If you’re planning on buying a property, but are worried about affording the mortgage, one of the things you might be considering is Shared Ownership. Lots of people have questions about how mortgages will work with Shared Ownership properties, but it’s actually quite simple.
What is Shared Ownership?
Shared Ownership is one of a few government housing schemes, designed to help First Time Buyers and people with lower incomes/deposits towards owning their property. The idea is that you buy part of a property, with the rest owned by a housing association or developer. You pay mortgage repayments on the part you own and a subsidised rent on the part you don’t. You can then choose to staircase – purchase more of the property in increments, up to 100% ownership.
Read more about Shared Ownership in our guide.
Do I need a mortgage for Shared Ownership?
In short, probably. Shared Ownership allows people to become homeowners at a much lower price, but even so most people will still need a mortgage. If you’ve got savings and you could afford to buy a portion of a Shared Ownership property without taking out a mortgage, it might be worth considering whether you might be better off buying a property on the open market with the help of a mortgage, as these schemes are for people who would be able to buy a property otherwise.
Read about the pros and cons of Shared Ownership to decide whether it’s right for you.
How do Shared Ownership mortgages work?
Shared Ownership mortgages are very similar to conventional mortgages. You need to save a deposit, and then you can borrow up to a certain amount from a mortgage lender.
However, for a Shared Ownership mortgage deposit you only need to save up 5-10% of the share you’re buying. Say you were buying a property worth £300,000. If you were buying it the traditional way, a 5-10% deposit would be between £15,000-£30,000. But if you were buying, for example, a 25% share, then 5-10% of that share would be between £3,750-£7,500.
As well as saving a smaller deposit, you also won’t need to borrow quite as much. This will mean that your interest payments are lower, and you’ll be able to pay it off quicker (although at that point you might want to staircase).
Can I afford a Shared Ownership mortgage?
It’s worth remembering that to be accepted for Shared Ownership, you’ll have to pass their affordabillity criteria. This means you’ll have to be able to afford both your mortgage, and your rental payment. Your mortgage advisor, on behalf of the Housing Association, will look into your income, expenses, any debts and your credit score. You need to have a certain threshold of money available to show that getting a Shared Ownership property wouldn’t put you at risk of falling into debt, just like with a regular mortgage. It’s just important not to forget the rental cost too.
Will I need to remortgage?
There are a few situations where you might want to take out a new Shared Ownership mortgage. Like conventional mortgages, you might want to shop around when your fixed-term rate ends, as your fees may go up and it might be cheaper to remortgage elsewhere.
You also may need to remortgage if you decide to staircase (purchase more of the property). At this point, you’ve got three options – buy the next portion with cash (ie without the help of a mortgage), extend your existing mortgage, or remortgage for your full share elsewhere.
It's a personal decision – and one that will largely come down to costs – which option you decide to go with. Don’t be afraid to shop around to see if you can get a better deal, but it’s definitely worth seeing what your existing provider can offer as well.
How to find a Shared Ownership mortgage provider
Not all mortgage lenders will provide Shared Ownership mortgages, so be sure to ask any potential lender whether they do. Employing the help of a mortgage advisor will make your search easier – they’ll offer impartial advice to help you make the right decision, and will be able to advise which lenders offer Shared Ownership mortgages.
Shared Ownership doesn’t need to be complicated – it’s designed to help people get onto the housing ladder when they otherwise might not be able to. If you’ve got any questions about Shared Ownership mortgages, we’d recommend speaking to a mortgage broker who will be able to tell you everything you need to know.