Shared Ownership Mortgage

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Shared Ownership Mortgage 

Charlie talks us through how the shared ownership scheme works, and how it can be a great way to get on the property ladder. Part one of two.

What is shared ownership and how does it work?

Shared ownership is when you own part of a property, take out a mortgage on it, and then pay rent on the rest. It means you’re able to buy a home with a smaller mortgage.

Who is eligible for shared ownership?

To be eligible for a shared ownership mortgage you need to be either a First Time Buyer, or you previously owned a home but cannot afford to buy one now. You might be forming a new household, for example, after a relationship breakdown.

Alternatively, you could be an existing shared ownership client and you want to move. Or perhaps you own a home and want to move but can’t afford a property that meets your needs.

Do many lenders offer shared ownership mortgages?

Most high street lenders offer shared ownership mortgages, and also some specialist lenders. If you’ve got slightly bad credit, then there are options beyond the high street.

Which properties are available for shared ownership?

Typically, shared ownership properties are new builds. Most new housing developments will have a proportion of shared ownership properties on site.

You may also be able to get a shared ownership mortgage on a property that was previously owned by the local authority.

How much deposit do I need for shared ownership?

You typically need a minimum of 5% deposit, based on the price of the share you’re buying.

So if you’re purchasing a 50% share in a £200,000 house, the deposit you would need to put down is £5,000 – as opposed to £10,000 if you’re buying in the traditional way.

Will my shared ownership property be freehold or leasehold?

When purchased via shared ownership, the property would be leasehold.

Can I buy a bigger share of my home at a later date?

Yes, you can typically staircase up to 100% at a later date. You can do this at remortgage stage. So if you’re coming up to the end of your fixed rate deal, you can ask your broker to explore the options to staircase.

Whether you want to move your share up to 100% or perhaps 75%, we can explain all your options.

Can I ever fully own a shared ownership home?

Yes, you can staircase upwards. That effectively means you’re increasing your ownership share in a property. You can staircase up to a 100% on a shared ownership mortgage.

What happens if the value of my house changes?

If the value of the house changes, the share you own – and the share you don’t – will accordingly decrease or increase in value.

For example, I had a couple who purchased a property for £140,000 five or six years ago. They owned a 50% share, so effectively they owned a £70,000 share of the property. By the time they wanted to staircase up to 100% to own that property outright, it was worth £170,000.

Rather than having to pay £70,000 for the remaining 50% share, they therefore had to pay £80,000.

What if I have bad credit? Can I still get shared ownership?

Yes, absolutely. Having bad credit may have an impact on whether we’re able to go to a high street lender. However, there are specialist lenders out there who may still be able to consider you, depending on what the bad credit is.


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Shared Ownership Mortgage Part 2

Charlie is back to continue the conversation on shared ownership. Episode two of two.

How do I sell my shared ownership home?

To sell your shared ownership home, you have to let the housing association know – or whoever owns the other part of the property. You will then have to get a valuation completed and a sale price agreed with them.

From that stage it’s basically the same as a normal transaction. You just need to get that part done first.

Can I make home improvements to my shared ownership property?

You may be restricted on the home improvements you can make on the property. I would advise you to speak to the housing association before you carry out any work, because they own a share in that property. You will need to get approval from the other owner to ensure they are happy with your plans.

How does the remortgaging process work with shared ownership?

Remortgaging is a little different to a standard remortgage. You may be required to get a valuation from the housing association – and that’s only valid for three months.

You’re also restricted to the lenders that support the shared ownership scheme, which we spoke about in part one. Most high street lenders do support the scheme and have products available.

How does stamp duty work for shared ownership properties?

You would only pay stamp duty on the share you own. So if you purchased a property at full market value for £300,000 but only own a 50% share, you wouldn’t have to pay stamp duty.

You effectively only own a £150,000 share of the property – which falls below the current stamp duty threshold [podcast recorded in May 2024].

However, this may mean you are liable for stamp duty in future when you purchase further shares of the property, or even buy it outright.

Are there any other fees when it comes to shared ownership?

Because shared ownership properties are leasehold, you may have to pay maintenance fees to the housing association alongside your rent.

There also could be additional conveyancing costs due to the extra work your solicitor will have to carry out. Your conveyancer will be able to advise you of the costs for the transaction.

What are the alternatives to a shared ownership mortgage?

At the moment, there aren’t really any key schemes apart from shared ownership. There used to be the Help to Buy scheme, but that’s no longer available. Shared ownership is the scheme of this kind available, as of right now in May 2024.

What are the advantages and disadvantages of shared ownership?

The big advantage is that you could buy a property that you’d otherwise be unable to afford. You’ll also need less money as a deposit than if you’re buying on the open market.

You can also buy extra shares in the property to increase your ownership over time, and you benefit from any capital growth in your share.

The disadvantages are that there are some additional charges with shared ownership. As properties are leasehold, shared ownership properties can come with high service charges.

You may be restricted on the alterations or home improvements you can make, and you would have to seek approval from the housing association or the owner of the other share. There is a slightly restricted lender choice, as not all of them offer shared ownership mortgages.

How do I go about applying for the shared ownership scheme?

Typically you need to apply through the housing association. Ask your broker to work through your affordability and get you a Decision in Principle. You would then apply via the housing association, the property owner or the building company.

They will review your shared ownership application and confirm whether it is granted. You can then start your full mortgage application – that’s when you come to see your broker again and they will do all the paperwork on your behalf.

What else do we need to know about the shared ownership scheme?

Just to point out the risk warnings, really. Remember that failure to pay your rent, your service charge or mortgage could mean your home is at risk of repossession.