Shared ownership mortgages

In 1996, a whopping 65% of young Brits owned their own home – but it’s down to 27% today. That’s no surprise when you learn the average cost of a first home in the UK has reached £207,000. On average, you’ll also need a 16% deposit – that’s £33,000.

For cash-strapped millennials, a combination of student debt, punishing rents, low pay, high living costs and avocado toast, apparently makes scraping together a deposit near impossible.

But don’t despair. A government scheme – shared ownership – could give you a helping hand, by dramatically reducing the deposit you need. In this guide we’ll explain the benefits, pitfalls, and practical considerations: everything you need to know about shared ownership mortgages.

How shared ownership works

With shared ownership, you co-own your home with a housing association. You buy a share of the property, usually between 25% and 50%, and a housing association owns the rest.

It’s a mix of buying and renting. You take out a mortgage on the share you want to buy, and pay rent to the housing association on the remainder.

For the mortgage part, you’ll still need a deposit. But while standard mortgages ask for 10% of the whole property price, a shared ownership mortgage only asks for 5% of the share you’re buying.

Example costs: standard vs shared ownership mortgage For a house worth £300,000:

Type of mortgage Deposit Why?
Standard £30,000 10% of the total (typically)
Shared ownership £3,750 5% of the share you want to own

It’s part of the government’s Help to Buy scheme, and aimed at people who otherwise can’t afford to buy their own home. Read more about Help to Buy here.

Increasing your share (or “staircasing”)

The maximum share you can buy at the beginning is 75%. You have to wait a year, then if you want to, you can increase the share you own until you own the property outright. This is called “staircasing” and it’s totally optional: you don’t have to staircase if you don’t want to.

Exactly how you’re allowed to staircase will depend on your housing association – so check carefully before you sign on the dotted line.

Usually, you can only staircase three times, and in multiples of 5 or 10% (which means you can buy another 20% of your home rather than 19 or 21%). There’s typically no maximum amount you can buy each time, but watch out: some housing associations will only let you staircase up to a maximum of 80%. That means you wouldn’t ever own that property outright.

If you borrow more money to staircase, you’ll owe more on your mortgage. But as you own more of your home, you’ll also pay less rent to your housing association each month. You’ll pay no rent when you own 100%.

But be careful: each time you staircase, there’ll be fees to pay. Solicitor fees, lender fees, valuation costs. That’s because staircasing is treated a bit like a new sale each time – the price of the share you’re buying gets based on the current price of the property, not the original selling price. It might affect the stamp duty you have to pay (more on stamp duty below).

So if the value of your home has gone up, then so will the price of each percentage share. If it’s gone down, you risk losing money if you sell.

Stamp duty and shared ownership

Stamp Duty Land Tax (aka SDLT or just “stamp duty”) is a tax you have to pay when you buy any UK property worth £125,000 and up.

You’ll need to pay stamp duty on your shared ownership home. But first-time buyers get relief on stamp duty. If you’re buying a shared ownership property as a first-time buyer, and the property is worth less than £500,000, you won’t have to pay any stamp duty.

If your property is worth £500,000 and up, then there are two ways you can pay:

  • Pay all your stamp duty upfront, on the full market value of the property
  • Pay stamp duty on the share you’re buying and pay the rest later (once you own more than 80%)

Let’s break down the main pros and cons:

Upfront payment in full Pay in stages
👍 Once you’ve paid your stamp duty, you won’t have to pay any more later, even if you staircase in several stages. 👍 You won’t have to come up with all the money upfront.
👍 You pay your stamp duty at the original asking price, so if the property value goes up, you’ll have saved more. 👍 If you decide not to increase your share later, you won’t face a stamp duty bill for the rest.
👎 It’s usually a bigger cost upfront. 👍 If you don’t staircase above 80%, you won’t have to pay more stamp duty.
- 👎 If the value of your home goes up, so will your stamp duty bill (for homes worth over £500,000).

Am I eligible for shared ownership?

Your eligibility for shared ownership depends on a few things, from your age to your credit rating. But here are the main criteria.

You have to be:

  • At least 18 years old

  • Earning less than £80,000 a year in your household (£90,000 in London)

  • A first-time buyer OR a shared ownership owner OR you used to own a home but can’t afford one any more. If you own a home, you have to be in the process of selling it.

  • Free of credit issues like county court judgements (CCJs) and defaults on loans (missing repayments on an account until that account is closed). If you’ve had issues more than six years ago that are now resolved, don’t worry, you can still apply for shared ownership. If they’re more recent than that, get advice before you start looking.

Where to find shared ownership properties

Here are a few places to start your search, depending on where you’d like to live:

England, outside London Share to Buy
London Share to Buy in London
Scotland, Wales and Northern Ireland Contact your local council’s housing department and ask about shared ownership schemes near you.
Find your local council

You can also keep an eye out for any new housing developments going up in your area. If you spot one, contact the developer to see if any of the properties are shared ownership. Check for new builds at New Homes.

Remember: shared ownership is super popular so you might have to wait a while to secure the property you want. Being flexible about where you want to live might help you move faster.

Don’t forget to factor in other charges before you start your search, like service charge and stamp duty. Check our top 5 tips for shared ownership success.

For older people: OPSO If you’re aged 55 or over, in England you can apply for a scheme called Older People’s Shared Ownership, or OPSO.

With OPSO, you can only buy up to 75% of your property (which might make it harder to resell, as you’d only be selling a share). But once you reach 75%, you won’t have to pay any rent from then on. Other than that, OPSO works the same as the general shared ownership scheme – which you can still apply for as well.

OPSO developments are also more likely to offer sheltered accommodation, or easy access to care and support. Here’s more about OPSO.

For people with long-term disabilities: HOLD

If you have needs that no shared ownership properties in your area can meet (eg you need to be on the ground floor) you can apply for a scheme called Home Ownership for People with Long-term Disabilities, or HOLD.

HOLD can help you buy a share of any property on the market, not just those advertised as shared ownership homes. You buy 25%–75% of the property, and the local housing authority buys the remaining share.

Usually, these homes come equipped with everything you need, though HOLD mortgages tend to be more expensive. Here’s more about HOLD.

Which lenders offer shared ownership mortgages?

Out of the hundreds of mortgage lenders in the UK, only a small fraction offer shared ownership mortgages. And those that do may restrict your choice to loans specifically designed for shared ownership borrowers.

There’s a risk you’ll have fewer mortgage options and could end up paying more in interest and fees. An expert broker can help guide you to lenders who are friendly to shared ownership borrowers.

Remortgaging with shared ownership

If you decide to staircase (increase your percentage share of the property), you might need to borrow more money to do it. That’s where shared ownership remortgages come in.

You’ll need to get permission from your housing association to remortgage. You can also borrow more to carry out home improvements. But you can’t use a remortgage to consolidate debts.

Your lender may have offered you an initial teaser rate. But when that ends, you’ll be transferred to that lender’s Standard Variable Rate (SVR), likely to cost you a lot more each month than that teaser rate.

You could ask your current lender to increase your loan or switch you to a new rate, but it’s also worth exploring whether remortgaging with another lender could save you more money. It can take time to switch, so look at your options well in advance, ideally 3–4 months before your current rate expires. Don’t worry, you won’t have to switch the second you’re approved – once you successfully apply, you’ll get an offer with an expiry date attached.

If you’re staircasing to less than 100%, you’ll be offered a shared ownership remortgage. This would be the same process as a standard remortgage, though it’s more of a specialist product so your choices of rates and types might not be as plentiful.

If you’re staircasing to 100%, you can take your pick of the lenders. You won’t be tied to a shared ownership mortgage.

Selling a shared ownership property

You can sell your shared ownership property. But there are some restrictions.

First, check your contract. Some housing associations won’t allow you to staircase to 100%, or you might need to get their permission to sell.

If you only own a part share, you have to give your housing association first refusal. They’ll have 8 weeks to either find a buyer or buy the property themselves.

If they do manage to sell the share, you have to pay them a resale fee (usually around 1% of the share price). The price has to be based on the current valuation of the property, so you stand to benefit if that’s gone up.

If 8 weeks pass with no sale, you can sell your share on the open market, but only to buyers eligible for shared ownership (Who’s eligible?).

Because it’s easier to sell a whole property than a share of one, your housing association might let you “back-to-back staircase” – where the extra money for the remaining share comes from the buyer. (Though this is pretty rare.)

If you own the property outright, you’re free to do what you like. You can sell your home without going to the housing association first.

Shared ownership success: 5 top tips

1. Get your mortgage in principle

Shared ownership properties sell like hotcakes and the most sought-after places can come and go in a few days. It’s first come, first served (apart from armed forces personnel, who get priority access).

If you can, get a mortgage in principle before you start your search. It helps to know the likely amount of rent and service charge you’ll be paying on the share you won’t own.

2. Check your credit score

Both your mortgage lender and housing association will run a credit check on you, to see how you’ve managed money in the past, before they agree to sell or rent to you.

They’ll see your credit report, which shows things like your debts, payment history, and where you’ve applied for loans. And your a credit score – a number that helps them assess how likely you are to pay back a loan.

Credit reports are worked out by credit reference agencies, or CRAs. The three main CRAs in the UK are Experian, Equifax and TransUnion (previously CallCredit). It’s worth getting a report from all three, as each is worked out a little differently.

Once you get it, work through this credit score checklist to make sure your score is as good as it can be before you apply for a mortgage.

3. Budget for all costs

It might be called shared ownership, but you certainly won’t be sharing the costs around. On top of your mortgage repayments and rent, make sure you can afford all the expenses of buying and owning a home, for example: - mortgage fees - moving costs - stamp duty tax - insurance - running costs (eg utility bills) - repairs and maintenance - service charge (as all shared ownership properties, like most flats, are leasehold)

4. Stay flexible on location

Shared ownership properties schemes aren’t available everywhere, so the broader your search the better. See: Where do I find shared ownership schemes?

5. Mind the stairs

Staircasing – increasing your ownership slowly over the years – is an appealing idea, but be careful: it can be much pricier than you bargained for. Your property’s value is likely to go up over time, making every percentage share cost a lot more too.