Shared Ownership Mortgages Explained

Main guide

What is shared ownership?

Shared ownership is a home ownership scheme where you buy a share of a property and pay rent on the remaining share. The unsold share is usually owned by a housing association, local authority or shared ownership provider.

For example, you might buy 25%, 40% or 50% of a property and pay rent on the rest. The exact starting share depends on the scheme, the property and your affordability.

You usually need a mortgage for the share you are buying, unless you are buying that share outright in cash. You also normally need a deposit, but the deposit is based on your share rather than the full market value of the property.

Why buyers consider shared ownership

Shared ownership can help some buyers get onto the property ladder when buying the whole property would be difficult. It may reduce the deposit needed and the initial mortgage size.

However, it is important to look beyond the deposit. You will usually have mortgage payments, rent, service charges and other property costs. These can increase over time, so affordability needs to be considered carefully.

Shared ownership is not simply “cheaper buying”. It is a specific type of purchase with its own rules, costs and restrictions.

Your home may be repossessed if you do not keep up repayments on your mortgage.

What do lenders check for shared ownership?

A shared ownership mortgage application involves many of the same checks as a standard mortgage, but lenders also need to consider the rent and scheme details. The lender will assess whether the mortgage is affordable alongside the rent on the unsold share and any service charges.

Lenders may review:

• your income and employment status
• regular outgoings and credit commitments
• your deposit amount and source
• your credit history
• the share you are buying
• the rent on the unsold share
• service charges and ground rent where applicable
• the lease terms and scheme rules
• whether the property and provider are acceptable

The housing association or provider may also carry out its own affordability assessment. This can sit alongside the lender’s checks, so it is possible to pass one assessment but still need further review from the other.

The property documents matter too. Lenders will usually want to understand the lease, resale rules, staircasing terms and any restrictions. If the lease or scheme structure does not meet lender criteria, mortgage options may be limited.

This is why it can help to get advice before reserving a shared ownership property.

How much deposit do you need?

The deposit is usually based on the share you are buying, not the full property value. For example, if you buy a 40% share, your deposit is normally calculated against that 40% share.

This can make the upfront deposit lower than buying the whole property. However, the exact deposit needed depends on lender criteria, your circumstances and the property.

Some lenders may have minimum deposit requirements, and your credit profile or property type can affect the options available.

What is staircasing?

Staircasing means buying more shares in the property later. This can reduce the rent you pay on the unsold share and may eventually allow you to own more, or sometimes all, of the property.

Whether staircasing is possible, how often you can do it and what costs apply will depend on the lease and scheme rules. You may need a valuation, legal work and either savings or further borrowing to buy more shares.

Costs to consider

Shared ownership buyers need to think about more than the mortgage. Ongoing costs may include rent, service charges, buildings insurance, maintenance, leasehold costs and usual household bills.

Some costs may increase over time. Rent reviews and service charge changes can affect affordability. It is important to understand how these are calculated before committing.

Resale and restrictions

Shared ownership properties can have resale rules. You may need to offer the property back to the housing association or follow a particular sale process. Restrictions can vary, so the lease should be reviewed carefully.

There may also be eligibility rules around income, property use and whether you can own another property.

Common mistakes to avoid

A common mistake is focusing only on the lower deposit and ignoring total monthly costs. Another is assuming every lender offers shared ownership mortgages. Lender availability can be narrower, particularly if the lease or property has unusual features.

It is also important not to assume staircasing will definitely be affordable later. Your future income, property value, mortgage rates and lender criteria could all affect what is possible.