Mortgage Decisions Guide to Shared Ownership

If you are struggling to get onto the property ladder, do not give up on your plans just yet. There government offers a variety of schemes for first-time buyers that could help you purchase your first property. One of these schemes is called Shared Ownership.

What is Shared Ownership?

Shared Ownership is a government-backed initiative aimed at helping first-time buyers and those with lower incomes step onto the property ladder. This scheme allows individuals to purchase a share of a property and pay rent on the remaining portion. Over time, you can increase your share of the property through a process called “staircasing.”

In this guide, we will walk you through the key aspects of Shared Ownership, including eligibility criteria, the application process, and how to manage your shared ownership property.

How does Shared Ownership work?

Shared Ownership allows you to purchase a share (between 10% and 75%) of a property’s full market value and pay rent to the landlord on the remaining share.

When you buy a shared ownership home, you can decide how much deposit you can afford to put down (if any – it is possible to get Shared Ownership mortgage with no deposit at all) and what stake of the property you can buy. You can put down none or as little as a 5% deposit and take out a mortgage to cover the rest. You then pay rent on the part you do not own.

You can buy additional shares in the property over time, a process known as “staircasing,” until you own 75% of the property or you own the property outright. Staircasing incurs additional legal and valuation costs, but a higher ownership share means lower rent payments. It is worth checking how many times you can increase your share of the property with your housing association. It could make more sense to buy a bigger share of your property if the legal costs are hefty or/and if there is a limit on the number of times you can staircase.

What are the advantages and disadvantages of the Shared Ownership scheme?

Advantages of shared ownership include:

• It allows you to step onto the property ladder with a lower deposit.
• It provides a reduced monthly cost compared to full ownership.
• It gives you the flexibility to buy more shares as your financial situation improves.
• There is a chance that property value will increase over time.

Disadvantages of a shared ownership scheme are:

• You have limited control over the property.
• You need to pay monthly rent in addition to the mortgage.
• You need to cover associated costs of leasehold ownership such as ground rent and service charges or maintenance fees.
• There could be some restrictions on selling the property.
• You will be faced with costs associated with increasing your ownership share.
• You’ll have to cover the costs of any repairs to your own home in full.

Who can apply for Shared Ownership?

While shared ownership was created mainly to help first-time buyers, the scheme is available to anyone meeting the criteria.

To be eligible, you must:

• Be a first-time buyer or have previously owned a home but cannot afford one now. You cannot own another home.
• Have a combined household income below a certain threshold. If you live outside of London your annual household income must be less than £80,000. If you live in London, your annual household income must be less than £90,000.
• Be 18 years old or older.
• Not be able to afford to buy a home suitable for your housing needs.
• If you own a home, you must have formally accepted an offer for the sale of your current home before applying for Shared Ownership.
• Anyone aged 55 or over at the time of buying the home, can buy up to a 75% share through the Older Persons Shared Ownership (OPSO) scheme. Once you own 75%, you will not pay rent on the rest.

Who is prioritised for Shared Ownership homes?

Shared ownership homes are prioritised for first-time buyers, key workers, military personnel, or people with disabilities. Some housing associations may give priority to specific groups and have their own eligibility criteria.

What is the £25% and 45% rule for Shared Ownership?

The rule is that a minimum of 25% of the applicant’s net wage and 2.5x their gross income should be used as a minimum towards home ownership. There is also an upper limit of 45% of the applicant’s net wage and 4.5x their gross salary to ensure they can afford payment long-term. These caps are absolute limits and cannot be breached. The agency views all properties being purchased with a ratio between these multiples as maximising their contribution.

What kind of homes can I buy using Shared Ownership?

It depends on your budget, location you want to buy in and availability. You can choose from some of the best quality homes on the market. The majority of Shared Ownership properties are new build homes that come with the latest in fixtures and appliances and modern décor. You can move in straight away and enjoy your new high-quality home.

How to find a Shared Ownership Property?

• Contact local Housing Associations. In Hampshire, these could be Sovereign Housing Association, Vivid Homes, Abri, Southern Housing New Homes and Aster Group.
• Check your local council’s website. Some councils advertise shared ownership homes on their website.
• Use property websites and portals such as Zoopla and Rightmove.
• Register with Help to Buy agents.
• Make a list of local homebuilders and join their waiting list.
• Some estate agents sell shared ownership properties, so it is worth contacting them too.

How do I know how much of the property I can buy?

The best way to start is to determine your budget. You need to factor in deposit, mortgage, and any additional costs (such as legal fees). It is worth talking to your mortgage advisor to find a suitable mortgage product.

How to apply for shared ownership?

1. Firstly, make sure you meet the criteria and are eligible for a shared ownership scheme.
2. Contact the organisation selling shared ownership homes in your area.
3. Complete an application form.
4. Provide proof of eligibility and any requested financial documents (you will be made aware of what they are).
5. Complete a financial assessment which will determine the share of the property you can afford. They will confirm that you are eligible and check what type/size of a property you can afford, send your information about available or upcoming homes for sale and arrange viewings.
6. If you’re eligible to buy the home, you can pay a fee (of up to £500) to the landlord to reserve it for a fixed period (confirmed by the landlord). No one else will be able to reserve the home at that time. The fee is non-refundable so if you don’t buy the home you reserved, you will lose it. The fee will be taken off the final amount you pay on the day you buy the home (known as the completion day).
7. You need to appoint a solicitor or a licenced conveyancer to handle the legal process of transferring ownership from the property seller to you (called conveyancing).
8. Review and sign a Shared Ownership lease.
9. Complete the purchase and move in.

What extra costs should I consider?

You need to take into account additional costs, such as service charges to cover maintenance and communal areas, and ground rent. They will be confirmed by the landlord. You should also take out home insurance to protect your property and belongings. We can help with that.

What mortgage options do I have?

You can choose between repayment and interest-only mortgages. There are plenty of options available and our team will be able to help you find the best product on the market.

Bear in mind that you will need a 5% to 10% deposit to secure a mortgage.

What are the responsibilities of Shared Owners?

• You are required to maintain the property in good condition.
• Pay rent and mortgage on time.
• Comply with lease terms and any Housing Association rules.
• You are responsible for day-to-day maintenance.

How to sell my Shared Ownership Property?

You can sell your shared ownership home at any time. If you own 100% of your home, you can sell it on an open market via an estate agent.

If you don’t own 100% of your property, you need to notify the landlord of your intention to sell. Landlords often have a “first refusal” option, which means they may have the opportunity to buy your share before you can sell it on the open market.

The landlord has a nominated period (this is agreed upon your lease) to find a new buyer. If the landlord does not find a buyer within the nomination period, you can market your property through a local estate agent and sell on an open market.

If the landlord finds a buyer during the nomination period, you will be paid no more than the current market value of your share. The price will be based on a valuation by a surveyor who is registered with the Royal Institution of Chartered Surveyors (RICS), for instance, Trinity Rose. The valuation needs to be arranged either by yourself or the landlord, depending on their policy. You will incur the valuation costs.

If the landlord manages to find a new buyer and sell the property for you, they may charge you a fee for doing so. This cost should be listed in either the key information document or the lease for your home.

You will need to hire a solicitor to help you with the legal process and cover the legal fees yourself.

The process simplified:

1. Notify your landlord/housing association.
2. Arrange a valuation using RICS surveyor (you are responsible for valuation fees).
3. Find a buyer.
4. Hire a solicitor to handle the legal process for you.
5. Repay the outstanding mortgage.

How long does the shared ownership process take?

The process of buying a property through shared ownership can vary in terms of the time it takes, and it depends on several factors including the stage of construction, availability on the market and the length of time required to get a mortgage. On average the process takes anywhere from 1-3 months.

What is the difference between the existing Shared Ownership scheme and the new version?

There is no change to the eligibility criteria. The changes are shown in the table below.

Which properties will be affected by the new Shared Ownership model?

The new model was implemented on all newly built Shared Ownership homes delivered through the Affordable Homes Programme in April 2021 and will run for five years up to 2026. Some properties are already available.

Is there a minimum income requirement for Shared Ownership?

No, there is no minimum income required for the Shared Ownership scheme as a whole. However, the seller will determine the minimum income required for each property based on the property valuation. If you have a large deposit, you can make the minimum income required more affordable.

Can I own more than one Shared Ownership home at the same time?

No, it is not possible to own more than one Shared Ownership home at the same time. If you are in the process of selling another property, you must prove that you have accepted an offer to sell your existing property.

Do you need a mortgage for shared ownership?

No. If you have enough money to purchase the share without a mortgage, for example from an inheritance or savings you don’t have to take out the mortgage. You will need to prove you are still able to afford the monthly costs such as rent.

How much shared ownership mortgage can I get?

The general rule is that the total cost of the mortgage, rent and service charges must be no more than 45-50% of your household income after tax. Take a look at the 45% rule description in this guide.

Are shared ownership mortgages more expensive?

Shared ownership mortgages can have different costs and structures compared to traditional mortgages. There is a limited number of mortgage lenders that will lend on shared ownership properties meaning you’ll have less choice and may end up paying more in interest and fees.

Shared ownership typically requires a lower upfront deposit compared to a traditional mortgage to make it more accessible for first-time buyers who might not have a large savings cushion. However, the lower deposit may mean higher ongoing monthly payments.

Shared ownership mortgages may have slightly higher interest rates compared to traditional mortgages. Lenders might consider shared ownership a riskier proposition, which can lead to higher interest rates. However, the difference in interest rates can vary, and it’s essential to shop around for the best deal. We have access to a large number of mortgages and will help you find the best mortgage for you.

Can I sell my shared ownership property?

You can sell your shared ownership home at any time.

Are there restrictions on who I can sell my share to?

This depends on your share of the property and your lease. Some developers have a nominated period to sell the property on your behalf. If they don’t sell your home within the agreed period, you can advertise it on an open market.

What happens when you sell a shared ownership property?

Once all the legal and financial aspects are in order, the sale can be completed, and ownership of your share is transferred to the new buyer.

If you have an outstanding mortgage on your share of the property, you’ll need to repay this using the proceeds from the sale.

Can I release equity from my shared ownership home?

Yes, it is possible to release equity from your shared ownership home, but there are specific considerations involved in the process. Firstly, you need to check whether your housing association allows it. Some housing associations may have restrictions or requirements for equity release. The amount you can release must be enough to buy the rest of the property, so you own 100% of it on completion of the loan.

Can you build an extension on a shared ownership house?

You can paint, decorate and refurbish a shared ownership home, for example, replace a kitchen or bathroom, but to make any structural changes you will need written permission from your landlord.

If you think that Shared Ownership is right for you, contact us here and let us guide you on your journey to owning your property.