Shared Ownership

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Shared Ownership (Part 1)

Charles Breen explains how shared ownership mortgages work and what to consider.

What is shared ownership? How does a shared ownership mortgage work?

Shared ownership is where you buy a percentage of a property. Normally, when you buy a house or a flat you’d buy the entire thing, but with shared ownership, you’re buying a share of it.

You usually share the ownership with a housing association. You might buy 40% and rent the other 60% from the housing association. It can be brilliant if you’re struggling for affordability – it means you can get on the property ladder sooner rather than later.

Who is eligible for shared ownership? Who can get a shared ownership mortgage?

Pretty much anyone can get a shared ownership mortgage, as long as you don’t own any other property at the time. There is also an income limit and maximum income thresholds.

You can’t own another property, so you can’t have a Buy to Let in the background and you can’t purchase this home as Buy to Let. Otherwise, it’s open to self-employed applicants, First Time Buyers, home movers, people who are separating, the employed and all sorts of different applicants.

Which lenders offer shared ownership mortgages?

Quite a few high street lenders will – usually it’s the building societies. It’s not just bespoke, quirky little lenders. The high street lenders have specialised products for this purpose.

What are the advantages and disadvantages of shared ownership?

The advantages are that you can get a property that you wouldn’t otherwise have been able to afford. Perhaps you need a three bedroom property for whatever reason but on your income you could only afford a one-bed. With shared ownership, you can get yourself a larger property.

The downside is that you don’t own all of your property. You own a percentage of it and then you’re renting the rest, until you buy them out or you move on to a different property. You can ‘staircase’ it upwards – that means you can buy a larger share over time. Let’s say you start with a 25% share and then you increase it to 50% and then 75%.

You have to pay rent, though, which puts some people off because they don’t like the idea of having to pay rent plus a mortgage. But overall it’s a brilliant platform to get on the property ladder when affordability is tight.

A final advantage is that one lender will allow you to buy a shared ownership property with 0% deposit – you can borrow 100% of your share [podcast recorded in April 2024].

It’s good to get on the property ladder this way. If you decide to wait, house prices are increasing and you’re getting further away. You may as well get on the ladder and build yourself up by buying greater shares of the property.

Or, you can be aggressive with your mortgage and pay it off as quickly as possible. Then you’ll have a good deposit for the next purchase when you are in a more advantageous position.

Which properties are available for shared ownership?

They’re specially marketed as shared ownership properties. They may already be owned or have been developed by a housing association and sold as shared ownership properties.

It’s not the case that you would look at a Victorian terraced house and decide that you only want to buy 25% of it. These properties are set up specifically for shared ownership.

So it narrows down the market a bit, but you’re still able to get your house or flat of any size and description.

How much deposit do I need for a shared ownership mortgage?

As mentioned, one lender will do zero deposit, but the standard is 5% to 10%. But if you’re only buying 25% of a property, that deposit will only be a few thousand pounds. So it is the easiest route in – you don’t have to save for years.

If you’re buying a £250,000 house in the traditional way, a 10% deposit means saving up £25,000. That’s a lot of money. But for a 25% share of that home, a 10% deposit is just £6,250 – it’s much easier.

Will my shared ownership property be freehold or leasehold?

With freehold, you own the land a property is built on. It’s all yours. With a leasehold, you own the rights for the property to be on that land for a set number of years. The standard is 125 years. Every year you have to pay a small fee to the leaseholder for the privilege of having your property on their land.

All shared ownership properties are leasehold because the housing association has a vested interest in that land. They still own their share of the property. It wouldn’t work for you to own the leasehold – they have to own the lease.

Any fees on the leasehold are added up and tacked on to the rent you pay every month.

Can I buy a bigger share of my home in future?

Yes – that’s called staircasing. You’d buy larger and larger shares until you either own all of it or decide to sell and then move to a standard residential property or larger shared ownership home.

Most people staircase up when they remortgage. You can end up buying 100% of the home over time. Perhaps your circumstances will change after a couple of years in the property and you decide you love it and you’re able to buy it outright. You can increase your mortgage rate or buy in cash at that point.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

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We want to keep that relationship with you up until your mortgage completes in 20, 25 or maybe 35 years. It’s not just a one-off transaction. It’s a long-term relationship, where we watch the market to get you the most positive products out there and try to save you money.

Shared Ownership (Part 2)

Charles Breen explains a little bit more about shared ownership and getting a mortgage on this type of property.

What happens if the value of my house changes with a shared ownership mortgage?

If the value of your property increases, the value of your percentage increases – so you will take advantage of that. But it also means that if you were to buy out the remaining shares, that becomes more expensive.

They say a rising tide raises all boats – your share increases in value, but so does the housing association’s share.

What if someone has bad credit and they want a shared ownership mortgage?

It’s the exact same as any standard mortgage. There are lenders for every situation. If you’ve got bad credit, all it means is you will end up using a more bespoke lender. It’s a bit more difficult, but it’s a strong possibility.

If you have satisfied BBJs from a year or two ago and your credit score is really low, it’s still possible to get a shared ownership mortgage. It can be done, you’ll just pay a bit more on your interest rate. But if it gets you the property you want, it’s all worth it.

How do I sell my shared ownership home?

Normally you have to approach the housing association that owns the other share. They get first refusal. They’ll get a surveyor out to get it valued at the correct price and then try to market the property themselves.

They start with their internal database of people, and if they struggle with that they will release it out to estate agents. From there it’s the exact same as a standard sale. Someone puts in an offer in, it gets accepted then the legals start.

Can someone make home improvements on their shared ownership home?

You can do decorative improvements. You can change a kitchen, you can decorate a bathroom or living room etc. You wouldn’t be able to put a full-blown extension on or do structural work to the property, but you can do small cosmetic improvements.

How does the remortgaging process work with shared ownership?

It’s the same as a standard remortgage. You’d go to a broker for advice on products and we’d work out the affordability. We would recommend a lender, and a product to meet your plans.

The only thing is you’re limited from perhaps a hundred different lenders to 15 or 20 that offer shared ownership mortgages.

How does stamp duty work for shared ownership properties?

It’s just like normal stamp duty. You only pay it if you go over the threshold, and your liability for stamp duty is only based on your percentage share.

So if you’re buying 40% of a house worth £200,000, your share is only £80,000. You would be below the stamp duty threshold so you wouldn’t have to pay it.

Because you can’t buy a shared ownership home when you own any other properties, the additional stamp duty isn’t applicable either..

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

Not really. The legals for purchasing via shared ownership are slightly more because it’s a leasehold. Solicitors charge around £150 more for a leasehold purchase. Otherwise it’s the same as a standard mortgage.

What are the alternatives to shared ownership mortgages?

You could buy a standard property, if you meet affordability, but that’s often more difficult. You could look at a Joint Borrower Sole Proprietor (JBSP) mortgage, where a family member would be able to join you on the mortgage but won’t be the deeds of the property. That can help boost affordability.

A JBSP mortgage is also called a guarantor mortgages sometimes. That’s the most realistic alternative for someone who’s looking at shared ownership.

How do I apply for shared ownership? What are the steps involved?

First it all comes down to affordability. So the first step is to contact your mortgage advisor and we will run you through affordability and get you a Decision in Principle. You’re then all ready to begin house hunting. You would then look on various platforms like Rightmove and register with various housing associations to find your property. You view it, put in an offer in and then we take care of the rest.

How does someone apply for a shared ownership scheme?

The scheme is set up by the housing association, so what you do have to do is register with housing associations. They’ll put you on their mailing list and notify you about the different properties. Get in early to be notified, because they market properties to their mailing lists before they’ll put them on Rightmove etc.

There’s no real scheme as such, shared ownership is a method of buying a house at a discount, because you’re only buying a percentage of the property rather than full market value.

What else do we need to know about shared ownership mortgages?

Do your homework first. Work out your affordability by speaking to a mortgage advisor. It is not a case of going online and using a bank’s mortgage calculator. What also affects your borrowing capacity is the rent you’re going to pay – which most people don’t take into consideration.

You need to get registered with the housing associations and see it as a wonderful platform to get started on the housing ladder. Take advantage of it while it’s around because it’s a brilliant scheme.