Shared Ownership Mortgages: what are they & how do I get one?
Shared Ownership mortgages work in much the same way as traditional mortgages, they are designed to enable you to purchase through the government’s Shared Ownership scheme.
A Shared Ownership mortgage is a way of owning your own home if you cannot afford a traditional mortgage or do not have sufficient deposit to buy outright.
As the mortgage is smaller so is the deposit requirement, and your monthly rent is likely to be lower than if you rented a property from a private landlord.
The two main types of Shared Ownership mortgage:
Fixed rate: this type of mortgage is offered at a fixed rate for a certain period, normally 2 to 10 years. A fixed-rate mortgage means you know exactly what you must pay each month for a set period.
Variable rate: as the name suggests, with this type of mortgage the interest rate can vary. It may come down in your favor or it may increase, meaning a rise in your outgoings. You should be able to cover any increases should they arise.
Shared Ownership mortgages: how do they work?
You purchase part of a property, normally between 25% and 75% – depending on what you can afford. The deposit will be a minimum of 5% of your portion of the property, dependent on affordability checks – considerably less than a deposit for a full property.
Shared Ownership mortgage example:
You want to buy a 25% share of a flat worth £200,000:
● The value of your share: £50,000
● Deposit required based on 5%: £2,500
● Value of portion owned by the housing association: £150,000
● Value of mortgage required: £47,500
How much rent will I have to pay?
In general, housing associations or registered providers charge less than private landlords – rents can vary by scheme but are generally charged at 2.75% on the unowned share value.
On the above example you pay 2.75% rent on £150,000 so around £344 per month.
Shared Ownership mortgage eligibility
To be considered for a Shared Ownership mortgage, you must:
● Be a first time buyer, or
● Be a former homeowner who cannot afford to buy a new home outright (or you must be in the process of selling your property)
● Earn less than £80,000 per year or £90,000 in London (this sum is the household income so can be made up of two incomes if you purchase together)
● Not be behind on any mortgage or rental payments
● Have a good credit score with no County Court Judgements (CCJs) or defaults.
● Be 18 years old and a UK resident
How do I apply for a Shared Ownership scheme?
Get more information depending on your location, please note Legal & General Affordable Homes only have properties in England currently:
● London: Homes For Londoners
● Scotland: Help to Buy
● Northern Ireland: Co-ownership
Who offers Shared Ownership mortgages?
There are around 20 lenders offering Shared Ownership mortgages. These include Barclays; Halifax; Leeds Building Society; Lloyds Bank; Skipton Building Society.
Are you paying for rent and mortgage on Shared Ownership?
Yes. With a Shared Ownership agreement, you take out a special Shared Ownership mortgage on a portion of a property, then pay rent – often at a reduced rate – on the remaining portion, Managing both rent and mortgage repayments may seem complicated, but it quite straightforward and could save you money on privately renting whilst getting you onto the property ladder.
Is a Shared Ownership mortgage easier to get than an outright mortgage?
Yes in terms of affordability, you would be more likely to be affordable even if you’re on a low wage, as the mortgage amount is smaller, however as with any mortgage, lenders still want to be assured of your credit status and history. Keep an eye on your credit score via companies such as Experian and Check My File.
Can I get a Shared Ownership mortgage with a poor credit rating?
It is unlikely you would be accepted for a Shared Ownership mortgage if your credit rating is poor. If you have credit history issues the best thing is speak to an Independent Financial Advisor, they will be able to advise what you need to do to repair your rating and enable you to access a mortgage.
Are Shared Ownership mortgage repayments cheaper than with an outright mortgage?
Mortgage rates charged by lenders are comparable to outright mortgages. Shared Ownership mortgages are smaller than outright mortgages, so your mortgage amount will be less, but remember you are paying rent too.
Can you get a 95 per cent loan to value mortgage on Shared Ownership?
Yes. Shared Ownership mortgages are available with a 5% deposit. Typically, the more deposit you have to contribute the lower the interest rate you are charged, you may well find your deposit amount is more than the minimum 5% this further opens access to those on lower salaries.
Which banks/building societies offer Shared Ownership mortgages?
Lenders offering Shared Ownership mortgages include Kent Reliance, Nationwide, Barclays, Leeds Building Society and the Halifax. You may benefit from enlisting help from an independent financial advisor with experience in Shared Ownership mortgages, as they will know who currently operates in the market.