What is a shared ownership mortgage?

Shared ownership is one of the government’s Help to Buy schemes. The way it works is that you own a percentage of your home and the rest is owned by a landlord, usually a housing association or local authority. This means you will need to have a mortgage on the share you own and pay rent to the housing association on the part that it owns.

At the moment you can initially buy between 25% and 75% of the property, but you have the option to buy more shares at a later date. As you buy more shares you may eventually, in most cases, be able to buy 100% of the property, meaning you become a full homeowner.

Many shared ownership properties are newly built flats and houses but older properties can be bought on the resale market. Housing developments often reserve a small percentage of homes specifically for shared ownership purposes.  

Why buy a shared ownership home?

What are the advantages of buying a shared ownership property rather than owning 100% of your home? If you cannot afford to buy on the open market, shared ownership is a more affordable way to take your first step onto the property ladder. 

It is less expensive than owning 100% of your home because the mortgage and deposit you put down on the house are smaller. You do, however, have to pay rent on the rest of the property, so the monthly repayment is often similar as if you were paying a full mortgage.

However, shared ownership is usually cheaper than renting, and at least you own part of your home.

Who is eligible for shared ownership?

The scheme is aimed at:

  • First time buyers 

  • Those who have owned a home in the past but are no longer homeowners

  • People who already live in a shared ownership property and are looking to move

If you are already a homeowner, whether you have a mortgage or not, you cannot buy a shared ownership property, nor can you purchase it as a buy to let.

You must be at least 18 years old and there are also income restrictions. To be eligible, your household must earn less than £80,000 (£90,000 if you are buying in London). So if a couple, for example, earn £50,000 each, they would not be eligible to apply for shared ownership. 

Older People’s Shared Ownership

In England there is also the Older People’s Shared Ownership (OPSO) scheme for people aged 55 and over.

It works the same way as standard shared ownership, except the maximum share you can buy is 75%. The difference here is if you do own 75% of the property you do not have to pay rent on the remaining share.

Disabled people

If you are disabled, you can apply for a scheme called home ownership for people with a long-term disability (HOLD). However, this scheme limits the share you can buy to 25% of your home.

The other option is to apply for the general shared ownership scheme if you want to own up to 75% of your home.

Shared ownership deposit

Shared ownership can be useful for people who cannot afford to buy a property but are able to make monthly payments. One advantage is that you will need a smaller deposit than if you were buying a home outright.

For example, if your desired home is worth £400,000 and you are buying a 25% share of the property, you will have to pay £100,000 to the housing association. You will need to take out a mortgage on this amount. 

Most lenders require a deposit of at least 10% so in this example your deposit would be £10,000. A few lenders may accept a 5% deposit although this is more difficult in the current coronavirus climate. 

This means you will have to pay a mortgage of £90,000 plus rent. Our mortgage calculator will give you an idea of what the monthly repayment might be.

If you compare this to buying the property outright, you would need to find £40,000 to put down a 10% deposit.

How do I buy more shares in a shared ownership property?

If you want to own a larger percentage of your property you can buy more shares which means you will pay less in rent. This is called staircasing. You can do this in stages, but the maximum number of times you can staircase is usually 3.

Generally, you must have lived in the property for a certain amount of time before you can staircase up – usually 1 or 2 years, but it will say in the lease. All shared ownership properties are leasehold.

The first thing you should do is inform the housing association that you want to increase your share of ownership.

At the moment the minimum share you can buy is 10%, but you are not limited to this and can purchase more shares in incremental steps of 5%.

However, the government is planning to change this from next year. It has proposed to reduce the minimum initial share you can buy in a property from 25% to 10%. It is also proposing that people will be able to buy additional shares in 1% instalments with reduced fees.

In addition, the government has said landlords will be responsible for repairs and maintenance for the first 10 years after someone has bought a shared ownership property. This will apply only to new build shared ownership homes built through the government’s Affordable Homes Programme, due to start in 2021.

Costs involved in staircasing

It must be financially viable for you to increase the share of the property you own. 

You can either pay for the additional shares via a lump sum, for example, if you have inherited some money. You could also increase your mortgage if you are financially able to do so - for example if you were to receive a pay rise. Or you may combine a mixture of the two.

If you are rearranging the mortgage there will be fees to pay.

You must also pay a surveyor to provide a valuation of the property. This is because the new share you buy is based on the current value, not the original price when you bought it. The valuation usually lasts for 3 months so if you don’t put the property up for sale within that time, you will need to pay for another valuation.

A solicitor or conveyancer will also have to be appointed to do the legal work and stamp duty may have to be paid.

Benefits of staircasing

The upside of staircasing is that as you own more of your property, and the housing association owns less, your rent will go down.

When it comes to selling your shared ownership home, if the value has risen, you make more profit if you own a larger percentage.

If you can staircase up to 100% full ownership, you will still be liable to pay the service charge and ground rent. However, if you live in a house there is a chance you could buy the freehold and free yourself of paying the annual charges. You would need to discuss this with the housing association to see if it is possible. This does not apply to flats as they are all leasehold.

Stamp duty on shared ownership properties

Stamp duty is the tax paid when buying a property. The current situation is that there is no stamp duty to pay on properties valued at under £500,000 until 30 June 2021. After 1st October 2021, stamp duty must be paid on any property over £125,000 if you are a previous homeowner. If you are a first time buyer, you don’t have to pay stamp duty under the property price exceeds £300,000.

With shared ownership schemes, there are 2 ways to pay. 

  • You can make a one-off payment based on the total value of the property. 

  • Or you can pay in stages as you staircase up. You pay whatever is due on the first stage but don’t have to make any more payments until you own more than 80% of the property. 

Your solicitor or conveyancer should be able to advise on which option is best for you.

Disadvantages to shared ownership 

  • Although you only own a share of the property, you are responsible for repairs and maintenance and the costs involved. 

  • If you want to make any home improvements, there might be restrictions on what you can do. You might also have to pay a fee to the landlord to make any physical changes. This could include putting in a new kitchen or bathroom, loft conversion, adding a conservatory or extension. The lease should make it clear what you can and cannot do and what fees you will be charged.

  • Also bear in mind that home improvements may increase the value of the property. If you decide to staircase, i.e. buy more shares in your home, it will cost you more. But on the positive side, it will be beneficial if you sell.

  • Not all mortgage lenders will lend on shared ownership properties so it is best to speak to a mortgage adviser as they will know which lenders will lend to you.

  • You are not allowed to rent out or sub-let a shared ownership property. However, there is an exception for members of the British Armed Forces if they are serving overseas or at a UK base further than 50 miles or 90 minutes’ travelling time.

How to apply for shared ownership 

If you are interested in buying a shared ownership home, you can register directly with housing associations. 

You can also register with government agents.

Once registered, you will be assessed to see if you are eligible for the scheme.

By registering with housing associations and the government agents above, you will have access to available properties. 

How does shared ownership work when you sell?

When it comes to the time to sell your shared ownership property, you must inform the housing association as it has the right to sell it. 

If you own 100% of the property you may be able to sell it yourself. However, if you have fully owned it for less than 21 years, you must still inform the housing association. This is because it has ‘first refusal’ on whether it wants to buy the property from you. 

Other shared ownership costs

Apart from the monthly mortgage, rental payments, and the mortgage deposit, there are other costs to take into account.

  • Shared ownership properties are leasehold so you will have to pay an annual service charge and/or ground rent and/or management fee

  • Legal/conveyancing costs

  • Mortgage arrangement fee 

  • Valuation fee

  • Removal costs

  • Stamp duty

  • Home insurance