
How much deposit do you need for Shared Ownership homes?
For first-time buyers looking to get on the property ladder, lofty deposits can be an obstacle that seems impossible to overcome.
Enter, Shared Ownership.
Unlike a standard home purchase, buying a share in a Shared Ownership property can require a considerably smaller deposit than you might usually expect.
But how much of a deposit do you need for a Shared Ownership home? As the experts in all things Shared Ownership, we’re here to help.
What is a mortgage deposit?
When buying any home in the UK, you can take out a mortgage to help pay for the amount that you don’t currently have to hand. In order to secure a mortgage – Shared Ownership or otherwise – you’ll often need a deposit upfront.
This deposit isn’t a set amount across the board but is calculated as a percentage of the overall mortgage amount. Many providers offer 90% mortgages with a 10% deposit but with Shared Ownership, providers offer 95% mortgages, which would require a 5% deposit in order to meet the lender’s requirements.
On a home valued at £200,000, a 5% deposit would be £10,000.
Shared Ownership mortgages
Unlike a standard house purchase, Shared Ownership mortgages are paid towards the share of the property you’re looking to buy. So, if you’re buying a 50% share in a £200,000 home, the mortgage needed could total £100,000. In this instance, a 5% deposit would only be £5,000.
Shared Ownership Deposits | Standard Mortgage Deposits |
Home Value: £200,000 | 50% share = £100,000 Mortgage needed: 95% Deposit value: £5,000 | Home Value: £200,000 Mortgage needed: 90% Deposit value: £20,000 |
How much deposit do you need for a mortgage?
You should only pay as high of a deposit as you can afford, and a budget planner will be able to guide you through your financial position to help work out exactly what this amount is.
In 2023, the average first-time buyer deposit was around 19% of the total property price. This worked out to an average of £53,414. In Greater London, this deposit amount was more than double due to the higher average value of properties in the region.
When calculating the deposit that you can afford to put forward, it’s worth noting that a higher deposit will often positively impact your loan to value (LTV) ratio. This is one of the metrics that mortgage lenders will consider when deciding whether to offer you a mortgage or not, and it’s calculated by comparing the deposit against the mortgage amount:
- You have a £20,000 deposit to put down on a £200,000 home
- The deposit covers 10% of the asking price
- As a result, the LTV is 90%
Make sure that you understand loan to value, so that you can calculate your LTV ratio and comprehend how mortgage brokers will view your financial position.
Loan to Value Explained
However, keep in mind that your deposit is just one factor that comes into play when getting approval for a mortgage. Lenders will also consider:
- Credit history
- Income and accrued savings
- Overdraft usage
- Gambling history
- Owned assets
Do you always need a mortgage deposit when buying a Shared Ownership home?
While the majority of mortgages will require at least some kind of deposit to be accepted, there are a handful of mortgage lenders who are offering zero-deposit mortgages for renters unable to save up the funds.
This kind of mortgage previously disappeared around the financial crisis in 2008. Before this, some lenders would even offer mortgages that were 125% of a property’s value.
In recent years, the zero-deposit mortgage has made a return. These products typically look at a history of rental payments as evidence of a reliable financial position, as opposed to a lump-sum deposit. However, there are a few downsides to zero-deposit mortgages that are worth considering:
- Your interest rates will often be higher than a mortgage secured with a deposit, because the LTV on zero-deposit mortgages is 100%
- If house prices fall, you risk ending up in negative equity
- It could be difficult to move to another mortgage down the line
Get on the property ladder with Shared Ownership
If you’ve saved a deposit and are ready to get on the property ladder, Shared Ownership could be the way to go. Take a look at our available properties to find your new home, and speak to a member of our friendly team if you need any further advice on everything Shared Ownership.