the property
- Paying rent on the remaining share
- Paying a mortgage only on the owned share
- Eligibility criteria set by the housing provider
Shared ownership properties are typically leasehold, even if the property is a house.
A shared ownership mortgage is a mortgage used to fund the share of the property being purchased. The mortgage is only taken out on the owned portion, not the full market value of the property.
For example:
- Property market value: £300,000
- Share purchased: 40% (£120,000)
- Mortgage required: Based on £120,000 (less any deposit)
- Rent paid on remaining 60%
The borrower makes three main monthly payments:
- Mortgage repayment on the owned share
- Rent on the remaining share
- Service charges (where applicable)
Shared ownership is generally aimed at people who:
- Cannot afford to buy a suitable home outright
- Meet income and eligibility limits
- Are first time buyers or do not currently own a property
- Are existing shared ownership tenants looking to move
Eligibility rules vary slightly by region and housing association, but shared ownership is not open to buy-to-let investors and is intended for residential use only.
The deposit for a shared ownership mortgage is usually calculated as a percentage of the share being purchased, not the full property value.
For example:
- 5% deposit on a £120,000 share = £6,000
- Instead of 5% of the full £300,000 value
This lower cash requirement is one of the reasons shared ownership is often seen as more accessible. However, deposit requirements still vary by lender and applicant circumstances.
Mortgage lenders assess shared ownership applications in a similar way to standard residential mortgages, but with additional considerations.
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Lenders typically look at:
- Income and employment
- Affordability of all housing costs
- Credit history
- Deposit source
- Property and lease terms
Importantly, lenders assess affordability based on the combined cost of mortgage payments, rent, and service charges.
Affordability and Income Assessment
Affordability checks are a key part of shared ownership mortgage applications. Lenders want to ensure the borrower can afford:
- Mortgage repayments on the owned share
- Rent on the unowned share
- Service charges and ground rent
- Other financial commitments
Even though the mortgage is smaller, the additional rent and charges mean affordability can still be stretched in some cases.
Credit history is assessed in the same way as for other residential mortgages. Missed payments, defaults, or other adverse credit markers can affect lender choice and product availability.
Some lenders apply stricter criteria for shared ownership, while others treat it in line with standard residential lending. Each lender’s policy differs.
Rent and Service Charges Explained
In addition to mortgage repayments, shared ownership buyers pay rent on the portion of the property they do not own. This rent is usually charged at a below-market rate and increases annually, often in line with inflation plus a margin.
Service charges may apply, particularly for flats, and can cover:
- Building maintenance
- Insurance
- Communal area upkeep
These costs are important to factor into long-term affordability.
What Is Staircasing?
Staircasing is the process of buying additional shares in a shared ownership property over time. This allows the buyer to gradually increase their ownership, potentially up to 100%.
Key points about staircasing:
- Additional purchases are based on the property’s value at the time
- Valuation fees usually apply
- Legal costs are involved
- Rent reduces as ownership increases
Not all properties allow staircasing to 100%, depending on lease terms.
Yes, shared ownership properties can be sold, but the process differs from a standard sale.
In many cases:
- The housing association has first refusal to find a buyer
- A nomination period applies
- The buyer must meet shared ownership eligibility criteria
If staircasing to 100% is allowed and completed, the property may be sold on the open market, subject to lease terms.
Shared ownership mortgages differ from standard residential mortgages in several ways:
| Feature | Shared Ownership | Standard Mortgage |
|---|---|---|
| Ownership | Partial | Full |
| Mortgage size | Based on owned share | Full value |
| Rent payable | Yes | No |
| Service charges | Often | Sometimes |
| Eligibility rules | Apply | No scheme limits |
Understanding these differences is important when deciding whether shared ownership is suitable.
Shared ownership can offer:
- Lower upfront deposit requirements
- Smaller initial mortgage
- Access to property where full purchase is not affordable
- The option to increase ownership over time
These features can help some buyers enter the property market sooner.
Limitations to Be Aware Of
There are also limitations to consider:
- Ongoing rent and service charges
- Annual rent increases
- Restrictions on selling
- Costs involved in staircasing
- Limited lender availability
Shared ownership is a long-term commitment and may not suit all circumstances.
Shared ownership properties are for owner-occupation only. They cannot be used for buy-to-let purposes, and subletting is usually restricted or prohibited.
This is enforced through the lease and housing association rules.
Remortgaging a shared ownership property is possible, subject to lender criteria and housing association approval.
Lenders assess:
- Current property value
- Owned share
- Outstanding mortgage balance
- Affordability
Not all lenders offer shared ownership remortgages, which can limit options.
“You Only Pay for What You Own”
Mortgage payments apply only to the owned share, but rent and charges still apply.
Shared ownership and Help to Buy are different schemes with different structures and rules.
“Staircasing Is Always Guaranteed”
The ability to staircase and the maximum ownership level depend on the lease.
Summary
A shared ownership mortgage allows buyers to purchase part of a property while paying rent on the remainder. It can make buying a home more accessible, but it also involves additional costs and restrictions compared to standard mortgages.
Understanding how shared ownership works, how mortgages are assessed, and the long-term implications is essential before entering into this type of arrangement.
This article provides general information only. For personalised guidance, regulated mortgage advice is required.
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Important information: Mortgage Bridge provides information only and acts as a mortgage introducer. We do not provide mortgage advice or make lender recommendations. We can introduce you to an FCA-regulated mortgage adviser who can provide personalised mortgage advice.