How do shared ownership mortgages work?

by Housesimple on 11th November 2016

If you're struggling to get a foot on the property ladder, a shared ownership mortgage under the government's Help to Buy scheme could be tempting. Wondering exactly what's involved and whether it's the right choice for you? Read on for some useful mortgage advice.

What is a shared ownership mortgage?

Shared ownership mortgages let you buy a share in a property and pay rent on the rest. You can buy between 25% and 75% of the home to begin with, and then increase your stake as and when you can afford it. You pay rent on the share that you don't own. Typically, the deposit on a shared ownership mortgage is smaller than a traditional mortgage – around 5% of the total property value instead of 10–20%.

Who is it available to?

The scheme was initially designed to help low income families, but as the rules get more relaxed buyers from all backgrounds are starting to take up shared ownership mortgages. However, there are some exemptions. It's only available to people who make less than £80,000 per year (or £90,000 if you live in London). It's also only available to first time buyers and people who used to own a property but can't afford one now. Buyers aged 55 and over are eligible for the Older People's Shared Ownership (OPSO) scheme. This is exactly the same, except OPSO holders don't need to pay rent on the remaining share once they own 75%.

What kind of properties can I buy?

As shared ownership properties are sold through housing associations, you'll need to buy one of their newly built or existing homes. This means you can't go for the usual private house sales.

What are the drawbacks?

If your ultimate goal is to own the property outright, it could be quite expensive. Every time you upgrade your share, you’ll need to have the home valued and pay the current market rate – as well as all the other costs involved, including stamp duty and legal expenses. As British property prices show no signs of slowing down, each share you buy will be more expensive. That’s why it's best to buy as much of the property as you can afford at first. But remember to check what your rent will be before committing to a big mortgage.

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