One of the biggest challenges preventing many first-time buyers from getting a foot onto the property ladder is the ability to save a sufficient deposit.
According to Halifax, the average first-time deposit in the UK is £58,986 - an increase of just under £12,000 since this time last year. And as house prices continue to rise, this figure doesn’t look to slow any time soon.
Fortunately, government schemes like shared ownership exist to make the prospect of homeownership more achievable. This guide covers everything you need to know about how shared ownership works, who is eligible, and how to apply.
It allows borrowers to secure a mortgage to buy a stake of a property, and pay reduced rent on the remaining share.
The share you can buy is usually between 25% and 75%, but it is possible to get 10% on some homes. You will then pay rent of up to 3% on the remaining share.
Like with normal mortgages, you will need to save a minimum of 5% deposit of your own money, but the difference is that you only need to save 5% of the share you’re buying rather than the total property price.
It is possible to buy more of your shared ownership home - up to 100% ownership in most cases - by increasing your share over time; this is known as ‘staircasing’. Additional shares can be bought in 5 or 10% increments, which will in turn reduce the amount of rent you have to pay.
What does this equate to in real figures? Consider this example:
You buy a 40% share of a property valued at £150,000, worth £60,000. The housing association owns a £90,000 share and charges rent at 2.75%, which amounts to £2,475 over the year, or £206.25 a month.
You’ve paid a 5% deposit (£3,000) to buy your share, which means you need to take out a mortgage for the remaining £57,000.
The total cost for your shared ownership property per month = £206.25 rent + the mortgage repayment + any additional service charges.
The rules vary by housing association, but generally you’ll need to buy a minimum share of 5 - 10% each time you staircase. If you buy a shared ownership property after 2021, you may be eligible to buy 1% shares annually for the first 15 years if you want to.
Some housing associations also limit how many times you can staircase, typically a maximum of three, and some will only let you staircase a third and final time if you intend to buy the entire remaining share of the property.
As a starting point, all of the following must apply:
The application process is similar to that of a normal mortgage; you’ll have to answer a number of questions so the lender can get a good understanding of your affordability and personal circumstances, so they can assess your application against their eligibility criteria.
With shared ownership affordability assessments it’s important to bear in mind that the lender isn’t just testing your ability to keep up with your mortgage repayments - they will also factor in the rent you’ll have to pay on the share you don’t own, plus any additional fees (e.g. service charges) you’ll be accountable for.
For example, if you’re buying a 50% share of a property priced at £300,000, the value of your share will be £150,000. If you’re offered a 95 loan-to-value (LTV) mortgage, you would need to pay a deposit of £7,500 (5%).
If you decide to make a one-off payment, first-time buyers (FTBs) will get tax relief on the first £300,000, and pay 5% stamp duty on the remaining amount. If you aren’t a FTB, you will pay the standard SDLT rate, relative to the market value of the property at the time of purchase.
If you choose to pay stamp duty in stages, there is nothing to pay until you own 80% of the property. Once you reach this point you will pay stamp duty on the transaction that took you over the threshold as well as any further transactions.
As a guideline, housing associations recommend that you set aside between £3,000 - £5,000 to cover all the usual fees and costs associated with moving.
Our team of advisors will take the time to get to know you and understand your circumstances before recommending whether shared ownership is the most viable option for you, as well as how much you may be eligible to borrow.
Our brokers’ industry expertise and lender relationships means they can easily point you in the direction of those specialising in shared ownership mortgages, meaning you’ll only receive recommendations for suitable products at the most competitive rates for your circumstances.
The journey to homeownership can be overwhelming, especially for first-time buyers. Our brokers are at hand to offer advice, and prevent you from falling at common shared ownership hurdles - such as entering into any agreements with onerous lease clauses.
To get the process started, give us a call on 02380 980304, or submit an online inquiry for a call-back. You’re under no obligation, and we don’t charge a fee.
If you choose to staircase your home to 100%, ownership of the property will legally transfer to you and will no longer be classified as a shared ownership property.
They are usually part of an estate, often a block of flats or apartments. They will typically be new-builds, or resales of older shared ownership properties.
If you buy one of these properties, you may only be able to buy a maximum share of 80%, and you must sell it back to the landlord or a nominated buyer, rather than on the open market.
If you own 100% of your home, you can sell it yourself on the open market.
The majority of shared ownership leases restrict subletting your home, although lodgers may be permitted if you get permission from your housing association.
Even though you may only own a share of the property, you will be responsible for any internal repairs and home improvements. Repairs and maintenance to a communal building may be covered by the leaseholder, but the costs could be passed onto you via service charges.
According to Halifax, the average first-time deposit in the UK is £58,986 - an increase of just under £12,000 since this time last year. And as house prices continue to rise, this figure doesn’t look to slow any time soon.
Fortunately, government schemes like shared ownership exist to make the prospect of homeownership more achievable. This guide covers everything you need to know about how shared ownership works, who is eligible, and how to apply.
What is the shared ownership scheme?
Shared ownership, also known as 'part buy, part rent', is a scheme designed to help those with low incomes and smaller deposits onto the property ladder.It allows borrowers to secure a mortgage to buy a stake of a property, and pay reduced rent on the remaining share.
How does shared ownership work?
Shared ownership properties are always leasehold. Eligible applicants can buy a stake of a shared ownership property from a housing association or private developer.The share you can buy is usually between 25% and 75%, but it is possible to get 10% on some homes. You will then pay rent of up to 3% on the remaining share.
Like with normal mortgages, you will need to save a minimum of 5% deposit of your own money, but the difference is that you only need to save 5% of the share you’re buying rather than the total property price.
It is possible to buy more of your shared ownership home - up to 100% ownership in most cases - by increasing your share over time; this is known as ‘staircasing’. Additional shares can be bought in 5 or 10% increments, which will in turn reduce the amount of rent you have to pay.
How is rent calculated with the shared ownership scheme?
Rent on a shared ownership property is usually set at around 3% of the unsold equity, although the exact figure will be sent to you with the viewing details.What does this equate to in real figures? Consider this example:
You buy a 40% share of a property valued at £150,000, worth £60,000. The housing association owns a £90,000 share and charges rent at 2.75%, which amounts to £2,475 over the year, or £206.25 a month.
You’ve paid a 5% deposit (£3,000) to buy your share, which means you need to take out a mortgage for the remaining £57,000.
The total cost for your shared ownership property per month = £206.25 rent + the mortgage repayment + any additional service charges.
How does ‘staircasing’ work?
To ‘staircase’, or buy an increased share of your home, you'll need to pay for a valuation to be carried out on the property, as well as have the funds in place to pay for the additional share itself.The rules vary by housing association, but generally you’ll need to buy a minimum share of 5 - 10% each time you staircase. If you buy a shared ownership property after 2021, you may be eligible to buy 1% shares annually for the first 15 years if you want to.
Some housing associations also limit how many times you can staircase, typically a maximum of three, and some will only let you staircase a third and final time if you intend to buy the entire remaining share of the property.
Who is eligible for shared ownership?
Although you’ll need to check the specific criteria of the housing association selling the property, there are some general eligibility requirements for anyone wishing to buy a shared ownership home.As a starting point, all of the following must apply:
You must be 18 years old or over.
Your annual household income must be less than £80,000 (£90,000 in London).
You cannot afford all of the deposit and mortgage payments for a home that meets your needs.
At least one of the below must also apply:
You’re a first-time buyer.
You’ve previously owned a home but can’t afford to buy one now.
You’re forming a new household due to personal circumstances.
You’re an existing shared owner and want to move home.
If you’re looking to move from an existing shared ownership property, you must have completed the sale before the date you complete on your new purchase.
You will also have to meet the deposit requirements and lender eligibility criteria if you’re planning to finance the purchase of your share with a mortgage.
How to apply for shared ownership
To buy a shared ownership home, you need to register with your local Help to Buy agent via the government website.
On your application form you’ll be asked questions about where you want to live, as well as details surrounding your personal circumstances, such as your income, how much you have in savings, and your credit history.
Provided your application is accepted, the agent will be able to point you in the direction of properties that match your requirements. Once you’ve found a suitable home, you’ll have to pay a reservation fee.
Next you’ll be required to undergo a full financial assessment with the relevant housing association. They will typically request to see:
3 - 6 months’ of bank statements.
Recent payslips.
Proof of identification.
Proof of savings (if applicable).
Information about any benefits you receive.
Details surrounding any existing debts or credit arrangements - you may be subject to a credit check at this time.
How to find a shared ownership mortgage provider
Although you will have undergone a financial assessment with the housing association, you’ll be subject to similar checks when you find a mortgage provider.The application process is similar to that of a normal mortgage; you’ll have to answer a number of questions so the lender can get a good understanding of your affordability and personal circumstances, so they can assess your application against their eligibility criteria.
With shared ownership affordability assessments it’s important to bear in mind that the lender isn’t just testing your ability to keep up with your mortgage repayments - they will also factor in the rent you’ll have to pay on the share you don’t own, plus any additional fees (e.g. service charges) you’ll be accountable for.
Is shared ownership right from me?
While shared ownership can be a great option, it’s not for everyone. Consider the pros and cons before committing, or better yet, speak to an advisor to see if it’s the most suitable option for you.Advantages of shared ownership
- It can be a good way forward for those otherwise unable to buy a home (e.g. low income households).
- Lower deposit requirements means it can open up options for those struggling to save or who want to get onto the property ladder quicker.
- You can buy additional shares to increase the amount of the property you own as time goes on.
- It may be cheaper than renting a similar sized property of the same spec.
- You can sell a shared ownership property at any time, and will benefit from any increase in value since you purchased it.
Disadvantages of shared ownership
You are restricted to purpose-built shared ownership properties, and there may not be a scheme in your preferred location.
Shared ownership properties are always leasehold, meaning you’ll have to pay service charges alongside your mortgage and rent repayments.
It can be expensive to staircase, as the cost of buying extra shares will change with the property’s value. The housing association will also charge a valuation fee each time you staircase.
If you decide to sell the property, the housing association usually has the right to choose a buyer or buy the property back from you.
What costs are associated with buying a shared ownership home?
While some might be a given, there are a number of one-off and ongoing costs to be aware of when buying a shared ownership home. One off costs include:Deposit
As with most mortgages, you will need to put down a deposit towards the cost of the share you’re buying. The amount will depend on the price of the property and lender requirements, but will typically be around 5 - 10% of the share you’re purchasing.For example, if you’re buying a 50% share of a property priced at £300,000, the value of your share will be £150,000. If you’re offered a 95 loan-to-value (LTV) mortgage, you would need to pay a deposit of £7,500 (5%).
Stamp duty land tax (SDLT)
When you make your initial purchase, you can choose whether to make a one-off stamp duty payment based on the total market value of the property, or opt to pay it in stages as you buy more shares.If you decide to make a one-off payment, first-time buyers (FTBs) will get tax relief on the first £300,000, and pay 5% stamp duty on the remaining amount. If you aren’t a FTB, you will pay the standard SDLT rate, relative to the market value of the property at the time of purchase.
If you choose to pay stamp duty in stages, there is nothing to pay until you own 80% of the property. Once you reach this point you will pay stamp duty on the transaction that took you over the threshold as well as any further transactions.
Solicitor fees
You will need a solicitor or licensed conveyancer to carry out the necessary legal work before you can submit your shared ownership mortgage application. Costs will vary, but solicitor fees are usually charged on a fixed-cost basis.Other costs
You should also consider things like cancellation fees you may be charged when switching your bills over, as well as how much it will be to carry out the move itself. Removal costs will vary depending on how far you’re moving and who helps you out.As a guideline, housing associations recommend that you set aside between £3,000 - £5,000 to cover all the usual fees and costs associated with moving.
Seek shared ownership advice from a broker
Speaking to an independent mortgage broker before beginning the search for a shared ownership mortgage can be invaluable for a number of reasons.Our team of advisors will take the time to get to know you and understand your circumstances before recommending whether shared ownership is the most viable option for you, as well as how much you may be eligible to borrow.
Our brokers’ industry expertise and lender relationships means they can easily point you in the direction of those specialising in shared ownership mortgages, meaning you’ll only receive recommendations for suitable products at the most competitive rates for your circumstances.
The journey to homeownership can be overwhelming, especially for first-time buyers. Our brokers are at hand to offer advice, and prevent you from falling at common shared ownership hurdles - such as entering into any agreements with onerous lease clauses.
To get the process started, give us a call on 02380 980304, or submit an online inquiry for a call-back. You’re under no obligation, and we don’t charge a fee.
Shared ownership FAQs
Below, we’ve supplied the answers to some of the most common queries we receive surrounding shared ownership. Have a question we haven’t addressed? Get in touch.Can I buy 100% equity in my shared ownership property?
In most cases you will be able to staircase all the way to 100%, but some agreements cap the share at which you can purchase up to. Always checks the terms of the lease before committing.What happens when my shared ownership lease runs out?
All shared ownership properties are leasehold, meaning you will only be the official owner for a fixed time period. This is typically 99 years, but you should have the option to extend the lease over time.If you choose to staircase your home to 100%, ownership of the property will legally transfer to you and will no longer be classified as a shared ownership property.
Which kind of properties are available for shared ownership?
Shared ownership homes are properties that have had a government subsidy, and are purpose-built for an affordable housing scheme or housing association.They are usually part of an estate, often a block of flats or apartments. They will typically be new-builds, or resales of older shared ownership properties.
What does it mean if a shared ownership home is in a ‘designated protected area’?
Some shared ownership homes are in a ‘designated protected area’, which means that they are only available to buy if you have a connection to the area.If you buy one of these properties, you may only be able to buy a maximum share of 80%, and you must sell it back to the landlord or a nominated buyer, rather than on the open market.
Can I sell a shared ownership property?
Yes, but if you own a share of your home your landlord has the right to buy it first, or find a buyer themselves if they wish.If you own 100% of your home, you can sell it yourself on the open market.
Can I decorate my shared ownership home?
You are free to decorate a shared ownership property as you wish, although there may be restrictions or you may need to get permission to make any major alterations.
Can I sublet if I own a shared ownership property?
The majority of shared ownership leases restrict subletting your home, although lodgers may be permitted if you get permission from your housing association.
Who is responsible for repairs in a shared ownership home?
This will usually be dependent on the type of property you own, and whether the repairs are internal or related to the structure of the property.Even though you may only own a share of the property, you will be responsible for any internal repairs and home improvements. Repairs and maintenance to a communal building may be covered by the leaseholder, but the costs could be passed onto you via service charges.
Can I get a shared ownership property if I’m retired?
If you’re over the age of 55 you can buy up to 75% of your home through the Older People’s Shared Ownership (OPSO) scheme. This scheme is slightly different in that once you own 75% equity, you will not pay rent on the remainder.
First Time Buyers Expert Article by
Nicola Schutrups
(Managing Director)
The Mortgage Hut