Pete Mugleston | Mortgage AdvisorPete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.
Updated: 5th April 2019* | Published: 30th November 2018
More and more people are turning to Shared Ownership into order to get onto the property ladder. It can be considerably more affordable, meaning a potentially increased chance of approval - even for people with bad credit or a low deposit.
In this article we’ll tell you everything you need to know about Shared Ownership and how it could help you.
How much deposit do I need for a Shared Ownership mortgage?
All lenders are different and will have different criteria.
It also depends on your personal circumstances (bad credit can have an effect on how much deposit you need).
Can I get a shared ownership mortgage with 5% deposit?
Generally, mortgage providers ask for 10% - 20% deposit for a standard mortgage, the attraction of this type of mortgage is that most lenders require only a 5% deposit on a Shared Ownership mortgage.
Can I get a shared ownership mortgage with no (0%) deposit?
We’re often asked. ‘Do I need a deposit for a shared ownership mortgage?’ The short answer is, not always.
A few lenders will lend 100% if the circumstances are right. This would include affordability and your credit history.
But bear in mind that the higher the deposit, the lower the loan to value (LTV) and the lower the rent will be.
How is the deposit calculated for a shared ownership mortgage?
Another benefit of Shared Ownership is that the deposit is calculated based on the percentage of the purchase price of the share that you own (not the total property value).
For example if a buyer wished to purchase 25% of a property worth £200,000 and they were able to pay a 5% Shared Ownership mortgage deposit (£2,500), they would need to apply for a mortgage for £47,500.
The below examples are based on a 5% deposit. (Subject to affordability and credit checks the size of the required deposit may increase or decrease.)
Property price of £200,000
Share as GBP
What is Shared Ownership?
Mainly aimed at first-time buyers, shared ownership schemes are a cross between buying and renting.
This option allows a buyer to purchase a percentage of the property, usually between 25-75% and then pay rent on the percentage of the property that they do not own.
For a lot of people, buying a property can be too expensive and often they fear that their mortgage application will be rejected if they apply for complete ownership.
Therefore, by purchasing a percentage of the home, a buyer can apply for a smaller mortgage which may increase the likelihood of approval as lenders could assess the loan as more affordable for the buyer.
Shared Ownership provides a step onto the property ladder for many people who simply cannot afford the mortgage or deposit that comes with owning and buying a whole property.
Who is eligible for Shared Ownership?
To apply for Shared Ownership the below criteria must be applicable to you:
Be a first-time buyer, or have owned a home previously with Shared Ownership
Have a combined income of less than £80,000 if you live outside of London, and less than £90,000 if you live inside London
Plan to live in the property and not rent out any part of it
Have the permanent right to live in the UK
Be 18 years old or over
Who would own the other shares?
Shared Ownership is usually, but not always, offered on new build properties built by a housing association or private developer. When you buy shares, the housing association own the remainder of the shares you have not purchased.
As well as paying for your mortgage for the percentage of the property you own, in a Shared Ownership, you are also required to pay rent on the percentage of the property that you do not own.
How is rent calculated on Shared Ownership?
The rent on a Shared Ownership property is generally calculated at 3% of the equity owned by the landlord.
For example, if the property is worth £200,000 and the share owned by the leaseholder is 50%, the rent will be 3% of £100,000 (the remaining share held by the landlord.) This would equate to £3,000 which would be payable over 12 months at £250 per month.
Therefore in most cases, the more equity you own, the cheaper the rent payable to the landlord / housing association each month.
Property price of £200,000
Your share as a percentage
Your share as GBP
Landlord’s share as GBP
Monthly rent in GBP
Furthermore, if stated in your lease, the percentage of rent can increase each year in lines with inflation.
Can I afford shared ownership?
As well as your mortgage and rental payments, it’s important to work out whether you are able to afford the other costs associated with Shared Ownership.
These can include:
Stamp duty (if applicable)
Repairs and maintenance
A potential service charge
Can I use a Shared Ownership Mortgage calculator?
It can also be helpful to use a Shared Ownership Mortgage calculator in order to gain an idea of how much you could borrow and what you may be able to afford.
But as everyone’s circumstances are different, it can be tricky to get an exact figure, so the best option is to talk directly with an advisor who is an expert in shared ownership mortgages and deposits.
The advisors we work with can chat with you and find you the best deal for your circumstances.
Can I buy more shares later on?
A benefit of Shared Ownership is that if you wish to increase the amount of shares you own in the property, you can.
This is commonly called ‘stair-casing’.
Not only do you increase the percentage of your share in the home, but the rent you pay will be reduced.
There may be stamp duty to pay, so always get advice from your solicitor.
In fact, in most cases of Shared Ownership, you can purchase up to 100% of the properties value, meaning that you could eventually own the full equity of the property.
How could I buy more shares in the property?
To do this, you would need to contact the housing association or the organisation you have bought the property from, to inform them about how many shares you would like to buy.
You would then need to have the property revalued. This is because the value of the property may have increased or decreased, which could affect the price of each share.
To purchase more shares you could:
Add to your existing mortgage
Remortgage with your current or new lender
Use savings or cash windfalls such as an inheritance or bonus.
Are there other costs when buying additional shares in a shared ownership property?
Yes. You need to take these into account when increasing your stake in the property.
Valuation fee – You will need to confirm the properties current market value.
Legal expenses – Changes to your existing lease will need the services of a solicitor
Stamp duty (if over the threshold) – You can either choose a one-off payment in advance based on the market value, or you can pay in stages. You’ll need to calculate the best option.
Mortgage fees – If you’re changing lenders, there may be early repayment fees and other charges.
What deposit is needed for shared ownership with bad credit?
Over the years, we’ve helped thousands of people onto the property market, each with varying financial situations, including bad credit.
Those with credit issues may need more deposit when buying a shared ownership property, as the risk associated with their application is perceived to be higher by lenders.
The main factors are:
The type of the credit issue (the more severe, typically, the higher deposit needed)
The date the credit issue was registered (the more recent, typically the higher the deposit needed)
The amount of the credit issue (the higher the amount of the issue the more deposit usually required)
That said, there are some lenders happy to consider shared ownership mortgages for borrowers with recent credit issues with minimal 5% or even 0% deposit in the right circumstances.
Some examples of this include:
Low credit score
Debt management plans
But don’t worry! An applicant doesn’t necessarily need a perfectly flawless financial history to be approved for a Shared Ownership mortgage
In fact, there are some lenders who will approve on minor defaults, and others where there’s a been a more serious issue such as a default or bankruptcy.
Could a large deposit improve my chances of approval?
Low deposits are often required for a Shared Ownership mortgage, the good news is that in some cases, a larger deposit can improve the likelihood of being accepted.
This is because it would mean that the buyer would own more equity and therefore require a smaller mortgage. Some lenders also see a larger deposit as proof to the financial commitment to the mortgage.
However, this varies from lender to lender and is not always the case. Most lenders assess each person’s affordability based on their own criteria which could include:
Should I get advice before applying?
Yes, the best approach is to speak to an advisor who can assess your individual circumstances with a non-judgemental approach, as well as helping you review your credit score.
As well as this, speaking to a mortgage advisor can save you a lot of time as they can dedicate their time to research the best lenders based on your circumstances.
Will a credit check affect my credit rating?
No. The advisors we work with will be more than happy to help you, without charge, obligation or leaving marks on your credit rating.
We understand it can be nerve racking when thinking about a Shared Ownership mortgage deposit and whether or not you’ll be approved. That’s why we only work with trusted experts that we have trained. This ensures us that they have the right knowledge when helping you explore your mortgage opportunities.
Talk to a shared ownership mortgage expert today
If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA.Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
Read more about Pete here...