Shared Ownership Mortgage Advice, Buy a Home with a Low Deposit
If you’ve been dreaming of owning your own home but feel held back by high prices and hefty deposits, you’re not alone.
For many first-time buyers, the traditional route to homeownership seems out of reach.
But there’s good news. A shared ownership mortgage could be the stepping stone you need to finally get your foot on the ladder, depending on your circumstances.
This scheme offers an affordable way to buy a share of a property while paying rent on the rest. Over time, you can increase your share and move closer to full ownership.
What is a Shared Ownership Mortgage?
Shared Ownership can allow you to buy a share of a home, with some current schemes allowing an initial share from 10%. The precise share available depends on the property and scheme.
You take out a mortgage on the part you own and pay rent on the remaining share. It’s a hybrid of buying and renting, and it’s designed to make homeownership more accessible, especially for those who are priced out of the full market.
The properties involved are usually new builds or resales provided by housing associations. The initial share you buy can vary, but you’ll usually have the option to increase your share over time through a process called staircasing.
Find out Your Options
Why Choose Shared Ownership?
Shared ownership can be an attractive option for many reasons, especially if you’re just starting out on the property ladder or find saving for a large deposit difficult.
Lower Deposit Requirements
Because you’re only buying a portion of the property, the deposit you need is based on that share, not the full property value. For example, if you’re buying a 30 percent share of a £400,000 home, your share is worth £120,000. A five percent deposit on that would be just £6,000. That’s significantly less than what would be required for a traditional mortgage.
Flexible Ownership Options
You can choose how much of the property you want to buy initially, depending on what you can afford. Later on, if your financial situation improves, you can increase your ownership share.
A Way to Build Equity
As you pay off your mortgage and your home potentially increases in value, your equity grows. This can put you in a stronger position when it comes time to sell or staircase. Owning part of a home, even if it’s not 100 percent, means you benefit from rising property prices on your share.
How Staircasing Works
Staircasing allows you to buy more of your property over time. You can usually increase your share in increments, depending on the scheme.
Each time you buy a new share, the price is based on the current market value of the property, not the value at the time you first bought in. You’ll need to have the home revalued each time you staircase, and there may be fees involved, such as valuation, legal, and mortgage arrangement fees.
The ultimate goal for many is to staircase up to 100 percent ownership. Once you fully own the home, you no longer pay rent to the housing association.
Costs Involved
While shared ownership can be more affordable up front, it’s important to understand all the costs involved.
- Mortgage repayments on your share
- Rent on the share you do not own: The amount is set by the lease and scheme. For new-build Shared Ownership homes, government guidance states that most landlords initially charge around 2.75% of the value of their share, although the maximum is generally 3%. Different arrangements can apply to resale properties.
- Service charges and ground rent, especially in flats or developments with shared amenities
- Maintenance responsibilities: Under some newer Shared Ownership leases there can be an initial repair period, usually lasting up to 10 years, during which the landlord is responsible for certain structural/external repairs and may contribute up to £500 annually towards qualifying internal repairs,
Because these costs can add up, it’s important to speak to a mortgage adviser who can help you assess what’s truly affordable based on your budget. That’s where Kerr & Watson can offer clear, personal advice to help you make the right decision.
Who is Eligible for Shared Ownership?
You might be eligible for a shared ownership mortgage if:
- You’re a first-time buyer or don’t currently own a home
- You have a combined household income meeting the requirement
- You can’t afford to buy a suitable home outright on the open market
- You have a good credit history and can cover the deposit and associated fees
Some housing associations may also give priority to people who already live or work in the area, or to key workers.
The Pros of Shared Ownership
- Affordability: Get on the ladder with a smaller deposit and lower initial mortgage
- Flexibility: Start small and staircase over time
- Security: You’ll have long-term tenure through a leasehold agreement
- Access: Enter the property market even if house prices in your area are high
Things to Be Aware Of
Shared ownership isn’t without its drawbacks, and it’s important to be aware of them before committing.
- You still pay rent on the portion you don’t own, and this can increase over time
- There may be restrictions on what improvements you can make to the property
- Service charges and maintenance fees can be high, even if you own a small share
- Selling your share may require you to give the housing association the first option to find a buyer
- Staircasing to full ownership doesn’t always make financial sense depending on market values and fees
Because every shared ownership scheme has its own rules and limitations, it’s important to have expert advice to avoid surprises down the road.
Stamp Duty on Shared Ownership
Depending on the value of the home and your personal circumstances, you may qualify for first-time buyer stamp duty relief. You can choose to pay stamp duty either on the full market value of the home up front or just on the share you’re buying. If you only pay on your share and later staircase to more than 80 percent ownership, you may have to pay stamp duty again. You can utilise our stamp duty calculator to give you an idea of the amount.
This can be a bit confusing, so speaking with a broker like Kerr & Watson can help you figure out the most cost-effective approach.
Is Shared Ownership Right for You?
Shared ownership isn’t a one-size-fits-all solution. It can be a fantastic opportunity for the right person, but it won’t suit everyone. If you want a more manageable path into homeownership and are happy to share ownership initially, it can be a great first step.
However, it’s important to do the maths and understand what you’ll be paying each month, including mortgage, rent, and fees. Working with a broker gives you the advantage of seeing all your options clearly laid out, so you can make the best choice for your personal situation.
Shared Ownership Mortgage Case Studies
We have helped customers with a range of Shared Ownership mortgage needs, including buying a Shared Ownership property, reviewing an existing mortgage and switching to a new deal.
The case studies below show real examples of customers we have helped with Shared Ownership mortgages and demonstrate how factors such as affordability, the share owned, lender criteria and existing mortgage arrangements can affect the options available.
Conclusion
Shared ownership mortgages can open the door to homeownership when other routes feel closed. By allowing you to buy a portion of a property and gradually increase your share, the scheme offers an accessible and flexible way to own a home.
Like any financial decision, it comes with pros and cons so it is not best for everyone. That’s why it’s so important to get advice that’s tailored to your needs.
At Kerr & Watson, we’re here to support you through the entire process, from understanding your eligibility to arranging the mortgage and planning your next steps. If shared ownership sounds like it might be right for you, or if you just want to understand your options better, get in touch with us today.
