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What is a Shared Ownership Mortgage?

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The Shared Ownership Scheme is a mortgage scheme created by the government in the United Kingdom, with the intention of helping people onto the property ladder. It is available to permanent UK residents who are either first time buyers or former homeowners, struggling to buy a new home.

In addition to this, your household income has to be less than £80,000 (less than £90,000 if you’re in London) and the home you are buying will almost always be a leasehold property. Leasehold means you will be purchasing the home for a set amount of time.

The Shared Ownership Scheme lets you purchase your home as part mortgage (typically you purchase between 25-75% of the property) and part rent. The rent (which may include service charges and ground rent) will generally be at a lower rent cost than market value, paid to a housing association.

Updates to The Shared Ownership Mortgage Scheme

For anyone who was familiar with the Shared Ownership Scheme and how it worked in the past, there were some important updates to it from April 2021 onwards. These changes were brought in as a part of the government’s Affordable Homes Programme’.

One of the first changes is that whereas the minimum for a property share purchase was previously 25%, in some cases, it can now be 10%. In addition to this, when you buy additional shares, rather than the previous 5-10% minimum shares, you can now purchase in 1% instalments.

Lastly, the fees for buying these additional shares have now been reduced and instead of being responsible for maintenance and repair costs, your landlord will now pay these for the first 10 years of ownership.

If you took out a Shared Ownership Mortgage prior to this time period, these rules may apply to you going forward, though it’s always important to ask your provider to double check, as this may be on a case by case basis.

How do I apply for a Shared Ownership mortgage?

Before you take on the mortgage side of the process, you will first need to make sure that you are even eligible for the Shared Ownership Scheme. To do this, you’ll first need to get in touch with an agent in the area you are looking to purchase in.

When you speak to this person, you will typically need to give them certain information, such as what your income is, how much budget you have, where you would prefer to live and your credit history. Once you have confirmed your eligibility, it is on to applying for your mortgage.

A mortgage broker will be your best port of call when it comes to this, as not every mortgage lender out there will offer a mortgage to someone using the Shared Ownership Scheme. The amount you can borrow will usually depend on factors such as income and other fees included, such as rent.


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Pros & Cons of Shared Ownership Mortgages

Of course with any type of mortgage, there are pros and cons to having a Shared Ownership Mortgage. To look at this fairly, it’s worth noting as said above, that not all mortgage lenders will offer mortgages to applicants applying whilst using the Shared Ownership Scheme.

That said, there are still plenty of mortgage lenders out there, including ones we have on panel, that offer these types of mortgages. Furthermore, Shared Ownership Mortgages can offer a sense of stability in the long term, with you becoming an owner and occupier at the same time.

Deposits can often be a concern for some home buyers, as saving for one can be difficult. Thankfully, deposits for Shared Ownership Mortgages are usually lower than open market purchases. Shared Ownership Mortgages also make mortgages more accessible to people on lower wages.

Whilst these positives are great, you would be paying 100% of the ground rent and service charges on your property, no matter how low of a share you have purchased. You can typically take part in something called “staircasing”, allowing you to buy more shares as time goes on, up until you hit 100%.

When you do this, you will no longer have to pay rent, though your mortgage, ground rent and service charges still apply. Once your owned share exceeds 80%, you will have to pay Stamp Duty on the entire value of the property, though sometimes this land tax won’t apply to a first time purchase.

Even though Stamp Duty can be quite a costly addition to your other fees, your monthly mortgage payments can still be much cheaper than an outright mortgage. It can even be cheaper than privately renting a home.

Speaking of privately renting, you will have tenure security, unlike you would going private. So long as you are able to keep up your monthly mortgage payments, you will be able to remain within your home for the duration of your lease, which is typically between 99 and 125 years.

Because your home will be part owned by someone else, you will need to obtain permission from the appropriate housing provider prior to making any structural changes to your home. This can take away a sense of freedom you would otherwise have, by owning it outright.

Can I sell my home if I have a Shared Ownership Mortgage?

After a while of owning your home, you may decide it’s not for you and look to sell up, before moving elsewhere. Whilst with most other mortgage types this would be simple enough, providing your fixed period has ended, with a Shared Ownership Mortgage, it’s a little different.

Whether or not you can sell your home with a Shared Ownership Mortgage in tow, depends on how much of the property you actually own in shares. You’ll typically need to own 100% of the property, before you can look at selling it.

It is important to note, however, that the housing association will usually have ‘first refusal’ rights, for the first 21 years after you have bought the home. This means they are, by law, able to make an offer to buy the property themselves, before you put it on the open market.

If you do not own 100% of the property, you will have to look at purchasing the remaining shares of the property in order to then look at selling it.

Is a Shared Ownership Mortgage right for me?

A Shared Ownership Mortgage can be great for first time buyers who have dreamed of getting onto the property ladder, but only have a smaller deposit. Using this mortgage scheme can help you to achieve your goals.

That said, having a Shared Ownership Mortgage can be a complicated journey and there can be a lot to take on, especially when you factor in all the fees. You need to make sure you are fully prepared and aware of the contract details.

At the end of the day, it’s all about personal preference. By booking in for a free mortgage appointment with a mortgage broker, you’ll get to speak with a trusted mortgage advisor and prepare in plenty of time, if this is something that you are looking to do.

You can learn more about the Shared Ownership Mortgage Scheme by visiting the government OwnYourHome website, or by watching our handy video/reading our video transcript, recorded to help with Shared Ownership for First Time Buyers.

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About the Author

Malcolm Davidson

Managing Director of UK Moneyman LTD

Malcolm is one of the UK’s most well-known and respected Mortgage Advisors. He is passionate about providing a 5* customer experience and he has also trained and mentored dozens of fellow Advisors in a career that is now in its third decade.

In addition to his day to day duties as Managing Director, Malcolm still gives out mortgage advice and feels lucky that his job is also very much his hobby.

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