A Guide to Shared Ownership

As a first-time buyer it can be incredibly hard to get onto the property ladder – particularly on your own. 

If you can’t afford your own home outright, and don’t have a partner or friend to take out a joint mortgage with, then shared ownership may be an option for you.

What is shared ownership?

Shared ownership is a way of part-owning a property and it is designed for those who cannot afford a mortgage on 100% of a property’s value.  Shared ownership schemes are backed by the government are usually available through local housing associations.

Typically, you take out a mortgage in order to buy a stake in the property – anywhere from 25% to 75% of the market value.  The remaining share would still be under the ownership of the housing association and you would be expected to pay rent on this.

How much rent would I need to pay?

Rent is usually around 3% of the remaining share of the property value. 

For example, you buy a 75% share in a house worth £100,000.  The remaining share belonging to the housing association is £25,000.  The annual rent would be approx. £750 so you’d be paying around £63 per month on top of your mortgage payments.

You may also need to pay a service charge for the property, which may be charged on a monthly or annual basis.

Who is eligible for a shared ownership scheme?

You can apply for a shared ownership scheme if you meet any the following criteria:

You’re a first-time buyer (or if you’ve owned a home previously, but can’t afford to purchase one now).

Your household income is less than £60,000 a year (if you live outside of London), less than £66,000 if you are buying a 1 or 2 bedroom property in London, or less than £88,000 if you are buying a 3 or more bedroom property in London.

You are currently renting a council house or housing association property.

There is also additional help available for those over the age of 55 or those with a long-term disability. 

You can find more information on the government’s shared ownership site https://www.gov.uk/affordable-home-ownership-schemes/shared-ownership-schemes

Where can I get a shared ownership mortgage?

Not all lenders will be able to offer you mortgages for shared ownership, however many of the major high street lenders do include these within their portfolio.

It is unlikely that you’ll be able to borrow 100% of the share you are buying, so you’ll need to have a deposit in place.  The more money you’re able to offer as a down payment, the better the mortgage deal you’re likely to get. 

Use a mortgage calculator to work out what kind of mortgage deal you are likely to get and what sort of monthly payments you’ll be looking at. 

It may help to speak to a mortgage adviser to help you find the right mortgage – if a general mortgage adviser is unable to help you, your local housing association may be able to recommend an adviser who has specialist knowledge of shared ownership schemes.

If this is your first mortgage, then it may be wise to seek independent advice to make sure that you are finding the right mortgage for your circumstances, to help you assess your affordability and to help you decide if a shared ownership scheme is the most suitable route for you to take.

Speak to an independent mortgage adviser

Can I buy extra shares in my home?

Yes you can.  A shared ownership scheme will allow you the option of increasing your share in the property if and when you can afford to do so.  However the cost of increasing your share will depend on the value of the property at the time, not what the original purchase value was. 

The housing association will carry out a valuation on the property (you’ll need to pay the valuation fee), and you’ll also need to arrange a larger mortgage in order to pay for your increased stake.

Can I sell my shared ownership property?

Yes, you are entitled to sell your share of the property, and can do this independently if you own 100% of the property.

However if the housing association still has a stake in it, then they have first refusal i.e. the option of buying it back, or finding another buyer.  

Some schemes allow you to sell your share of the property whenever you want to, however some may apply restrictions.  For example, some may expect you to stay in the property for at least five years; otherwise you may be expected to pay back some or all of the discount applied in the first instance.

Find more smart money advice at sosmartmoney.co.uk  



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