Shared Ownership Mortgages

What is a shared ownership mortgage?

A shared ownership mortgage is a type of loan for a government-backed scheme that lets you buy part of a home and rent the rest, usually from a housing association. You might also hear it called a part-buy, part-rent mortgage. It’s a middle ground between renting a home and buying one.

You take out a mortgage for the part of the home you’re looking to own and pay rent on the rest to the housing association or provider you’re sharing ownership with. As shared ownership properties are always leasehold, you will also usually pay a service charge, which goes towards maintaining communal areas and grounds and may include buildings insurance. You will also need to pay ground rent once you own 100% of the property. Contents insurance isn’t included, so you will need to take that out separately.

The amount you’re borrowing from your mortgage lender and your deposit will be smaller, which might make buying a home more affordable if you’re on a low income.

How do shared ownership mortgages work?

You will be taking out a mortgage on the portion of the total value of the home you want to buy. It’s possible to get a shared ownership mortgage for between 10% and 75% of the value of a home.

Here’s an example:

• If you buy a 30% share in a £250,000 home, your share would be £75,000 and you would pay rent on the rest.
• The rent you pay will usually be 3% of the part of the value of your home you don’t own. To calculate the rent, you simply divide the housing association’s share of the equity by 100 and then multiply by three. This works out as £5,250 a year, or £437.50 a month, for the above example.
• You will need to put a deposit down, too. How much this is will vary, but it’s usually between 5% and 10% of the share you’re buying. So a 10% deposit on your £75,000 share would be £7,550.

You will make mortgage payments to your lender and rent payments to the housing association that owns the rest of the property. You will also usually need to pay a service charge to your provider for maintenance of communal areas or grounds.

You can increase how much of your home you own over time, which will also reduce how much rent you pay. This is called staircasing, which you can either pay for with savings or by borrowing more on your mortgage with your current lender, or with a different lender.

When you decide to staircase, your home will be valued as you’ll be buying more equity based on the value of your property at the time. Check whether there is a cap set by your housing association and how many times you can do this.

While there are similarities, if you’re buying outside England, or in London, the rules are different for shared ownership. There are official sites for schemes in England, London, Scotland, Wales and Northern Ireland.

How do I get the best shared ownership mortgage?

If you’re eligible for the scheme and have registered and passed the assessment, the next step will be to find a suitable loan. The mortgage loan will be for the share of the property you’re looking to own, and you will pay that back plus interest each month.

How much you pay depends on your deposit amount, the amount you need to borrow, the mortgage term and the interest rate. As well as your mortgage payment, bear in mind any product and valuation fees. You’ll also need to decide if you want to pay a fixed or variable rate of interest, and how long you want the initial deal to last.

You can use a mortgage adviser to help guide you, work out the mortgage loan you can afford and pinpoint the deals that match your needs best. This can be through a specialist shared ownership mortgage broker through your scheme or housing provider, or an independent broker you find yourself.

To compare mortgage deals across the market, you can use our easy mortgage comparison tool. Just answer a few short questions to find mortgages to suit you.

How do I qualify for a shared ownership mortgage?

In England, you can apply for a shared ownership scheme if your household earns £80,000 a year or less, or £90,000 a year or less in London. You’ll need to be at least 18 and a first-time buyer, a former homeowner, or a shared owner who wants to move to another shared ownership property. If you can afford to buy a house outright, you won't qualify.

Once you’ve passed the shared ownership assessment and applied for a mortgage, you’ll need to pass the mortgage lender’s affordability and eligibility checks. You can use a shared ownership mortgage calculator to get a steer on whether the amount you want to borrow works out as affordable, based on your finances.

When you apply for a mortgage, the lender will consider your debts, income, savings and credit history. Unlike a standard mortgage, your rent payments and other costs, such as maintenance charges of communal areas, will also be considered.

Affordability guidelines depend on the lender, but your mortgage payments plus these costs will usually need to be no more than 45% of your total income.

What are the advantages of a shared ownership mortgage?

A shared ownership mortgage can make owning a home a reality for some, where a standard mortgage might be financially unreachable, or take a lot longer to achieve. Other benefits are:

• Your deposit amount is based on the share of the home you own, not the full property price, and can be between 5% and 10%.
• Once you’ve bought your share, you can increase how much you own over time, if that’s affordable and something you want to do. This is called staircasing, and you may be able to work up to the full value of the property. The rent you pay will then be calculated on a smaller amount, or you won’t pay any rent if you eventually own it outright.
• If your home has increased in value when you sell it, you may make a profit, depending on the proportion of equity you have in it. The rent you pay in addition to your mortgage is subsidised, so is set at a lower rate than comparable rent in your area.
• The cost of maintaining your home is your responsibility, but you may get a contribution from the landlord to pay for essential repairs to your home. And while it’s under warranty, structural repairs to a new-build will be covered.
• If you’re in the military, you get priority for shared ownership schemes. Some councils may also have other priority groups, based on the needs of the local area.

What are the disadvantages of a shared ownership mortgage?

There are a few things you should be aware of before you take on a shared ownership mortgage:

• When you buy more of your home through staircasing, what you pay is based on the value of your home at the time of buying, not the value when you originally bought it. So if your property rises in value, buying additional shares will be more expensive than when you bought your initial share.
• If you decide to buy a larger share of your home, you will need to remortgage. Lenders may charge fees such as product and admin fees, and the housing association may also charge an admin fee. If you have a poor credit history, you may find it harder to remortgage or access the best rates.
• As well as your mortgage payment, you’ll pay rent on the share you don’t own. All shared ownership properties, whether houses or flats, are leasehold. So you’ll also need to pay service charges to maintain communal areas and grounds.
• You may have to ask permission before making structural changes to your home.
• The interest rates for shared ownership properties tend to be higher than for standard mortgages.
• You must live in your home, not rent it out. Subletting, where you rent out part or all of your home, won’t usually be permitted. You can ask for permission from the housing association or other landlord in special circumstances, such as if you have to move abroad for a time, but there is no guarantee it will be approved.
• You may need to go on a waiting list and your choice of properties will be restricted.
• Selling your home may not be as straightforward as with a standard mortgage, especially if you haven’t staircased up to 100% ownership. Your landlord will usually have the first option to buy.
• If the market value of your home goes down and you move, you may get back less money than you put in.
• If you staircase to 100% ownership, you will need to pay ground rent so, before you buy, always check the lease carefully as some developers double the ground rent every 10 years or more, which can add thousands to your annual bill.

How do I apply for a shared ownership mortgage?

You can apply for a shared ownership mortgage once you have registered with the scheme and found a property to buy through an approved agent. The housing provider should give you a summary of costs for buying the property, along with costs associated with buying more of your home or selling it in the future.

Once you have found the mortgage that matches what you need and is affordable, you can apply through the broker or direct with the lender.

You’ll need to supply some financial information for affordability checks and some personal information, so have that handy. This will be similar to what you supplied to the scheme for their checks, and may include recent payslips, proof of ID and address, and proof of benefits and savings.

Shared Ownership Mortgages FAQ