What are Shared Ownership mortgages and how do they work?

How does Shared Ownership work?

Under the Shared Ownership scheme, buyers can purchase a share of the property, typically between 25% and 75% of the purchase price, with some homes allowing you to purchase a share starting at 10% of the property value. You can then buy further shares in the property over time.

You can take out a mortgage or use your savings to buy your share and you pay rent to the housing association every month on the portion they own. You'll still need to put down a deposit but, as you're buying a share of the property, the deposit will be correspondingly smaller, typically between 5% and 10% of the share that you’re buying.

You'll find that not all lenders offer mortgages to people buying a Shared Ownership property and they might insist on a special Shared Ownership mortgage. Don't let this put you off because mortgage brokers like L&C can help with knowing which lenders to approach.

Should I buy my home under Shared Ownership?

Shared Ownership can be a useful scheme for people who wouldn't otherwise be able to buy a home without support.

While this might sound like an easier way to get on the housing property ladder, you need to think about it carefully. It's still a big financial commitment and, even though you don't own the home outright, you'll be responsible for all the bills.

Who is eligible for the Shared Ownership scheme?

You're entitled to apply for Shared Ownership if:

• Between you, your household earns less than £80,000 (£90,000 or less in London)
• You're a first time buyer
• You can’t afford all of the deposit and mortgage payments for a home that meets your needs
• You used to own a house but you can't afford to buy one now
• You’re looking to form a new household – e.g. after a relationship breakdown
• You’re an existing shared owner and looking to move

There's a separate scheme for people over 55, called the Older People's Shared Ownership (OPSO). With this, you can buy up to 75% of your home and once you do own 75% you don't have to pay rent on the other 25%.

People with long-term disabilities can apply for Shared Ownership properties, if you need a ground floor property, for example. With this scheme, you can buy up to 25% of your home. This is called Home Ownership for People with Long-Term Disabilities (HOLD).

What are the advantages and limitations of Shared ownerships?

Shared Ownership has both advantages and disadvantages, so it’s vital to get to grips with these and make sure you understand both fully before you commit to buying a property using this type of scheme.

Advantages of  a Shared Ownership

Shared Ownership has several benefits.

• You’ll typically need a smaller deposit to buy a Shared Ownership property, as you’re purchasing a percentage of your home rather than the whole thing

• You may find your payments are less than if you’d bought the property with a mortgage outside the Shared Ownership scheme, even when your mortgage and rent on the share of the portion you don’t own are combined

• For most shared ownership homes, you can eventually own the whole property if you're able to buy additional shares in it over time

• If the property increases in value over time, when you come to sell, you’ll benefit from the rise in the value of the share you purchased

• There’s no minimum length of time you have to live in a Shared Ownership property, so you can sell your home whenever you want to

Limitations of a Shared Ownership

There are various limitations of sharing ownership of a property.

• Shared Ownership properties are always leasehold rather than freehold, so you’ll be liable for a service charge and ground rent

• You’ll be responsible for all the associated maintenance costs for the property itself, including the share which is owned by the housing association

• If you want to purchase additional shares in your Shared Ownership property, you’ll need to pay valuation and legal fees for each new share purchased, which can be expensive

• You can’t just advertise your property on the open market when you want to sell it. You must give the housing association you share ownership with the opportunity to buy the property first. This is known as ‘first refusal’. The housing association also has the right to find a buyer for your home. However, if you own 100% of your home, you can sell it yourself.

How do you apply for a Shared Ownership scheme?

You buy Shared Ownership properties through the Help to Buy agent responsible for the scheme in the area where you want to live. You can contact the agent for help and advice about the scheme. Our mortgage advisers can help you find the right mortgage. They’re happy to answer your questions and there's no obligation or charge for our service. It's fee free.

Stamp Duty on Shared Ownership properties

First-time buyers of Shared Ownership properties costing less than £425,000 pay nothing in stamp duty, while those buying properties costing up to £625,000 don’t have to pay stamp duty on the first £425,000. On the portion of the purchase price between £425,001 and £625,000 stamp duty is payable at a rate of 5%. If you are a first time buyer buying a percentage of a Shared Ownership property costing more than £425,000, you can either pay stamp duty on just the share you are purchasing or, if you are likely to buy additional shares at a later date, you can opt to pay stamp duty on the full market value of the property. If you decide to pay stamp duty in full at the outset, there won’t be any further stamp duty to pay when you buy additional shares in the property. If you decide not to make a one-off payment for the full amount, you’ll initially pay what’s due on the first share above £425,000 you buy and you only make further stamp duty payments once you own more than an 80% share of the property. The amount of stamp duty you’ll pay is based on the total amounts you’ve paid so far. If you do opt to pay stamp duty in stages, sometimes you have to pay stamp duty on the net present value of the rents, too. If you qualify for first time buyers' relief, this will apply to stamp duty on rents as well as your initial payment.

How can I buy a bigger share in my Shared Ownership property?

Once you're living in your Shared Ownership property, you can opt to buy a bigger stake in it, all the way to owning 100% - if you afford it and if the housing association allows 100% ownership. This is called ‘staircasing’. The price you have to pay to buy the next slice will reflect what's happened to the value of your house since you first bought it. If the price has gone up, you'll pay more. If it's come down, you'll pay less. The housing association will get your property valued and tell you the cost of your new share. It's a good way to climb the property ladder but be aware that there are costs involved every time you buy another portion of your home. These are notably valuation fees and legal fees and you'll be responsible for paying all of them.

How do I sell my Shared Ownership property?

If you want to sell a Shared Ownership home, you have to allow the housing association first refusal. First, you’ll need to notify the housing association you own it with. You’ll then have to choose a surveyor to value your home – the housing association will usually provide you with a list to choose from. You’ll have to pay a fee for the valuation. The housing association will then market the property, aiming to sell it on to someone else who is eligible for Shared Ownership. The housing association will charge you a selling fee. They will have around eight weeks to sell your home, but if they don’t find a buyer within this period, you’ll usually be able to sell it on the open market via an estate agent. You’ll only be able to sell your property to someone else who qualifies for Shared Ownership.