Shared ownership allows you to take out a mortgage on a share of a property and pay rent on the rest.
Shared ownership, also known as 'part buy, part rent', is a type of mortgage that gives first-time buyers the chance to purchase a share in a new build property. You can take out a mortgage for the share you own (usually between 25% and 75%) while paying rent on the rest to a housing association. As you’ll only be paying a mortgage on the share you’re buying, the amount needed for a deposit is usually much less than if you were to buy a property outright.
How does shared ownership work?
Shared-ownership schemes can be seen as a middle ground between owning and renting, with the option to buy a bigger share of your home at a later date.
If you’re looking to take out a shared-ownership mortgage, you’ll need to consider the following:
· Make sure the scheme is available in your area. Then, if eligible, you can speak to your local council’s housing team/association to apply.
· Make sure you talk to us and check if you can get a mortgage first.
· Make sure you can afford the costs of shared ownership, including stamp duty, moving costs, mortgage fees and insurance.
Staircasing
With shared ownership, you can choose to increase your share of the property overtime through a process known as 'staircasing'. This means that you can keep buying shares of the rented part of your home from the relevant housing association until you own all of it.
Following changes to the scheme, you can now staircase in 1% increments. In most cases, you can ‘staircase’ all the way to owning 100% of the property. This way, you’ll no longer need to pay any rent, just your mortgage payments. How much you pay for additional shares will depend on the value of your home at the time. This will be determined by the housing association. For example, if your property is valued at £250,000 and you want to buy an additional 25% share, the cost of the extra share would be 25% of the valuation. In total, this would be £62,500.
Can I sell my shared ownership home?
Whether you can sell your shared-ownership home will depend on how much ownership you have. If you end up with 100% ownership of your home, you can choose to sell your shared-ownership property privately through an estate agent. That said, you may need to pay to have your property valued. Bear in mind also that the housing association has the right to ‘first refusal’ for 21 years after you first bought your home. If you don’t own 100% of the property, the buyer will have to buy it as part of a shared-ownership scheme. They can do this by buying a share greater than or equal to what you currently own.
What happens if the property value changes?
If and when you decide to sell your shared-ownership property, you can find yourself in different scenarios. If the value of your house has risen, you’ll end up splitting the earnings with your lender (the housing association). What both parties will receive depends on how much of the house you each own. Should the cost of the property decrease, you could be paying more money into a house that’s falling in value or selling at a loss. However, if you’re planning to keep it and want to make a move to buy a bigger share, a decrease in value could work in your favour. This is because you’ll be able to gain a higher share of the house and pay less than you would have originally.
Mortgages for shared ownership
If you buy a shared-ownership property, you’ll need a shared-ownership mortgage for the proportion of the property you buy. You’ll typically need a 5% deposit.
It’s always a good idea to use a mortgage broker with experience of shared-ownership mortgages.
Why should I use a shared-ownership mortgage broker?
With years of experience and an in-depth knowledge of the mortgage market, a broker could instruct on how to find the best deal for your needs and circumstances. Since they have a good understanding of lenders’ eligibility criteria, they will be able to indicate those mortgage providers that are more likely to suit your requirements. If you happen to have a poor credit score or take home a low income, they can advise on how to avoid being rejected by lenders. Ultimately, using a shared-ownership mortgage broker is a wise solution if you want some much-needed peace of mind, safe in the knowledge that you’ve secured the best option for you.
You can find more information about shared ownership here.
Your mortgage is secured on your home, which you could lose if you do not keep up your repayments.
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