Shared Ownership
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Shared Ownership
Jess and Andrew tell us about shared ownership mortgages and how they can help you buy a home.
What is shared ownership and how does a shared ownership mortgage work?
Shared ownership is where you purchase a share of the property rather than owning the full amount. You would purchase it through a housing association, getting a share from 25% up to 75% on most properties.
The shared ownership mortgage is slightly different to a normal mortgage. Rather than the property value being the purchase price, lenders use the value of the share you’re purchasing. Ultimately, that means you need a smaller deposit.
Something to consider is that on the share you don’t own, rent is payable. That will be factored in as a monthly commitment for you. The key thing with shared ownership mortgages is that affordability is based on an individual property.
So on each property you look at, send the link to your mortgage advisor, because the rent, service charge and property value do have a big impact on affordability. We will advise you of the maximum share you can purchase to get you the best deal.
Who is eligible for shared ownership? Who can get a shared ownership mortgage?
Eligibility can vary depending on the housing association. Usually the main requirement is that your household income is under £80,000 on a joint or single basis, or under £90,000 in London. You do normally have to be a First Time Buyer or to not be able to buy a home without the shared ownership scheme.
In terms of where to find a shared ownership property, the government website is the best place to check the latest criteria and property adverts. Other websites such as share to buy list shared ownership properties on both new builds and on existing properties.
Which lenders offer shared ownership mortgages?
A wide range of lenders offer shared ownership mortgages – it’s very popular in today’s market. Most people buying to get on the property ladder are now considering shared ownership as property values have increased over the years.
Most lenders want a share of that particular market, so they all have different selling points and quirks in their criteria which all work in the client’s favour – it opens up the mortgage options for them.
A couple of lenders aren’t in this realm of mortgages at the moment but they’re always coming in and out of the market. There are definitely more than enough lenders to go around.
What are the advantages and disadvantages of shared ownership?
The main advantage is that you don’t have to have such a big deposit as you would to buy the whole property. If somebody’s got a smaller deposit they can buy 25% or 50%, even if they wouldn’t be able to meet the deposit requirements to buy a whole share.
The end result could be that they’re able to buy a larger property than they could without shared ownership.
On the disadvantages, shared ownership properties are usually bought on a leasehold basis. Although you would own a share of that leasehold, the freehold would be owned by the housing association until you purchase the whole share. You can usually grow your share by staircasing up over time.
Also, you do have to pay both a mortgage and rent. The mortgage would be paid to the lender and the rent to the housing association. There are also associated costs such as a service charge and ground rent. So although the deposit requirement is smaller, the overall cost could be the same or higher than buying the full share from the start.
Which properties are available for shared ownership?
You can’t get shared ownership on every property you see on the market. When you log into Rightmove it shows all the properties on the market for your set criteria. But shared ownership is slightly different.
Some of the properties may still show, but the best way to find properties that are part of the scheme is by looking on either the housing association websites, share to buy or your local authority website.
These show the properties on the market, both new builds or properties that are currently owned by somebody else. It gives you all of the details in terms of the full value, the share on sale along with rent and service charge costs.
How much deposit do I need for a shared ownership mortgage?
As a minimum, housing associations usually expect a 5% deposit of the share you’re buying – not 5% of the whole property value. If you’re buying a 25% share of the property that amount could be quite small.
There is a lender that allows a no deposit basis on shared ownership, but housing associations do have their own affordability calculations and they usually expect a minimum of 5%.
Will my shared ownership property be freehold or leasehold?
The property would be owned on a leasehold basis. This means you’ll have a legal agreement with the freeholder – likely to be your housing association – called a lease. The lease will outline your rights and responsibilities with the property, along with any service charges, ground rent and other details.
It may cover what you can or can’t do to the property in terms of home improvements. A lease normally runs between 125 and 999 years, when the property is new. They reduce each year and once it reaches around the 85 year mark, you would contact your freeholder to see whether that could be extended. You could have new terms to your lease at that point.
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Can I buy a bigger share of my home at a later date?
You definitely can. This is referred to by the industry as staircasing. You would approach the housing association and ask to buy a bigger share of the property. They would then request an independent valuation to determine its current market value.
That would then determine the amount of money you need – whether that be an extra 5%, 10%, 15%, 20 % or more. We can then find a suitable lender to look at affordability. As the share would be larger, your rent would come down. However, mortgage costs would likely increase slightly because you’re taking on a larger mortgage.
When the mortgage is approved, solicitors are involved to update the Land Registry with the larger share percentage of the property. The agreement also needs to be made between you, the lender and the housing association and the Land Registry would update accordingly.
Can I ever fully own a shared ownership home?
Absolutely. You’ll always have the option to purchase 100% of the property. This is normally written into your lease. When you purchase 100% of the property you would no longer need to pay any rent to the housing association.
At this point, the property would also convert from leasehold to freehold. There is no responsibility for the housing association to upkeep the building once you reach 100%. So looking after the building would be down to you.
However, if it is a flat, it would remain a leasehold and probably have a continuing service charge to cover the building’s insurance – but you would still own the property at 100%.
What happens if the value of my house changes?
Property values can of course fluctuate over time. The trend over the years is an increase. However, more recently some property values have gone down.
A change of value of the property will not change the share that you own, unless you staircase as we talked about earlier. But the value of your share could increase or decrease.
For example, if your property is worth £400,000 and you own a 50% share of that property, your share is worth £200,000. If the property decreased to a value of £300,000, your 50% share would then only be worth £150,000. It works the same way with property increases – which tends to happen over a long period of time.
It wouldn’t make any impact to you unless you were looking to sell or you are coming around to remortgage. The mortgage would be unaffected. But if the value of the property had increased, you could potentially benefit from a lower interest rate product, because you will fall into a different Loan to Value bracket.
If the value were to decrease, you may unfortunately be in a position where products available to you at remortgage are on a higher Loan to Value and might cost you more – but hopefully not.
What happens if someone has bad credit?
Don’t let your previous bad credit put you off looking into your mortgage options. Here at Asset Harbour we have access to a wide range of lenders who have different criteria for different things.
We can take a look at your credit report and work from there with you. Even if buying a property isn’t something you can do straight away, we can give you some pointers to help improve your credit score and make owning a home in the future possible.
How do I sell my shared ownership home?
Initially you would always contact the housing association you purchased the property from. They would have a Nomination Period, which is normally written into the contract when you purchase.
That Nomination Period gives the housing association time to find a buyer and they usually have the right to first refusal of the buyer. Alternatively, they could potentially just buy the other share from you.
The Nomination Period is typically from four to 12 weeks. If the association is unable to find a buyer within that period you can then market the property on the open market. You might approach some local estate agents and they will complete an appraisal and list it for sale.
You would usually instruct a RICS surveyor to establish the current market value of your property.
Can someone make home improvements with their shared ownership?
When you own your property via the shared ownership scheme, they separate home improvements into two categories: structural and non-structural improvements.
Structural home improvements are anything that changes the structure of the building – such as an extension or taking a wall out. If you want to make structural home improvements you would need to get consent from the housing association, as it may affect warranties they have in place, especially if the property was built within the last ten years.
It also affects their security if you did something that made the property worse for the future. So before you get quotes, contact the housing association at the earliest point to let them know your plans. See whether it’s something that they would consider and the required process.
Non-structural home improvements are cosmetic things like painting and decorating, or adding a new kitchen or bathroom. These can be done without consent from your housing association. They are not things they would be responsible for if anything went wrong. They’re more than happy for you to decorate as much and as often as you like.
How does the remortgage process work with shared ownership?
The remortgage process for shared ownership isn’t all that different to a standard remortgage. When the initial rate is coming to an end in around six months, that’s the time to approach a member of our team.
We will discuss the most appropriate re-mortgage options for you. There is an added layer of complexity in that the housing association will need to be involved in the transaction. The mortgage application itself will not differ drastically, but the legal work can mean a couple of additional costs and extra time – it can take longer than a standard remortgage.
How does stamp duty work for shared ownership properties?
There are two ways you can pay the stamp duty on a shared ownership property. You can pay the stamp duty on the full value of the property, or just on just the share you’re purchasing at the time – and this is the more popular option. It reduces the initial outlay of costs for you.
We aren’t tax advisors, though, so it’s always best to consult your solicitor as there are other things to consider such as First Time Buyers stamp duty relief, up to certain values. They would be the best people to discuss stamp duty and give you all the information at that specific time.
Are there any other fees I need to know about?
There can be what’s called a reservation fee, levied when purchasing a new build property through a developer or housing association. That can be around about £500. It’s paid up front on reservation of the property and is fully refundable if it doesn’t proceed.
Other costs include a valuation fee, paid when submitting your application to the lender. That can vary from £100 to £500. Some lenders do offer a free valuation, though.
Broker fees have to be considered as well. Our typical fee for arranging a mortgage is £495 – one part on application, one part on offer. Lender fees or booking fees can either be added into the loan, and you would then pay interest on that, or paid up front at the point of application.
What are the alternatives to a shared ownership mortgage?
At the moment there aren’t many options for buyers in terms of schemes on the market. Shared ownership is by far the most popular.
Previously we had the Help to Buy scheme, but that’s no longer available. The schemes do come and go depending on the government,, so double check at the time that you’re looking to buy.
Something that’s available to buyers at the moment is a Lifetime ISA, where you can pay up to £4,000 into the account per tax year. The government will then add a 25% bonus to your savings, of up to £1,000 a year. This will definitely help you boost your deposit, especially with the ever increasing property prices. [podcast recorded in January 2024]
How do I apply for shared ownership?
If you’ve found a property, register your interest with that property on the government website, directly on the developer’s website, or the Share to Buy website.
The housing association will usually carry out some general eligibility checks. They will check the largest share of the property you can afford to buy. If that first stage is passed and they’re happy to register your interest in the property, get in touch with us here at Asset Harbour and we can start looking at mortgages.
We can recommend the most suitable mortgage for your personal circumstances. Once the housing association has accepted the offer on the property, they’ll begin the application process from their end. Usually everything has to fit with something called the Homes England calculator.
Getting a property is on a first come, first served basis. The shared ownership scheme is quite popular at the moment in the absence of other schemes, so you do need to be in a position to move forward.
That means having all your relevant documents to hand – ID, proof of address, proof of income, proof of deposit – because the more prepared you are the more likely they are to choose you over another applicant.
If you’re successful, we’ll submit the application to the lender and handle all the paperwork. We’ll keep you up-to-date and engage with all the other parties involved – the housing association, estate agent and any solicitors involved as well.
PLEASE NOTE: YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.