Shared Ownership
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Shared Ownership
Kathryn Haycock joins us to talk about shared ownership, and how it can be a good route to buying a first home or a higher value property.
How does a shared ownership mortgage work?
Shared ownership is where you purchase a percentage of a property. Say, for example, a property is worth £100,000 and you may be buying on your own, or have a lower income. You might find it a challenge to borrow that amount.
Shared ownership gives you the option to buy a share of that property – perhaps 25%, and then you would rent the other 75% from a housing association. Generally the minimum initial share is 25%.
Who is eligible for a shared ownership mortgage?
Anybody is eligible for a shared ownership mortgage as long as they don’t own any other properties. You don’t have to be a First Time Buyer – you can be a next time buyer, but you can’t keep your existing property.
Which lenders offer shared ownership mortgages? Are there many?
More than 10 lenders will offer shared ownership, including some high street banks. Others are lenders you may not have heard of – they only deal with brokers like ourselves. These tend to be more specialist lenders. There’s a good selection to choose from. [podcast recorded in February 2024]
Which properties are available for shared ownership?
New build developments will have an element of shared ownership, as there are rules around this now. There is a government requirement that all larger new build developments have to have a minimum of 10% available on either shared ownership or other social housing schemes.
The easiest way to find out is by looking up your local council, or you can search for shared ownership properties on Rightmove.
How much deposit do I need for a shared ownership mortgage?
The minimum is 5%, just like standard mortgages. That would be 5% of the share that you wish to buy. So if you are buying 25% of the property, you would need 5% of that 25%. You would get a mortgage for the remaining 20%.
Will my shared ownership property be freehold or leasehold?
They are all leasehold properties, owned by a housing association. The housing association owns the property and you buy a percentage from them. You will pay rent to them for the share that you don’t own.
Can I buy a bigger share of my home at a later date?
Absolutely – this is called staircasing. Some housing associations don’t actually let you buy 100% of the property.
I had a client not long ago who lived in a shared ownership property. She was looking to purchase the whole property, but when she looked through the documents there was a clause in the contract stating that she was only allowed to staircase up to 80%. In these cases the housing association will always own a percentage of that property.
If your plan is to buy 100% of the property in future, make sure you check the criteria with the individual housing association.
Can I ever fully own a shared ownership home?
There are options for you to purchase 100% of the property if the housing association allows that. You could staircase in stages, for example, you could first go from 25% to 50%. Some people may purchase 40% or 50% initially and then remortgage later down the line up to 100%.
Once you’ve bought the property and put your deposit down, you don’t then need a further deposit. You could mortgage up to the full amount, providing there was enough equity in the property and you meet affordability requirements. You wouldn’t need more deposit.
What happens if the value of my house changes?
If you were to sell the property after the house had gone up in value, you would benefit from the increase based on your share.
If you were to staircase up, it’s worth bearing in mind that the property would be valued at that time. That share would be based on the new value, so you could potentially end up paying more on the second share than you did on the first.
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Can I still get a shared ownership property if I have bad credit?
Yes, there are some specialist lenders that will lend on shared ownership properties with some adverse credit. It would definitely be worth exploring.
We would look at your credit file to see whether that meets the lender’s criteria. If so, you’d be good to go and buy a shared ownership property.
How do I sell my shared ownership home?
It is similar to selling any property, but there is a little bit more work involved with the housing association involved as a third party. The housing association would get a valuation, usually a RICS survey, on the property to determine the valuation. You would get your percentage back on the sale and the housing association would get theirs.
Can I make home improvements to my shared ownership property?
Yes, because you do own the property. But with a housing association involved as well there will usually be some restrictions on what you can and can’t do. I’d always recommend checking with the housing association before you do anything major.
How does the remortgaging process work with shared ownership?
It’s definitely a more lengthy process I would say, with the housing association being involved. It also depends on the situation – whether you are just remortgaging the share that you already own or whether you’re looking to staircase.
Using a broker like ourselves is definitely the easier option – we can make the process as stress free as possible.
How does stamp duty work for shared ownership properties?
At the moment the limit for stamp duty for First Time Buyers is up to £425,000 [podcast recorded in February 2024], so I doubt anybody would be buying a property where their share is more than that.
For everybody else the limit is £250,000. Your share is probably not going to exceed that, so there would be no stamp duty to pay. You only pay the stamp duty on the part that you’re buying.
Are there any other fees involved with shared ownership?
The standard purchase fees apply – the solicitors fees and broker fees. The percentage of the property that you don’t own belongs to the housing association, so you would pay rent and a service charge to them.
That is something to factor in, because those costs must be included within the affordability assessment. Before you sign up and commit to purchasing the property, it’s important to make sure it is still affordable with that rent included.
What are the alternatives to shared ownership?
Shared ownership is the only way to buy a percentage of the property, but there are other schemes available for First Time Buyers which may be more beneficial to you.
It comes down to your preference – what works for you and your affordability. For First Time Buyers there is the First Home scheme which is available with a 5% deposit plus a discount for local people.
I’m actually doing one at the moment where the customer’s got a 25% discount on the value of the property because they are local, which is great. The only difficulty is that not every lender will accept that type of mortgage, because there is a restriction on the title.
She can only sell it to someone who is local to the area, which could restrict resale from a lender’s point of view. But there are a few different schemes available. It’s worth looking into them.
What are the advantages and disadvantages of shared ownership?
Shared ownership properties are great for First Time Buyers on low incomes, or single people or single parents. It gives them an option to purchase potentially a nicer or bigger property that they would not be able to afford on their income.
It’s also great if you’re on a low starting salary, as a newly qualified teacher or nurse, for example. You know your income is going to increase over time which means you can staircase up to buy more or all of the property as the wage increases.
The disadvantage is probably paying rent to the housing association. Also, when you staircase up, if the property has gone up in value you could end up paying more than if you’d purchased the whole 100% of the property at the start.
How do I apply for shared ownership?
You have to apply to the housing association directly and they will assess your application. I’d also recommend speaking to a broker like ourselves regarding affordability, to make sure it all fits with the rent and how much of the property you are able to purchase based on your income.
If everything fits, and you’ve been accepted by the housing association, we would proceed to submit a mortgage application. From there it would be the same mortgage process as any other purchase.
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