Shared ownership mortgages

Find out how shared ownership works and if it could help you get on the property ladder.

What is shared ownership?

Shared ownership is a government-backed scheme designed to help first-time buyers struggling to afford all the deposit and mortgage payments for a new home.

Housing associations and local councils offer properties available to buy using shared ownership. You can buy between 10% and 75% of the property, and you’ll then pay rent to the housing association for the remaining share.

To buy your share of the property, you’ll need to get a shared ownership mortgage, also known as a ‘part buy, part rent’ mortgage.

As you only need a mortgage for a percentage of the property you’re buying, the amount you’ll need for a deposit will be a lot lower than if you’re buying 100% of a property. This means shared ownership properties can be a lot easier to get if you’re struggling to get onto the property ladder.

How does Shared Ownership work?

A shared ownership mortgage works like a standard mortgage; the only difference is that it’s only used to buy part of a property. They’re also available with only a small deposit required, usually as little as 5%.

For example, if you want to buy a 50% share in a shared ownership property worth £300,000, you need to pay £150,000. You could do this with a 5% deposit of £7,500 and the rest from a shared ownership mortgage of £142,500.

The housing association will retain ownership of the remaining 50% of the property, and you’ll rent this from them. Your monthly payments will be made up of the mortgage repayment and rent.

The rent you pay is set below market rates, and the maximum you can be charged is 3% of the unsold share. For example, if you’re renting the 50% share of £150,000, the most they could charge in rent is £4,500 a year, or £375 a month.

What properties are available through shared ownership?

Shared ownership homes are only offered through housing associations, local councils and some homebuilders. You can buy:

A new build property
An existing property through a shared ownership resale scheme
A home that matches your needs, for example, a flat on the ground floor if you have a long-term disability

Shared ownership properties are sold on a leasehold basis, meaning you usually have to pay service charges monthly or annually.

Am I eligible for shared ownership?

You will be eligible for the shared ownership scheme if:

Your household income is no more than £80,000 a year, or no more than £90,000 a year if you live in London
You’re unable to afford the deposit and mortgage repayments for a property that meets your needs
You’re a permanent UK resident

One of the following statements must also be true for you to be eligible:

You’re a first-time buyer
You’re a former homeowner but are struggling to buy a new home
You’re creating a new household, for example, following a relationship breakup
You’re currently renting from a council or housing association
You’re currently in a shared ownership property and want to move

In some locations, you may need to show that you live in, work in or have a connection to that area to be eligible for a shared ownership property there.

You can see if you could get a shared ownership property by using the government’s eligibility checker.

If you are eligible for the scheme, you will also need to be eligible for a shared ownership mortgage. As with any mortgage application, the provider will need to check you can afford the repayments and check your credit report.

Can I get a shared ownership mortgage with bad credit?

It is possible to get a bad credit shared ownership mortgage. In fact, it could help you buy a home if you don’t have the best credit score.

Getting accepted for a shared ownership mortgage might be easier because you are borrowing a smaller amount, and the repayments will be lower.

Your credit score should improve as you pay off your mortgage and make your rent payments. You can then begin to increase your share in the property and eventually own your property outright.

Is shared ownership worth it?

Shared ownership is an option well worth considering if you are struggling to buy a property. It can be a good stepping stone between renting and buying a property outright, but it’s not always the right choice for everybody.

Before deciding to buy a shared ownership property, consider the pros and cons carefully first.

Shared ownership pros and cons

Pros of shared ownership

Small deposit

You can buy a property with a small deposit, or if you can’t afford mortgage payments

Save money

It can help you save money as it should be cheaper overall than renting

Staircasing

You can increase your share in the property over time with staircasing

Property value

If the value of the property goes up, so does the value of your share

Cons of shared ownership

Harder to sell

It can be harder to sell the property, and the landlord will have first refusal and can set the resale price

Fewer lenders

Fewer lenders offer shared ownership mortgages, so you’re choices will be more limited

Less choice

You can only buy homes that are part of the scheme, so you will have fewer properties to choose from

Permission

You may need permission for things like home improvements or having pets in the property

Selling a shared ownership property

To apply for a shared ownership property, first ensure you meet the scheme's criteria.

If you’re eligible, you then need to find a property that’s part of the scheme. You can use gov.uk to find organisations selling shared ownership properties in your area.

You can arrange a viewing through the housing association or organisation selling the property. They will also check your eligibility, and they may also ask you about your finances to make sure you can afford the property.

If you like the property, you can reserve it by paying a fee of up to £500. This fee will be taken off the final amount you pay; however, if you decide not to buy the property, the fee is usually not refundable.

To proceed with the purchase, you will need to make sure you have a deposit available and then apply for a shared ownership mortgage.

Our expert says...

“Using shared ownership could help if you’re struggling to afford a new home. You’ll own part of the property and can increase your stake gradually over time.

To find out if shared ownership could be the right option for you, speak to one of our expert advisors. They can talk you through the process and help show you the best mortgage rates for shared ownership.”

- Jon Bone \ CeMAP-qualified

How much you can save will depend on the share of the property you buy and how much it costs. For example, if you wanted to buy a house worth £300,000 with a 5% deposit, you would normally need £15,000.

However, if you buy 50% of the property using shared ownership, you would only need a deposit of £7,500. This means it would cost you £7,500 less; however, as you are only buying half the property, the value is the same.

You can save by stopping paying rent and getting a shared ownership mortgage. The rent you pay for the landlord’s share of the property is set at no more than 3% of the value annually so it will be less than a standard rental property.

It is possible to buy more of your shared ownership property through something called ‘staircasing’. You can staircase in small increments, as low as 1%, and you can build up your share to 100%, meaning you will own the house outright.

When you come to buy more shares, their cost will be determined by the property's value at that time. So, if the house was valued at £350,000 and you want to buy 10% more of the property, it would cost £35,000.

You should be able to do any decorating, like painting, wallpapering or refurbishing, without permission, but you will have to pay for it yourself.

You will need the landlord's permission to make significant structural changes, like building an extension or a loft conversion. Remember, they will own a percentage of any improvements you make.

For example, if you build a conservatory and own 50% of the house, the landlord will effectively own half of the value it has added to the property.

You can choose to sell your shared ownership property at any time; however, it can be harder to sell. The housing association will usually have first refusal to buy your share of the property back from you, and it is up to them to set the price.

If they choose not to buy your share, any new buyer will need to buy it as part of the shared ownership scheme.

Shared equity and shared ownership are slightly different. With a shared equity scheme, you pay back a low-interest loan on the part of the property you can’t afford.

That means you will own the whole property from the outset, but you have two loans to pay back: the shared equity mortgage and the standard mortgage.

The costs of shared ownership are largely the same as buying a house with a standard mortgage.

The deposit you need to provide will be less as you’re only buying a percentage of the property, but you will still need to pay: