Shared Ownership Mortgages Rates Explained

Getting a shared ownershipA scheme where a borrower purchases a share of a property an... mortgage is not as simple as it seems. It’s important to understand what a shared ownership mortgage is and how it works before you decide whether it’s the right option for you.

During the summer of 2020, applications for shared ownership contracts with a particular housing association have rocketed, revealed a report by the BBC. Where the association typically receives around 50 applications a week, during July, it was receiving 1,000.

In addition to those applicants on lower incomes, the association was now also receiving requests from key workers such as nurses, police officers and teachers.

The news comes at a time when first-time buyers are finding it increasingly difficult to secure an affordable standard mortgage, according to a report in the Guardian newspaper recently. Against that background shared ownership certainly offers a solution – and, fortunately, home ownership scheme mortgages continue to be available.

Shared ownership mortgages are available through housing associations, which offer part ownership of a property. The homebuyer pays rent on the portion which they don’t own, and they use a mortgage to pay for their share of the purchase price.

What are shared ownership mortgages?

A shared ownership mortgage is a long-term loan that allows you to buy a percentage in a shared ownership home, where you are buying part of the property and renting the remainder. So, you part buy and part rent.

The website of the London Assembly, for example, explains that shared ownership gives access to affordable homeownership by applicants taking out a mortgage for a share in a property and paying rent to the landlord – typically a housing association – on the remaining share.

How do shared ownership mortgages work?

You might purchase a 50% share of the home, for instance, and pay rent on the remaining half. You may then “staircase” your ownership by buying further shares in your home, decreasing the amount of rent you have to pay until you may end up owning 100% of the property outright.

As far as the mortgage is concerned, you are likely to need a deposit equal to around 5% to 10% of the value of your share in the property. If you are buying a 50% share in a home, costing a total of £240,000, for example, the value of your share is going to be £140,000. A housing association mortgage will require a 10% deposit – a sum of just £14,000.

Once you move in, you also need to pay rent on the remaining share of the property. But housing associations typically charge a lower rent than elsewhere in the private rented sector. The subsidy can considerably lower the rent you have to pay. If the discounted rent on the housing association’s property is £80 a week, for instance, and you have to pay half of that, you will be paying just £40 a week in rent.

Shared ownership schemes may be likely to prove a considerably more affordable option than having to buy your home outright straight away.

Don’t forget to check the likely amount of rent and service charge you’ll be paying on the share you won’t own.

What are the current mortgage rates for shared ownership in the UK?

The current mortgage rates for shared ownership properties in the UK can vary depending on the lender, loan-to-value (LTV), and the buyer’s creditworthiness. As of September 2024, rates generally range between 5% and 7.5%.

For example, Leeds Building Society offers a 3-year fixed-rate mortgage for shared ownership at 5.34% for up to 75% LTV. After the fixed term, the rate switches to its Standard Variable RateThe interest rate charged by the lender that can vary over t... (SVR), currently 7.49%, with a representative APRC of 7.5%.

Other lenders, such as Barclays and Nationwide , offer competitive shared ownership deals, typically starting around 4% to 5%, depending on your deposit and credit history.

It’s important to consult a mortgage broker or compare lenders directly to get the most accurate and up-to-date rates for your situation.

Who can get a shared ownership mortgage?

The government website explains your eligibility for participation in a shared ownership scheme – and qualification for a shared equity mortgage, therefore:

• In England, your household income is less than £80,000 a year (this ceiling is £90,000 a year in London); and
• You are a first-time buyer looking to get on the property ladder, have previously owned your home but can no longer afford to do so, or are already participating in a shared ownership scheme.

If you live in Scotland, you can find out more about shared ownership on the Shelter Scotland website. For Wales, please visit https://gov.wales/shared-ownership-wales.

What are the advantages of shared ownership of property?

The most obvious advantage – and the one for which shared ownership schemes have been devised – is to give lower-income households an opportunity of getting on the housing ladder.

If you own at least a share in your home, you have greater security of tenure, a bigger financial stake in it, and can also enjoy the benefits of any increase in its capital value (the value of your equityThe difference between the value of the property and the amo... in the home also increases).

Since shared ownership is also often cheaper than renting, there may be compelling reasons for obtaining a housing association equity loan. Beware that it is not always the case, however, so make sure to do your sums carefully to ensure you can comfortably afford the mortgage payments and other expenses such as service charges, stamp duty etc.

Is Help to Buy the same as shared ownership?

The Help to Buy: Equity Loan scheme in England ended on 31 March 2023. This means that you can no longer apply for the scheme to help you buy a new-build home in England.

However, the Help to Buy: ISA scheme is still available in England. This scheme allows you to save up to £200 per month and the government will top up your savings by 25% (up to £3,000) when you buy your first home. You can pay into the ISA until November 2029 and claim the 25% bonusIncome received as a bonus, which may affect a borrower's ab... until November 2030.

The Help to Buy: Equity Loan scheme is still available in Wales. You can borrow up to 20% of the purchase price of a new-build home in Wales, with a maximum loan of £250,000. You will need to have a deposit of at least 5% and you will have to repay the loan over 25 years.

The Lifetime ISA (LISA) is a government-backed savings account that can help you save for a first home or retirement. You can save up to £4,000 per year in a LISA, and the government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. You can open a LISA until you are 50 years old and you can use the money to buy a first home when you are 18 years old.

So, if you are looking for government help to buy a home in the UK, the following schemes are still available:

• Help to Buy: ISA (England)
• Help to Buy: Equity Loan (Wales)
• Lifetime ISA (UK-wide)

Which mortgage lender or building society offers shared ownership mortgage at good rates?

Given the somewhat specialist nature of shared ownership mortgages in the UK, you might think that it will be correspondingly difficult to find the deal that suits you and your particular circumstances.

The market is quite wide and includes those lenders offering mortgage products specifically designed for shared ownership schemes and others who tailor existing mortgages to match your shared ownership plans.

As ever, of course, an exclusive mortgage broker may help you make sure that you have all bases covered. They will find a product whose eligibility criteria matches your household income as well as other financial circumstances, such as your credit rating. Plus, one that offers an attractive interest rate.

What happens if the property value of my house changes?

Any increase in the value of your home is reflected in an increase in your share of it. If the home is sold at that higher value, you share the increase with the housing in proportion to the percentage you both own.

If the property price has fallen, it may have to be sold at a loss – so you lose some of the money you invested in your share of the home. Rather than selling it at this time, however, you might decide to capitalise on the situation and buy a bigger share in the home while prices are lower.

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

This is known as staircasing. The process of the staircase has been described already. You can staircase in parcels of 10% a time until you own the full 100% equity in your home, so you own the whole property.

For the housing association to determine the value of each 10% increase, a new mortgage valuation on the whole of the property needs to be made – and the cost of that 10% share is set accordingly. That cost may have gone up or down since your initial participation in the shared ownership scheme, depending on the current valuation of the property.

Summary- Shared Ownership Mortgage Rates

At a time when first-time buyers, in particular, might be finding it increasingly difficult to get that initial step on the housing ladder and get a standard mortgage, shared ownership mortgages offer an affordable solution.

With shared ownership schemes, you have a greater financial investment in the property and stand to benefit from any future increase in house prices generally. Speak to your mortgage broker for financial advice to find out more.

FAQs

Can I get a mortgage on shared ownership property?

Yes, you can get a mortgage on a shared ownership property. When applying for a shared ownership mortgage, you and the housing association will both need to be on the mortgage agreement. Depending on your financial circumstances, such as income and credit score, there are different types of mortgages available to you. Your lender may also require an independent valuation of the property before they can approve your loan. This will help them determine the value of your stake in the property.

Is shared ownership only for first-time buyers?

No, shared ownership schemes are not just for first-time buyers. There are a number of eligibility criteria that must be met in order to qualify, but this does not include having to be a first-time buyer.

What is staircasingThe process of buying additional shares in a shared ownershi...?

Staircasing is the process of buying more shares in a shared ownership property. This means that you will own a larger percentage of the property and will therefore pay less rent. You can staircase in blocks of 10% or more, and you will need to pay the market value for the additional shares.

For example, if you initially purchase a 25% share in a property worth £200,000, the market value of the additional 25% share would be £50,000. You would therefore need to pay £50,000 to staircase to 50% ownership.

There are a few things to keep in mind when staircasing:

• You will need to have the financial means to buy the additional shares.
• You may need to pay legal fees to staircase.
• The amount of rent you pay will decrease as you staircase, but you will also need to pay more mortgage payments.
• You may not be able to staircase if your lease has restrictions on staircasing.

Staircasing can be a good way to reduce your rent and build equity in your home. However, it is important to weigh the pros and cons before you decide to staircase.

What are the benefits and drawbacks of staircasing?

Here are some of the benefits of staircasing:

• You will own a larger share of your home, which means that you will pay less rent.
• You will build equity in your home, which means that you will have more to show for your investment.
• You will have more control over your home, as you will be the sole owner.

Here are some of the drawbacks of staircasing:

• You will need to have the financial means to buy the additional shares.
• You may need to pay legal fees to staircase.
• The amount of mortgage payments you pay may increase.
• You may not be able to staircase if your lease has restrictions on staircasing.

Overall, staircasing can be a good way to reduce your rent and build equity in your home. However, it is important to weigh the pros and cons before you decide to staircase.