Shared Ownership

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Remortgage

Shared Ownership

Everything you need to know about shared ownership with Jake Stott.

What is shared ownership and how does it work?

Shared ownership is where you’re only purchasing a share of a property. It’s typically between 25% and 75%.

Imagine a property costs £200,000 and you’re buying a 50% share for £100,000. On that other £100,000, you would pay a portion of rent per month.

It’s a great option for people who might not have the affordability to buy a property outright, but can afford to purchase half of the property and rent the other half. At a later date they may be able to purchase an additional share in that property.

Who is eligible for shared ownership?

Generally it’s for First Time Buyers who can’t afford to purchase a property in their area. It can also be for people who used to own a home but can’t afford it any more.

It can also be for people who already have a shared ownership property and want to move home. There are income caps – generally your household income can’t be more than £80,000 or £90,000 in London.

Which lenders offer shared ownership mortgages?

Not every lender on the market offers shared ownership, but quite a few lenders will. I couldn’t give a number off the top of my head, but I would think it’s in double digits. A lot of high street lenders are doing it at the moment and also some specialist lenders.

What are the advantages and disadvantages of shared ownership?

It’s a great way to get into the market and purchase your first property. Obviously, you’ve got the flexibility to potentially purchase a bigger share of the property in future. Rather than just renting a property and never gaining anything from property prices going up, you own a share of the property.

You are still paying rent and you are still partly a tenant. But if the property goes up in value your share percentage will go up. That means that when you come to remortgage you’ve got more equity, which puts you in better stead.

One of the downsides is that it’s a limited market so it might take a little bit longer to sell the property in the future.

There are also potentially additional fees. For example, if you were looking to buy a future share you will have valuation fees outside of a standard mortgage valuation. It’s done between you and the housing association who deals with the property.

You might also have to pay additional solicitors fees to buy a bigger share. There can also be restrictions on doing anything to the property, because obviously you don’t own it in full.

Which properties are available for shared ownership?

It’s typically new build properties or properties that have been sold previously through the shared ownership scheme. Housing associations potentially manage it with existing properties.

But it’s generally new build houses or ones that were bought as new builds originally where people are looking to move into a bigger property or change area.

How much deposit do I need for a shared ownership mortgage?

You can get away with as little as 5% of the share you’re purchasing. If your share costs £100,000, you potentially only need a £5,000 deposit.

The more deposit you put into the share, the better the rate you’re going to get from the lender. That’s where you need to look at what funds are available to you by speaking to an advisor.

Will my shared ownership property be freehold or leasehold?

All shared ownership properties are leasehold, because they are owned by a housing association and you rent part of the property from them. Essentially if you don’t own a full share of the property, someone needs to be there to make sure that it is in a good state.

Can I buy a bigger share of my home at a later date?

Most schemes will allow you to buy additional shares in the property over time. We call this staircasing. For example, you first buy a 50% share in the property. You might live there for five years and by the time your mortgage ends, you’ve had a pay increase at work and can afford more.

You may have saved some money up, because living in a shared ownership property might be cheaper than renting on the open market. So when your mortgage rate comes to end, perhaps it makes sense for you to purchase an additional share.

Obviously, you’ve got to work out what your new mortgage payment is going to be and what your rent will decrease by, because if you’re buying a bigger share your rent will be less. So it’s all about weighing the options up and kind of working out what’s best for you. If you see an advisor, we will guide you through that process.

Can I ever fully own a shared ownership home?

Yes – most shared ownership schemes will allow you to staircase up to 100%, although not all offer that. But if they won’t allow you to go up to 100%, that will put quite a lot of mortgage lenders off.

So when you first start looking at a property, discuss it with your advisor and make sure you’re making the right decision. The last thing you want to do is to tie yourself into a property that will be hard to sell in 10 to 15 years’ time.

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What happens if the value of my house changes?

So if you’re buying 50% of a property worth £200,000, and after five years it’s worth £220,000 your share has gone up from £100,000 to £110,000. You’ve gained £10,000 worth of equity.

It’s the same for the housing association that owns the other 50%. So if you wanted to buy, say, another 25% share it would now cost you £55,000. Their equity will go up as well as yours – that’s just something to bear in mind. If you do want to staircase up in the future, any price rises in the area will be passed on to you – but you are also going to gain on the equity side.

It’s a win in one way but a loss in another, because you have to buy the additional share at a higher price.

What if I have bad credit then can I still get shared ownership?

There are specialist lenders that are willing to lend on shared ownership properties to people with some credit issues on file. Usually, they do want you to have at least two years clear of issues on your credit file or longer.

But there are options out there for you if you do have bad credit and can’t get onto the shared ownership scheme with high street lenders.

How do I sell my shared ownership home?

You inform the housing association that you are going to sell the property and put it on the market. Some housing associations will market the property for you.

When you sell the property, you have to make the new tenant/buyer aware of the rental amount – obviously they’re not only buying the property from you but also entering into a rental contract with the housing associations.

Most of the time, it shouldn’t be too much of an issue. You can’t sell it on the open market, but it’s hugely easier to sell it with the help of the housing association, because they usually have waiting lists of interested buyers.

Can I make home improvements to my shared ownership property?

Redecorating isn’t usually an issue, but do check the agreement with the housing association when you’re purchasing the property. Major work like an extension isn’t allowed without getting approval – generally you’d have to do that anyway with a leasehold property.

So you are going to struggle to do major works like extensions, loft conversions etc, but light decorating work should be fine. You would have to speak to the housing association and get permission from the leaseholder before going ahead with any work.

How does the remortgaging process work with shared ownership?

When it’s time to remortgage, you can make the decision whether or not to staircase. If you do, we need to make sure you meet affordability for that additional share. You may need to do an additional valuation on the property out of your own pocket. It generally costs £300 to £400.

If you do want to staircase, you would remortgage and buy that additional share from the leaseholder. If you’re looking to change lenders, you need to make sure the new lender will allow you to do with the shared ownership scheme – because not all accept shared ownership.

Most of the time, too, they offer a specific shared ownership product. You won’t tend to find those on a price comparison site. Usually those focus on the cheapest products possible and a lot of the time, shared ownership products sit a little bit higher than standard products. It’s because they pose a little bit more risk to lenders, as it can be harder to sell the property in the future.

How does stamp duty work for shared ownership properties?

Stamp duty works the same way as with any purchase. You would usually just pay the stamp duty on the share that you are purchasing now. So if you’re buying a £100,000 worth of the property but the full market value is £200,000, you only owe stamp duty on the £100,000. With the current stamp duty rates, that is zero. So I don’t think you need to worry about that.

The scheme itself is made for people who might find it more difficult to get on the property ladder. As we speak in April 2024, you don’t have to pay stamp duty on properties below £250,000.

Shared ownership is a form of affordable housing so it will be below that threshold. It’s unlikely, you’re ever going to pay stamp duty. You might have to pay it if you staircase up at a later date, for an additional share, but for First Time Buyers it’s unlikely – unless you’re going to buy over that £250,000 threshold.

Are there any other fees I need to know about?

In terms of fees, you may be liable for service charges. Many shared ownership properties are flats, so you might have to pay a service charge on the building and for communal lighting, maintenance, car parks and things like that.

You might also have to pay ground rent as well. That can range from almost nothing to £300 or £400 a year.

What are the alternatives to shared ownership mortgages?

A little bit similar to the Help to Buy scheme that closed down in March 2023, some lenders offer an ‘equity loan’ on top of a mortgage. This doesn’t necessarily have to be on a new build property – it can be on an older property.

You will essentially own the property outright, but the usual equity loan amount is 20% and you’ll owe that separately. It might be interest-free for a set time – you have to check the terms. But it is potentially another option to get people onto the property ladder if they don’t meet full affordability.

The issue with these is that they are limited in terms of who offers them and also on lenders that work alongside them. There’s not a big uptake in the market for it at the moment.

Perhaps the government will bring out something new, we don’t know at the moment. Shared ownership is similar to Right to Buy and Right to Acquire, which are also good options if you are renting from councils or housing associations. They could be another option to get on the property ladder.

How do I apply for shared ownership or the shared ownership scheme? Can a mortgage broker help?

First off, you have to find a property that’s available on shared ownership and make sure that you meet the criteria. The housing association may ask you to complete an application form. If you meet the requirements, they give you an idea of what the percentage shareholding will be and what the rent might be.

You can then sit down with your mortgage advisor and work out all the figures. I would explain what your payments will be at 25%, 35%, 45% or 50% ownership, for example.

You might choose to pay less rent but more in a mortgage payment. It might cost you a little bit more in total to go for that extra 5%, but you gain more in the equity long term. So we will help you decide what’s best for you.

Once you’re ready to go forward you pay a reservation fee, get your mortgage agreed and a solicitor works on the legal side of the purchase. It’s not too complicated. It’s very similar to buying a property – you just have to liaise initially with the housing association to make sure you meet their criteria.

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