Shared ownership mortgages

If you’ve been struggling to buy your first home due to high property prices or limited savings, you’re not alone. It’s something a lot of first time buyers have to deal with. But, thanks to shared ownership mortgages, being a home owner could be well within reach. Shared ownership mortgages make buying more accessible by allowing you to purchase a small portion of a property and paying rent on the rest.

At Everest Mortgages, we’re on hand to make the shared ownership mortgage process smoother, quicker and considerably less stressful, helping you to take manageable and affordable steps towards being a proud home owner.

How does a shared ownership mortgage work?

A shared ownership mortgage is designed for buyers purchasing a share in a property through a shared ownership scheme. Instead of buying 100% of a home upfront – as you would do with a traditional mortgage – you buy a percentage of the property. For example, 25% or 50%, depending on your finances. You then pay rent to a housing association or developer on the rest.

With a shared ownership mortgage, you only pay based on the percentage you’re purchasing, not the full price of the property. Both fixed rate mortgages and variable rate mortgages are available, and you’ll usually need a deposit of between 5% and 10% of your share. This makes it far more accessible than saving for a full property deposit.

Shared ownership mortgage in action

If the property you are buying is worth £300,000 and you purchase a 50% share, your mortgage will be based on £150,000, not the full amount. You’ll then pay rent remaining £150,000. In some cases, you’ll be able to buy additional shares as and when you’re in a financial position to do so.

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The pros of getting a shared ownership mortgage

As is the case with all types of mortgage, there are a number of benefits to taking out a shared ownership mortgage.

Smaller Deposit – When you buy a shared ownership property, your deposit is based on the share you’re buying, not the full property value. This means your deposit will be a lot smaller and easier to save.
Get on the Property Ladder – Shared ownership gives you a way to get onto the property ladder quickly, even if you can’t quite afford the full cost of buying a property yet.
Staircasing Flexibility – Shared ownership often means you can gradually increase your ownership percentage as your income grows, eventually leading to you owning your home outright.
Smaller Mortgage Repayments – As you’re only borrowing for a portion of the property, your monthly mortgage payments are likely to be considerably lower than if you had any other type of mortgage.

Are there any downsides?

Before you jump into a shared ownership mortgage, it’s important to be aware of a few downsides. The main one is you’ll still pay rent. You only own part of the property, which means you need to pay rent on the rest. This means you’ll have both mortgage and rent payments each month. There’s also likely to be fewer properties to choose from, as shared ownership homes are only available through some developers and housing associations. Your options for location, size and style could be more limited than if you had the whole housing market to choose from.

Not all lenders offer shared ownership mortgages, but that’s rarely a problem. If you work with a shared ownership mortgage broker, you’ll have access to a wide range of options.

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Who are shared ownership mortgages best for?

Shared ownership mortgages are designed to make property ownership more accessible to people who might otherwise struggle to buy. This means they’re well suited to first time buyers, young professionals and those on moderate incomes who can afford monthly repayments, but are finding it hard to save up a large deposit. They’re also good for people living in areas with high property prices, which makes it difficult to buy a home in full.

Shared ownership can also be a great option if you want to build equity gradually. Through staircasing, you can purchase additional shares in your home as and when you’re in a financial position to do so, eventually owning 100% of the property.

Shared ownership deposit requirements

When you’re buying through a shared ownership scheme, you’ll still need a deposit. But, the good news is that it’s based only on the share of the property you’re buying, not the full market value, reducing how much you need to save in a big way.

The exact amount of deposit you need depends on the lender, your credit report and affordability. If you’re purchasing a shared ownership property valued at £250,000 and you plan to buy a 25% share, your portion of the property would be worth £62,500. Most lenders will usually ask for a deposit somewhere between 5% and 10%, which works out at £3,125 and £6,250.

Of course, having a larger deposit can work in your favour by giving you access to lower interest rates, improving your chances of approval and reducing your monthly repayments.

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Where does a Shared ownership mortgage broker come in?

Shared ownership mortgages are considered specialist lending, which means that not every lender will offer them. But, with a shared ownership mortgage broker on side, the process is a lot simpler. At Everest Mortgages, we know which lenders offer shared ownership mortgages, enabling us to compare interest rates and terms to find the best deal for you.

FAQs

Frequently asked questions

How difficult is it to get a shared ownership mortgage?

It’s not as difficult as you might think, not if you work with a shared ownership mortgage broker. As the affordability requirements tend to be lower for shared ownership mortgages, and you don’t need a high income or large deposit, they can be easier to get.

Can I buy more shares in my home later on?

Yes, most shared ownership schemes allow you to purchase additional shares over time. As you buy more shares, your ownership percentage and mortgage repayments will increase, and the rent you pay to the housing association or developer decreases.

Can I sell a shared ownership property?

You can sell your shared ownership home at any time. However, you’ll usually need to offer it back to the housing association or developers first, as they have the right to find a buyer before you can sell it on the open market. Once you own 100% of the property, this isn’t something you need to worry about.