Shared ownership mortgages are a type of home loan that allows the borrower to purchase part of a property, known as the share. The remaining share is purchased by either a housing association, local council or private developer and the borrower pays rent on this share of the property. As the name of the scheme suggests, by using it you'll initially own a share of your home, as opposed to owning 100% of it, with the option to purchase some or all of the remaining share in the future. This type of mortgage is designed for people who cannot afford a mortgage on the home outright or have a smaller deposit.

As the name of the scheme suggests, by using it you'll initially own a share of your home, as opposed to owning 100% of it, with the option to purchase some or all of the remaining share in the future.

A smaller deposit will be required as you aren't purchasing the full market value of the house, you will only own a share of the property, and the remaining share will fall to the housing association or developer. How much deposit you pay will depend on the share of the property. Your deposit will be a percentage of the share price, not the property price.

Mortgage payments will be payable on the loan size you are granted then you will pay rent on the remainder. This rental amount is set by the developer.

Shared ownership mortgages are offered by a range of lenders in the UK, including banks, building societies and specialist mortgage providers. Borrowers will need to have a regular income and be able to demonstrate their ability to make monthly payments on time. In order to obtain a mortgage there must be the option to purchase the remaining share of the property in the future.

How shared ownership works

Shared ownership is created to provide wannabe homeowners with the chance to purchase a part of a property they otherwise wouldn't be able to afford at its full market value. The minimum initial share you can buy is typically 25% and the maximum initial share you can buy is typically 75%.

When it comes to purchasing a shared ownership property, the minimum and maximum shares available for purchase will depend on a few factors these include which specific property you're interested in, your financial situation, affordability and deposit size. These must be assessed when applying for shared ownership and may influence the size of the share that is feasible for you to buy.

Shared ownership mortgage costs

In addition to a regular income, borrowers also need to have a minimum deposit for the share they are purchasing. This is usually between 5-10% of the purchase price, although this can vary from lender to lender.

There are three main costs associated with purchasing a shared-ownership home, these are:

1. the rent payment on the shares you do not own
2. the mortgage payment on the shares you do own
3. the deposit for the percentage you purchase

Other costs involved with purchasing a house are legal fees which are the payments to the solicitor taking care of the legal aspect of the purchase. With shared ownership there may be additional solicitors fees involved. Stamp duty may also be payable when purchasing a property, this is different for each individual.

Generally, shared ownership properties require you to pay ground rent and service charges in addition to monthly rent. However, some associations may include these payments within the regular rental cost.

A ground rent and service charge is payable as the property will be initially bought as a leasehold. You will be given the opportunity at a later date to purchase the freehold if you take out a mortgage to cover the full cost of the property when all shares are purchased, this is when you will stop paying rent.

Paying rent on a shared ownership

Typically, the share of the property not bought by you will be owned by a housing association (in some cases it'll be a local authority or building developer). For the remaining share you will pay rent, this amount is set by the owner of the remaining share.

If you purchase more of your property in the future your rent should decrease based on the new share amount. When you purchase the whole property you will no longer have to pay rent.

The monthly rent payable will be factored into the lender's financial assessment, This rent payment can affect mortgage affordability.

Should you buy a shared ownership property?

Shared ownership mortgages are a great way for a first time buyer to get onto the property ladder without spending a fortune. They also enable people who cannot afford to buy a home outright but have enough income to make regular payments, to purchase their own home. This type of mortgage could be an ideal solution for people who are looking to buy a property but cannot afford the full cost.

When taking out a shared ownership mortgage application, it is important to shop around and compare different lenders before making a decision. This will ensure that you get the best deal and understand all of the terms and conditions of the loan. It is also essential to ensure that you can make the monthly payments on time, as failure to do so could result in repossession of the property.

Can you buy more shares?

If you come into a situation in the future where you have the financial ability, staircasing can be an excellent option for purchasing extra shares of your property. Whether it's increasing your ownership from 50% to 75%, or even up to 100%, this could make all the difference in securing complete rights and owning the whole property When purchasing more shares this will be at the current market value, not the initial mortgage value. Therefore if house prices rise then so will the cost of purchasing the remaining share.

What will you be responsible for with a shared ownership mortgage?

Even if you only own a part of your home, it's essential to remember that all upkeep and maintenance will still be your responsibility. This includes any maintenance costs or any faulty appliances. You will need to pay any associated costs. It is important to factor this into your budgeting costs. It is important to remember to insure your whole property, not just the share.

If you want to make any alterations or major home improvements you should check the terms of your lease. You must have the landlord’s permission in writing before you make any alterations to your property. However, they should not be able to withhold permission unreasonably.

You are free to decorate your shared ownership property, however, the housing association will not contribute to decorative improvements. Before making any large changes to your property, such as altering the structure of the property, make sure that you refer to the details inside your shared ownership lease. It's essential that you receive permission from the relevant housing association before going ahead with these types of modifications.

For work that needs doing in any communal areas, this will be covered by the service charge that you pay monthly or yearly.

Looking for a shared ownership property?

By choosing a shared ownership scheme, borrowers have the ability to have a place of their own without having to pay out a large sum upfront. With careful planning and budgeting, this could be the perfect solution for first-time buyers and those looking to purchase their own home.

Overall, a shared ownership property offers an attractive and affordable way for people who are unable to purchase a property outright to become homeowners. By researching different lenders and comparing different offers, it is possible to find the right mortgage that meets your needs. With careful budgeting and regular payments, this type of mortgage could be an ideal solution to help you purchase your own home.

If you are interested in a shared ownership mortgage, contact us today and speak to a mortgage broker, we are happy to help with any and all queries you may have.