Mortgages For Shared Ownership

Last updated: November 2021 | 1 min read

Shared ownership is a governmental scheme which makes climbing the property ladder easier, subject to the fact that you meet the qualifying criteria. You will be only be buying a share of the property and pay rent on the rest. This results in two significant advantages. Due to these advantages and others, shared ownership is one of the most popular government schemes

First, since you will only be purchasing a share in the property, you will need to pay for that share and resultantly, you will only have to borrow enough to cover that share (rather than complete value of the property). This reduces the principal amount of your loan.

The second advantage is that the rent you will be charged for the portion you don't own will be at a discounted rate. Read on to find out more about how shared ownership schemes works and whether you can qualify for it.

Shared ownership mortgage explained

Shared ownership is a governmental scheme helped people climb up the property latter who cannot afford to buy on the open market. You can buy a new home with as little as a 25% share in the property and a 5% deposit, rather than purchasing the entire property.

You will be renting the rest of the property from the local housing association. The rent charged is also less than the rent charged in the open market.

How can you qualify for shared ownership?

Shared ownership scheme is for first-time buyers, or if you already have a home, you must be in the process of selling it. Further, your annual household income has to be less than £80,000 (£90,000 in London). Additionally, you will have to arrange for a 5% or 10% deposit.

What are shared ownership mortgages?

For shared ownership properties, you have to pay at least 25% of the price of the property and rent the remaining portion from the local housing association. If you do not have that much money, then you will need a mortgage.

However, the mainstream mortgage lenders will not lend to you if you are on shared ownership. Therefore, you will have to find a specialist mortgage. Further, the interest rates on shared ownership mortgages are high because not many mortgage lenders offer shared ownership mortgages.

How can you find the best shared ownership mortgage deal?

A mortgage broker can be invaluable if you want to opt for a shared ownership scheme. A good mortgage broker will be aware of the various products available and will also be able to advise you on the lending criteria for those mortgage lenders.

How does the loan to value ratio work in shared ownership mortgages?

The loan to value ratio works different in shared ownership mortgages, as compared to standard mortgages. The loan to value ratio is calculated just on the portion you will be buying.

Suppose that you are buying a 50% share in a flat which is worth £200,000. You will need a mortgage for £100,000 to cover the share in the flat and the deposit.

Can you increase your share in the shared ownership home?

After you have lived in the home for a set period, then you can choose to increase your share in the property. You will have to check if the local housing association allows you 100% ownership. This is called staircasing.

Remortgaging for shared ownership properties

Remortgaging for shared ownership properties is not much different from a standard remortgage. However, since the number of lenders lending on shared ownership properties is less, you will have fewer choices of products available.

It would be best to buy the property by staircasing to 100% if you can afford it. As then, you will become eligible for a standard mortgage and will have more variety of cheaper mortgages to choose from. Read our guide on how to remortgage for better understanding.

To find out about other government schemes, click here.

You can also read about other types of mortgage in our article.

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