If you need a little helping hand getting onto the property ladder, you may be considering making use of the shared ownership scheme. The scheme has been around since the 1970s. Today, the shared ownership market is well established and is really quite strong. Mainstream lenders such as Nationwide, Halifax, Santander and many more all offer shared ownership mortgages, making the scheme more accessible than ever.
So, how do shared ownership mortgages work? In this article, we explain all you need to know about a shared ownership mortgage.
Getting a shared ownership mortgage
A shared ownership mortgage differs from a traditional residential mortgage because instead of raising a mortgage to help buy the whole of a property, you only need to raise a mortgage to buy just a share of one (typically between 30-50%). A shared ownership mortgage is only required, therefore, to contribute towards the purchase of your share of a property. The remaining share of the property will be owned by a third party, usually a Housing Association.
For this reason, the amount borrowed is often much lower than might be required to purchase a property outright. This makes shared ownership an attractive option for those struggling to raise a large deposit to purchase a home.
For example, let’s say you’d like to purchase a 30% share in a property with the full market value of £195,000. The cost of your 30% share would be £58,500 and you would need a shared ownership mortgage for up to 95% of this amount (£55,575), leaving you to provide a minimum 5% cash deposit of just £2,925.
Although shared ownership mortgages can be found amongst many high street lenders, not all lenders will fund shared ownership properties. We advise turning to a mortgage advisor and broker who specialises in shared ownership mortgages, such as us here at Mortgage Light, to help find you the best deal for you.
Find out more – ‘How much of a deposit do you need for shared ownership?’ & ‘How to apply for shared ownership’
Are shared ownership mortgage rates higher?
The interest rates charged on shared ownership mortgages are generally comparable to standard residential mortgages. There’s also less choice available to shared ownership borrowers.
You may also find you are restricted to mortgages with higher rates if you have a poor credit history. Getting any kind of mortgage can be a challenge with a poor credit history, although not impossible. Your mortgage advisor and broker may need to search for a lender who is willing to lend to someone with adverse credit history and these lenders may hike up their interest rates to reward them for the additional perceived risk of lending to you.
Alternatively, a lender may ask that you put down a larger cash deposit to help mitigate their risk of loss in case of you defaulting. Instead of the usual 5-10%, you may be required to provide a 15% or 20% deposit upfront.
Find out more – ‘Can you get shared ownership with bad credit?’
Can I increase my shares in my shared ownership property?
Yes, over time you are able to purchase further shares in your shared ownership property. In fact, in the majority of cases, you are able to increase your share of ownership to 100%. This process is referred to as ‘staircasing’. The more you staircase, the more of the property you own. In turn, the less rent you will need to pay to your Housing Association. When you reach 100% ownership, you will have bought all of the Housing Association’s share of the property. You will no longer need to pay them any further rent.
Staircasing does come with a few costs, however. For this reason, it makes sense to do this less often and in larger portions, rather than frequent small increases in ownership. Each time you staircase, you will need to pay for:
- A property valuation
- A solicitor to act on your behalf
- Mortgage broker fees to extend and/or remortgage your existing mortgage
Find out more – ‘Shared ownership – how does staircasing work?’
Shared ownership requirements
Although the shared ownership scheme is designed to be widely accessible, there are some criteria that you must meet. These criteria are in place to try to ensure that the use of the scheme is restricted to those who really need it.
To qualify for participation in the shared ownership scheme, you must be:
- Over 18
- Living permanently in the UK
- A first time buyer, a previous homeowner who does not currently own a home or someone who already owns a shared ownership home
- Earning a combined income of £80,000 or less (£90,000 or less in London)
If you earn above the income threshold and/or currently own a property, you will not be eligible for the shared ownership scheme. However, if you have previously owned a property jointly with a partner, but are now separated and struggling to purchase a property in your sole name, you may still qualify for participation in the scheme. This remains subject to you meeting the other criteria outlined above.
If you are considering taking out a shared ownership mortgage, let us here at Mortgage Light help you get started. We’ve helped many people just like you begin and progress their shared ownership journey, guiding many all the way up to 100% ownership.
Contact us today and speak to one of our shared ownership specialists.