Shared Ownership

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Shared Ownership Mortgage (Part 1)

Luke Platt talks us through the shared ownership scheme and the main things to consider.

What is shared ownership and how does it work?

Shared ownership allows you to buy a share of a property and pay rent on the remaining part. It’s a government-backed incentive scheme, primarily aimed at helping First Time Buyers and others who can’t afford the open market to buy a home.

The percentage you can purchase may vary, depending on location and your affordability to purchase the share. Generally in England, you can buy shares of between 10% and 75% full market value. The minimum share is often 25%.

Shared ownership is also known as a part-buy, part-rent incentive. The idea is that you will purchase your shared ownership property via a housing association or council. The home will either be a new build or a resale of an existing shared ownership property. In that case, you would need to purchase the same percentage of shares as the previous owner – or more.

You’ll also need a deposit and a mortgage on the share of the property you’re buying. The remaining share is owned by the housing association or council, and you will pay rent on this outstanding amount.

Who is eligible for shared ownership? Who can get a shared ownership mortgage?

Generally shared ownership mortgages are designed for First Time Buyers, or those who used to own a home but can now no longer afford to buy outright. Or, you might already be in a shared ownership home – you can move from one shared ownership property to another.

Sometimes these homes suit someone setting up a new household, perhaps after a relationship breakdown. Or, you may own your own home and wish to move, but cannot afford to buy outright. There are many different eligibility options for a shared ownership mortgage.

There are scheme limitations, however. For example, it’s only available for households with a combined income of less than £80,000 a year – or £90,000 in London. You would need to be unable to afford a deposit and mortgage payments on a non-shared ownership property.

Which lenders offer shared ownership mortgages? Are there many?

It’s not all the lenders, but multiple providers do offer shared ownership mortgages. Speak to a mortgage broker, as we will know which lenders will offer this scheme.

Which properties are available for shared ownership?

They’re generally purchased through a housing association or a council. The home will either be a new build or a resale of an existing shared ownership property. On a resale property you will need to purchase the same percentage of shares as the previous owner, or more.

How much deposit do I need for a shared ownership mortgage?

A 5% deposit is generally the minimum level required for a shared ownership mortgage. Having said that, it is possible to purchase without any deposit, but that would be subject to housing association approval.

Will my shared ownership property be freehold or leasehold?

In my experience, shared ownership properties are mostly leasehold.

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Can I buy a bigger share of my home at a later date?

Absolutely. If you wish to purchase a 25% share initially, it’s possible to purchase more over time. Usually it happens in increments of about 10%. You can do that all the way up until you earn the house outright.

Some older properties have older leases which set the minimum increment at 25%. But newer properties might just allow you to buy an additional 5% each time.

That process is called staircasing. Each time you wish to purchase another share, you’d go back to the Housing Association and they would do a valuation on the property. You would purchase the additional shares based on the new value.

Can I ever fully own a shared ownership home?

Yes – staircasing can be done all the way up to 100% on shared ownership properties. Some properties are restricted to a maximum 80% ownership, so it is worth checking when you contact the housing association. Ask whether you will ultimately be able to own the home in full.

What happens if the value of my house changes?

When you’re staircasing and looking to purchase more shares, these will be based on the value of the home at that time, not when you first bought. A valuation would take place and the housing association would probably want their own valuer to do this. That would give you an indication of the new value of your house.

What if I have bad credit? Can I still get a shared ownership mortgage?

Absolutely. Bad credit isn’t the be-all and end-all. I would say use a mortgage broker, as we know which lenders would accept bad credit for shared ownership mortgages.

What else do we need to know about shared ownership mortgages?

With anything regarding mortgages, if you’re in doubt, you’re unsure or you’ve got questions, just pick up the phone or email a mortgage broker. We’re here to help you in all instances.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.