As a financial expert with over a decade of experience in accounting and mortgages, I’ve guided many first-time buyers and those with limited budgets through the complexities of shared ownership mortgages. This unique type of home financing can be an excellent way to get onto the property ladder, but it’s crucial to understand how it works. Let’s explore the key aspects of shared ownership mortgages as of February 2025.

What is a Shared Ownership Mortgage?

A shared ownership mortgage is a specific type of loan used when purchasing a property through the government-backed shared ownership scheme. This scheme allows buyers to purchase a share of a property (typically between 10% and 75%) while paying rent on the remaining portion to a housing association.

How Shared Ownership Mortgages Work

When you take out a shared ownership mortgage:

• You only need a mortgage for the share you’re buying, not the full property value
• The minimum deposit is usually 5-10% of the share you’re purchasing
• You pay rent on the portion you don’t own, typically at a discounted rate
• You have the option to buy more shares over time (known as ‘staircasing’)

For example, if you’re buying a 25% share of a £200,000 property, you’d need a mortgage for £50,000. With a 10% deposit of £5,000, you’d need a mortgage for the remaining £45,000.

Eligibility for Shared Ownership Mortgages

To be eligible for a shared ownership mortgage, you typically need to:

• Have a household income of less than £80,000 (£90,000 in London)
• Be a first-time buyer, or a previous homeowner who can’t afford to buy now
• Not own another property at the time of purchase

Pros of Shared Ownership Mortgages

1. Lower deposit requirements: You only need a deposit for your share, making it more accessible for many buyers.
2. Smaller mortgage: Borrowing less can make it easier to get approved and potentially access better rates.
3. Opportunity to increase ownership: You can buy more shares over time as your financial situation improves.
4. Access to new-build properties: Many shared ownership homes are new builds in desirable areas.

Cons of Shared Ownership Mortgages

1. Ongoing rent payments: You’ll need to pay rent on the portion you don’t own, in addition to your mortgage.
2. Limited choice of properties: Only certain homes are available through shared ownership schemes.
3. Potential restrictions: There may be limitations on renovations or selling the property.
4. Costs of increasing ownership: Buying more shares (staircasing) can involve significant fees.

Conclusion

Shared ownership mortgages can be an excellent option for those struggling to get onto the property ladder through traditional means. They offer a way to start building equity with a smaller initial investment. However, it’s crucial to carefully consider the long-term implications, including ongoing costs and potential restrictions.Remember, while shared ownership can make homeownership more accessible, it’s not the right choice for everyone. It’s often beneficial to seek advice from a mortgage professional who can help you understand if a shared ownership mortgage aligns with your financial goals and circumstances.

Frequently Asked Questions (FAQ)

Q1: Can I get a shared ownership mortgage if I’m not a first-time buyer?
A: Yes, if you previously owned a home but can no longer afford to buy one, you may still be eligible.

Q2: How does staircasing work with shared ownership mortgages?
A: Staircasing allows you to buy additional shares in your property, usually in increments of at least 1%. You’ll need to have the property revalued and may need to extend your mortgage.

Q3: Are there any restrictions on selling a shared ownership property?
A: Yes, typically the housing association has the right to find a buyer first, and there may be limitations on who can purchase the property.

Q4: Can I rent out a room in my shared ownership property?
A: This depends on the terms of your lease. Many housing associations don’t allow subletting of any part of the property.

Q5: What happens if I can’t afford the rent or mortgage payments on my shared ownership home?
A: As with any property, failure to keep up with payments could result in repossession. It’s crucial to ensure you can afford both the mortgage and rent before committing to shared ownership