Get money saving tips in our regular emails

We take your privacy very seriously

Shared Ownership Mortgages

in Mortgages

What are Shared Ownership Mortgages?

This is a special type of mortgage used when you only want to buy a share of a property, typically 25% – 50% initially. This is often referred to as a part buy/part rent scheme. They are particularly popular with people buying for the first time because normally you can do it with a smaller deposit than if you were buying 100% of a property. Shared Ownership Mortgages are a good way to get a first foot on the property owning ladder. With most part buy/part rent schemes you will have the option of buying additional shares, typically 25%, of the property at a later date, and in many cases you can eventually purchase 100% of the property, if you want.

The majority of part buy/part rent schemes are normally in conjunction with housing associations. This means that, you will own a share of the property, and the housing association will own the remaining share. Many people who participate in these schemes eventually ‘staircase’ or buy a larger share of the property from the housing association, and go on to eventually become sole owners of the property.

How is it different from a normal mortgage?

A shared ownership mortgage differs from a regular mortgage because it is used to buy only a part of the property. The principle is the same however: you borrow money from a lender, and will have to repay the money with interest over an agreed period of time. One of the main differences is the terms and conditions of the mortgage offer, as the lender will not have 100% of the property as security against the mortgage. The amount you can borrow, in relation to the property value, is usually a little less than with a regular mortgage to buy a property outright. Most of the current best Shared Ownership Mortgages offer between 60% – 75% of the property value, although in the past, 95%-100% were available at one time.

Are there any advantages or disadvantages to Shared Ownership Mortgages?

It’s important to understand that housing associations may have slightly different policies regarding shared ownership schemes, and not all lenders have the same criteria either. However, some of the possible advantages and disadvantages are:

Advantages:

  • It may allow you to own part of your home, which otherwise wouldn’t be possible if you had to buy 100% of the property.
  • You may be able to buy a bigger home than if you were buying 100% of the property.
  • Some housing associations operating part buy/part rent schemes give priority to low income applicants, especially with children.
  • You may find that the combination of monthly rent and mortgage payments is less than if you were buying the whole property.
  • You will get tax relief on the mortgage payments, if you qualify.
  • Buying a property, or part of one is an investment, and if the value of the property increases in the future, then you will benefit from this.
  • You may be able to buy further shares of the property, and eventually buy the property outright, own your own home and never have to pay rent again.
  • You may save on maintenance, as the housing association is normally responsible for maintaining the property in good condition.
  • Buying a share of a property can make a future mortgage application easier.
  • It can be a good way to buy for the first time, especially if you expect your income to increase steadily in the future.

Disadvantages:

  • You may not be able to find a part buy/part rent scheme in the exact area you would like to buy a property.
  • You may well have many of the responsibilities of being a homeowner, but without the benefit of owning the home outright.
  • You may find that some things like decoration or home improvements may have to be approved by the housing association.
  • The housing association may impose restrictions regarding selling your share within a fixed period of time, or they may reserve the right to buy the property if or when you decide to sell.
  • If you eventually buy 100% of the property, you may still be liable for some service costs to the housing association.

Do all lenders offer Shared Ownership Mortgages?

Not all banks, building societies or financial institutions, and those that do, vary in the terms and conditions they apply. However, there is still plenty of choice.

Can self employed and self certification applicants apply?

The short answer is, yes. Some lenders offer this type of mortgage for self employed people, and people who self certify their income, but you should check with the particular lending institution regarding their lending policy, as the terms and conditions may vary slightly.

You should always seek professional advice from a qualified mortgage broker based on your personal circumstances, income and the particular shared ownership scheme you are interested in. You should also make sure you understand all the terms and conditions of both the mortgage offer and the shared ownership scheme.