Shared Ownership Mortgage Guide
Shared ownership schemes combine renting and buying, and they’re designed primarily for first time buyers to help them get on the property ladder. With a shared ownership property, you’ll own a share of the property and then rent the remainder that you don’t own at a reduced rate.
But what does shared ownership involve? And what deposit would you need to buy a shared ownership property? In our shared ownership mortgage guide, we’ll explain who can benefit from this housing scheme, the eligibility criteria and more.
Covid-19 has impacted the housing market in numerous ways and one such change is to the shared ownership scheme. In this first section of our shared ownership guide, we explain how buyers will benefit.
Shared ownership may seem like a complicated process, but it’s simpler than you might think. In this section of our shared ownership mortgage guide, we explain what the scheme is and the advantages that it offers.
One of the major benefits of the shared ownership scheme is that you don’t need as high of a deposit as you do when buying a standard property. But how much do you need? We’ll explain what lenders are looking for.
There are a few options when searching for shared ownership homes, from looking online to working with a Help to Buy agent. We’ll highlight the best ways to find your dream home and help you get on the property ladder.
From finding the ideal property to applying for a mortgage, the shared ownership process involves several steps. In this section of our guide, we’ll explain what you can expect and how to best be prepared.
Knowing how much rent to include in your budget can be difficult to work out, but there are a few ways of estimating your rental costs each month. We’ll explain the two factors that influence how much rent you’ll pay so you can budget effectively.
There are a few eligibility criteria buyers need to meet in order to purchase a shared ownership home. In this section of the shared ownership guide, we’ll highlight what you’ll need to have in place to be accepted.
Staircasing is a term you’ll often find in association with shared ownership, but what does it mean for you as a buyer? We highlight what staircasing is and how it affects those purchasing a shared ownership property.
Selling a shared ownership home has its similarities with a standard property sale, with a few additional steps. We explain the process for selling your property and the differences between a shared ownership home and a regular property.
How do you repay a mortgage for a shared ownership property? In this section of our guide, we explain the process and what to expect.
What happens when you sell a shared ownership property? We take you through the steps you can expect when you decide to sell your home and how the process will unfold.
Shared ownership can provide many advantages for first time buyers, from easier access to property ownership to flexibility. In the final section of our shared ownership guide, we highlight some of the benefits new buyers can expect.
Buying a Shared Ownership property during Coronavirus
In September 2020, it was announced that the Affordable Homes Programme would come into effect, aiming to provide a £12 billion boost to the housing sector and to provide a further 180,000 new homes around the country.
The plans are still being put in place but it is expected that buyers will be able to buy lower shares than before, purchasing 10% of the property compared to the previous 25% minimum, which will also impact the amount of deposit required. The new scheme will also enable property owners to buy more shares in smaller increments of 1%, to make it easier financially.
1: What is Shared Ownership?
When it comes to the various schemes available to help people get a start in the property market, shared ownership is one of the most popular. But what is shared ownership? This housing scheme helps first time buyers or those who don’t own a home the chance to purchase a share in a new build or a resale property. The deposit requirements are much lower for a shared ownership property, as the mortgage is only for the percentage that you are buying, rather than the full value.
So, how does shared ownership work? The buyer pays a mortgage on the share they own, as well as paying rent to a housing association on the share that they don’t own. This share is usually between 25% and 75% of the property, with the option to purchase additional shares in the future, up to 100% of the property.
Once the individual has purchased 100% of the shares, they will just pay their mortgage on the property, along with ground rent and service charges, and no longer pay the housing association rent.
But what is a shared ownership mortgage and does it differ from a standard mortgage? The difference is that you can apply for a mortgage with a smaller deposit, and apply for a smaller amount overall than you would with a standard property.
The difference is that when you apply for a shared ownership mortgage, there are two costs which will need to be factored into your affordability – the rent that you’ll pay in addition to your mortgage, and the ground rent and service charges that you’ll be responsible for.
2: What deposit will you need?
With the mortgage requirements smaller for a shared ownership home than a regular property, you may be wondering ‘what deposit will I need for shared ownership?’. The good news is that a shared ownership deposit is typically between 5% and 10% of the value of the share you’re buying.
3: How to find Shared Ownership properties for sale
You can’t buy part of just any property – it needs to be a property which is managed by a housing association. So, how do you find shared ownership properties? There are several options when it comes to how to find share ownership properties:
- Work with a Help to Buy agent who can help you find properties in your local area
- Search online for shared ownership homes, such as on the Share to Buy website
- Speak to the housing team at your local council, or housing association, who can advise you of local areas where the scheme is running.
4: How to apply for Shared Ownership
There are a few different steps when you’re ready to apply for share ownership, so it’s worth doing your research in advance so you know what to expect. Bear in mind that you’ll need to have a budget in place before you start your search for a property to ensure that you can afford the associated costs.
When you’ve checked your budget and know you can afford the monthly repayments, you can then start looking into how to apply for shared ownership, which starts with viewing the properties you’re interested in. There are Share to Buy portals that will enable you to find available properties, which you can book viewings for with your local housing association.
When you’ve found the property for you, you will need to:
- Put down a reservation fee to secure your home
- Go through a full financial assessment with the housing association. They will ask to see 3 months of payslips, 3 months of bank statements, proof of ID, details about any credit commitments you have and details of benefits you receive
- Go through a credit check
Once these steps have been carried out, you’ll know what kind of share you can afford to purchase and what the rental payments will be. You can then arrange your mortgage, speaking to a mortgage broker who can help you determine which lenders offer mortgages for this scheme.
So, how much rent do you pay for shared ownership properties? The answer depends on two factors:
- The property price
- The size of the share you’re purchasing.
Usually, rent is around 3% of the value the housing association owns, so if you purchase 50% of a £300,000 property, your rental commitments will be £375 per month, or £4,500 per year.
To qualify for shared ownership, you need to:
- Have a household income of £80,000 or less (£90,000 if you’re in London)
- Be a first-time buyer or a previous homeowner who can’t afford to buy now, or renting from a council or housing association
- Not be in mortgage or rent arrears, and have good credit history
- Be able to afford the monthly repayments
Military personnel are typically given priority over other groups for shared ownership schemes. If you have a long-term disability, you can also qualify for shared ownership under the Home Ownership for People with Long-Term Disabilities scheme (HOLD).
7: What is staircasing?
When you dive into shared ownership, staircasing is a term you’re likely to come across. But what is staircasing in shared ownership? It refers to the buyer’s ability to increase the shares they own of the property. The cost of increasing your share will depend on the market value of your home at the time, and you’ll need to pay the housing association to value your property to assess this.
Every housing association has their own rules regarding staircasing, but it’s typical for the individual to need to buy at least a 10% share when staircasing, and increments of 5% after that. Some housing associations might not let you staircase more than three times, so check the rules with your housing association so you can plan accordingly.
8: Selling a Shared Ownership property
Selling shared ownership properties can worry some people and put them off using the scheme, but you can sell your shared ownership property at any time. You just need to be aware of the fees and costs that need to be factored into the process.
When it comes to selling a shared ownership property, the housing association has the right to find a buyer before you put it on the market. This process is known as the nomination period and times can vary between housing associations. If they fail to find a buyer, you can market it yourself but you’ll need to find a buyer who fulfils the eligibility criteria for shared ownership.
9: How to repay a Shared Ownership mortgage
Understanding how to pay off shared ownership mortgage loans is a key factor in your decision to buy a property under this scheme, so it’s important to have a plan in place for how you will do this. In most cases, the remainder of your mortgage will be paid through the profit you make from selling the property.
The amount of money you and the housing association will receive from the sale will depend on how much the property has increased in value since you bought it, and how much of the property you own a share in.
10: What happens when you move?
What happens when you want to sell a shared ownership property? While there are a few additional steps in the process, you can sell and move whenever you want. The process typically involves the following:
- Inform the housing association that you want to sell
- A valuation will be undertaken to assess the value of the property, which is paid for by the seller
- The housing association will issue a report confirming the sale price which the seller has to approve and instruct the housing association to begin marketing the property or approve the property going on the open market until a buyer is found
- When a buyer is found they will undergo affordability checks, reserve the property and the legal proceedings will begin for the buying process
- The conveyancer will issue the contract and the exchange date will be set within 28 days of the contract being issued
11: The benefits of Shared Ownership for First Time Buyers
There are many benefits of shared ownership for first time buyers, including:
- The opportunity to get on the property ladder with a smaller deposit
- Greater accessibility to mortgages for those on a lower wage
- Monthly repayments can be cheaper than with an outright mortgage or renting privately
- The option to buy more shares at a later date, all the way up to 100% of the property
- The option to sell your shares at any time
Find out more
If you’d like advice about shared ownership and the mortgage lenders available, our trained and experienced mortgage brokers can help. Get in touch with Town & Country Mortgage Services today for more information.