Shared Ownership Mortgages Explained

Looking for a more affordable way to own a home? The Shared Ownership scheme could be the ideal solution. This guide explains how the scheme works and how it can help you get onto the property ladder.

Visit our dedicated shared ownership mortgages page for links to all our content on this topic, including our shared ownership mortgage calculator.

You may also find our first-time buyer mortgages page or our article on the best government schemes for first-time buyers helpful.

What is the Shared Ownership scheme?

It’s best to think of it as a hybrid model of homeownership that involves buying part of a house and renting the remainder. Usually geared towards first-time buyers (FTB), it’s a popular government scheme that allows people a more affordable way to get on the property ladder with a small deposit.

The Shared Ownership scheme is often aimed at first-time buyers looking to purchase a new-build home. It’s also a good option if you can’t buy your rental property from your landlord.

However, the scheme isn’t just for first-time buyers. There may still be options if you don’t fall into this category. It’s also worth bearing in mind that these will always be leasehold mortgages.

Most Shared Ownership mortgages come in two forms:

• Fixed-rate mortgage: With a fixed-rate mortgage, your interest rate remains the same throughout the full term of your mortgage, which can vary from two years to ten. If you want to know exactly what your monthly repayments will be each month, it’s a good option.
• Variable rate mortgage: A variable rate mortgage, such as a tracker mortgage, is one where the interest rate fluctuates depending on whether you’re tied to the Bank of England base rate or your lender’s standard variable rate. This is a good option if you want to take advantage of potential base rate decreases, but you may pay more if the rate increases.

How does the scheme work?

Shared Ownership allows you to buy a share of a house using a mortgage (or cash). The rest of the property will be owned by a housing association (also known as a registered social landlord) or a local authority (like a council). You’ll usually make both mortgage and rental payments because you own some of the property and rent the rest.

This scheme can be an excellent stepping-stone, allowing you to buy between 25% and 75% of a property (now 10% and 75% in England). So, you’d end up with a smaller mortgage than if you were to buy the house outright. It’s not possible to buy a shared ownership house outright initially, but this can be done later through a process called ‘staircasing’.

Another benefit is that your deposit is considered a percentage of the portion you’re buying, not the total value of the property. A 5% to 10% deposit should be enough to secure a mortgage.

If you want to buy a 25% share of a £250,000 property, this would be a rough breakdown:

• Your share of the property: £62,500
• Your deposit: £6,250
• Housing association share: £187,500
• Mortgage needed: £56,250

Landlords can’t charge more than 3% of the value of the share they own as rent on a new-build home, with most charging 2.75%. If their share is £187,500 and they charge 2.75%, the monthly rent would be £429.

The rent for resale homes will be set at the same level as the previous owners.

Eligibility criteria for the Shared Ownership scheme

If you’re thinking of getting a Shared Ownership mortgage, the following two eligibility criteria must apply for you to be eligible for the scheme:

• Your total household income must be less than £80,000 a year, £90,000 a year if you live in London. There’s no minimum income needed for Shared Ownership, but certain lenders may have a minimum amount in their affordability assessments
• You can’t afford the deposit and mortgage payments for a home that meets your needs

You also need one of the following eligibility criteria to apply to be eligible:

• You need to be over 18 years old
• You need to be a first-time buyer or a former homeowner who can’t afford to buy a property outright
• You used to own a home but can’t afford to buy one now
• You’re forming a new household, such as after the end of a relationship

If you own a home

If you own another home, you need to have formally accepted an offer for the sale of your current home and have written confirmation of the sale agreed.

Other schemes

If you don’t meet the eligibility criteria listed above, other schemes might apply to you:

• Older Persons Shared Ownership (OPSO): If you’re aged over 55, you can buy a 75% share in a property through this scheme
• Home ownership for people with a long-term disability (HOLD): If you have a disability and properties on the Shared Ownership scheme don’t meet your needs, such as needing a ground floor home, you can apply to this scheme
• Armed forces: If you’re a serving member of the armed forces, your offer will be prioritised. If you previously served in the armed forces, it will depend on what your role was as to whether your offer is prioritised or not.

How To Apply For The Shared Ownership Scheme

Once you’ve found out whether you’re eligible, you can begin finding a house and applying for the scheme and a mortgage.

We’ve put together a rough step-by-step guide to the process to give you an idea of what to expect.

1. Create an account: The first step is to create an account on the Share to Buy website. You can search for properties on this site based on your circumstances and requirements. You can save properties that you like and receive alerts for new ones when they become available.
2. Find a property: When you find a property you like, click the ‘Register Interest’ button on the website. Your details will then be sent to the housing provider selling the home.
3. Put down a reservation fee: Once you’ve viewed the property through a viewing arranged by the housing provider, you’ll need to put down a reservation fee. This usually requires a deposit of around £200, but the specific amount will depend on the provider.
4. Financial assessment: If you meet the eligibility criteria, the next step is a financial assessment organised by the housing provider. This is usually only for new build properties and will assess what share of the property you can afford to purchase.

How to get a Shared Ownership mortgage

The exact process for securing a Shared Ownership mortgage will vary depending on your circumstances, the property you’re looking to buy, and who owns the remaining shares.

The first step is to register for the scheme in your region. Below are the various websites you should use depending on where you live:

• England: If you live in England, go to the government website to see which providers offer the scheme in your area
• Scotland: If you live in Scotland, go to the New Supply Shared Equity or the Open Market Shared Equity scheme websites to learn more about the schemes
• Wales: Visit the Welsh government website if you live in Wales to learn more about the scheme and how to apply
• Northern Ireland: Visit the Co-Ownership website if you live in Northern Ireland
• London: If you live in London, visit the Homes for Londoners website to learn about the scheme

Here is a step-by-step guide walking you through the overall process:

1. Apply for a mortgage: once you know what share of the property you can purchase, you can begin to look for a mortgage deal. You can do this by yourself or through a broker who can help assist you with your search and potentially find a good deal based on your circumstances.
2. Gather your documents: At this point, you’ll need to gather all the necessary documents. These will include standard items such as photo ID, proof of address, and proof of income, such as at least three months’ worth of bank statements and payslips.
3. Conveyancing: At this point, you’ll need to start the conveyancing process and hire a solicitor to review all the legal details with you. This will include obtaining all the necessary legal documents and conducting searches, such as an environmental search.
4. Memorandum of sale: Once the conveyancing is finished, your housing provider will send your solicitor a ‘Memorandum of Sale’. This summarises the details of your purchase and is required by most lenders.

If the process sounds daunting, you can enlist the services of a broker to help you. They’ll be in your corner throughout the whole mortgage process. This even means helping you find a reliable solicitor and licensed conveyancer for the necessary legal work.

You’ll likely need ongoing assistance with a Shared Ownership property when you want to ‘staircase’ and buy more shares, move house, or remortgage later down the line. Dealing with a trusted advisor who knows your situation will make your life much easier throughout your whole home ownership experience.

Enquire with us to be put in contact with a broker who can help you navigate the mortgage process.

How much can you borrow?

Typical income multiples will be used as if you were getting a normal mortgage, but the nature of Shared Ownership means you’ll likely need to borrow less. Shared Ownership often has no minimum income, but it depends on the lender.

Although you may only be able to borrow 4-4.5x your salary, there’s a better chance this will be enough to purchase the home you want or one that may have otherwise been outside your budget.

Our Shared Ownership mortgage calculator will indicate how much your monthly repayments will be, including both your mortgage and rent payments. All you have to do is enter details for the property purchase price, interest rate, term length, percentage share and the deposit into the appropriate field.

Example calculations

Each lender will calculate how much you can afford in various ways, so it’s best to deal with the right one that suits your situation. But here are some example calculations showing how much you can borrow based on different income multiples and salaries:

How Much Deposit Do You Need When Buying a Shared Ownership Home?

With some lenders, you can buy a home and just put down a 5% deposit or one of 10%. For Shared Ownership, this can mean just 5% of the portion you’re buying rather than the full property value.

So, if you were only buying 50% of the house, the deposit could be just 5% of that amount. This means your deposit may only need to be equal to 2.5% of the property’s total value.

Example: To purchase 50% of a £200,000 home with a 5% deposit, you’d require £5,000 and need to take out a mortgage of £95,000 (rather than a £10,000 deposit and a mortgage of £190,000).

Under some circumstances, getting a Shared Ownership mortgage with no deposit is possible if you speak to the right lender. Bear in mind, a higher deposit is likely to get you more favourable mortgage terms and better rates.

Buying more shares in your property

With Shared Ownership, it is possible to buy more shares in your property using a method known as ‘staircasing’. Over time, your financial situation might improve, putting you in a better position to own more of the home, and staircasing allows you to do that.

Staircasing means buying more shares in chunks. There can be rules around the minimum you’re allowed to staircase each time, for example – 10%. So, if you were to buy 50% of the home initially, you might decide to buy an additional 10% at some stage and then keep gradually increasing your ownership until you reach 100%.

If you have a Shared Ownership home in a ‘designated protected area’, you may only be able to buy a share of up to 80%. It’s best to check with your landlord to see whether this is the case or not.

The rules around staircasing may vary depending on your housing association. So, it’s best to check what they are before you proceed, as some housing associations only allow a certain number of staircasing events. A broker can check this for you before you enter into an agreement with the housing association.

One important thing to bear in mind is that each time you staircase, a valuation will need to take place. So, the exact cost of your shares for a percentage staircasing increase will depend on the current value, not the original purchase price.

If you bought your Shared Ownership property after 1 April 2021, you can buy a 1% share each year for the first 15 years. You can’t buy shares of 2%, 3% or 4% and the price of a 1% share will be based on the original price of your home and will increase or decrease in line with the House Price Index.

You can’t roll over your 1% share to another year if you don’t use it, and your landlord won’t charge you an administration fee for buying a 1% share.

Pros and cons of Shared Ownership explained

Below is a quick breakdown of the major benefits and drawbacks of Shared Ownership you should consider before you get a mortgage.

Available lenders

The exact selection of mortgage lenders for Shared Ownership will depend on your specific circumstances, where you live, the property you’re looking to buy, and often the size of your deposit. But here are a few examples of major high-street lenders who are known to be open to this scheme:

• Principality Building Society: only open to applications in Wales.
• Pepper Money: has an LTV cap of 75% and a 95% Loan to Share Value.
• Halifax: income multiples are capped at 4.5x your salary.

As you can see, the rules for each lender can vary. The best way to get a realistic idea of your options is to discuss your situation with an expert broker. They’ll be able to compare shared ownership mortgages and find you a top deal, which may mean dealing with a niche lender or finding a bespoke lending solution not advertised to the general public.

Shared Ownership mortgage rates

With the help of your mortgage broker, you will also be able to identify which lenders offer the best interest-rate deals for shared ownership. The table below provides a snapshot of what is currently available.

Please note that the above rates are purely for example purposes and are currently up to date but are subject to change. Speaking to a mortgage broker is the best way to find the most up-to-date deals at any given time.

How to remortgage

There may come a point when you want to remortgage a property you’ve bought using the Shared Ownership scheme. Typically, remortgaging will be similar to the standard process, except that your choice of lenders will be more limited.

If you can buy the remaining shares in your property, this can give you access to a bigger pool of lenders with better interest rates. But with the right help, remortgaging a shared ownership property can be arranged regardless of your current situation.

Debt consolidation

One common motivation for remortgaging is debt consolidation, which is possible with a Shared Ownership mortgage. However, it can be difficult because only a few lenders are willing to work with borrowers with existing debt issues. So, support from a specialist mortgage broker is often necessary to achieve this.

Can you release equity?

Yes, this is possible. The only catch is that the amount you release must be enough to buy the outstanding shares in the property. So, after you release equity with a Shared Ownership mortgage, you’ll own 100% of the home and can spend extra funds any way you want.

Speak with a Shared Ownership specialist

Getting set up with the best Shared Ownership mortgage can be a complex and lengthy process without some expert guidance. Speaking with a specialist broker is your simplest path to success.

We offer a broker-matching service. This process involves a quick assessment of your needs and an introduction to an expert advisor for a no-obligation chat.

Just call 0330 818 7026 or make an enquiry. We’ll introduce you to a specialist Shared Ownership mortgage broker for free today.