What is a Shared Ownership Mortgage?

This is a scheme made by the Government to make it easier for buyers to get on the property ladder whilst part owning and part renting. The buyer will pay a mortgage on the percentage of the property that they own and pays rent on the remaining amount. Deposits therefore can be a lot lower than if you were to not get a shared ownership mortgage. This has become popular for those that are struggling to save large deposits in expensive boroughs. As time goes on the buyer has the option to increase their ownership stake and could eventually buy the property out right.

Who can use Shared Ownership?

This scheme is available to first-time buyers, buyers who have previously owned a home, but can no longer afford to buy a new one and existing shared ownership homeowners who want to move house. If you live outside London, your household income must be less than £80,000; £90,000 in London.

How does Shared Ownership work?

Essentially you buy a share of a property. You can purchase between 25-75%, but there are different rules in England, Scotland, Wales and Northern Ireland.

As you are buying a share in the property, you have to pay rent on the part you cannot afford to a housing association, basically ‘part rent, part buy’ scheme.

What is ‘staircasing’ with shared ownership?

Staircasing is when it is possible to buy a greater share of your property at any time from the housing association. This will depend on the market value of the property at the time how much it will be increased by.

You will have to pay for a valuation for the housing association so that they can staircase. Ensuring you have the cash or mortgage finance in place to pay for the extra share is essential.

All housing associations have different rules, but you’ll generally have to buy a 10% share as a minimum when staircasing. If you want to buy a share of more than 10%, that’s usually fine provided it’s in 5% increments (eg 15%, 20%, 25% and so on).

Many housing associations will only let you staircase up to three times. Some will only let you staircase a third and final time if you intend to buy the entire remaining share of the property, taking your ownership up to 100%.

Pros and cons of a shared ownership mortgage

A shared ownership mortgage can help make unlikely home buying aspirations come true but it won’t be suitable for all, as these advantages and disadvantages show:

Pros of a shared ownership mortgage

  • You may have the chance to get on the property ladder when you thought there was no hope at all.
  • You may be able to buy a home much quicker than if you had to save up to buy outright.
  • There is the opportunity to gradually increase the share of your home that you own.
  • If you decide to sell, you could make a profit if house prices have increased since you bought.
  • If you’re military personnel, you get priority over other groups for shared ownership schemes.

Cons of a shared ownership mortgage

  • Where you end up living may be dictated by where shared ownership properties are available.
  • Increasing your ownership by staircasing could get progressively more expensive if your property value rises.
  • Shared ownership mortgage rates are typically higher than on traditional mortgages.
  • You’ll pay rent on top of your mortgage payments, unless you staircase to 100% ownership.
  • Your property will be on a leasehold, which means paying service charges and ground rent.
  • Except for repairs to communal areas and snagging, repair costs above an annual £500 allowance (which is available for the first 10 years after buying) will usually fall on you, regardless of the share you own in the home. (If you bought before April 2021, the allowance isn’t available either.)
  • Selling up isn’t always straightforward, particularly if you don’t have 100% ownership.