Shared Ownership Mortgages

How They Work and What to Watch Out For

Shared ownership is a route onto the property ladder that more people are using, and with house prices where they are it's not difficult to understand why. The basic idea is straightforward: you buy a share of a property, typically between 10% and 75%, and pay rent on the share you don't own, with the option to buy further shares over time through a process called staircasing. What's less straightforward is how the mortgage works within that structure, and there are some important things worth understanding before you commit.

How the Mortgage Works in Shared Ownership

The mortgage in a shared ownership purchase is taken out on your share of the property rather than the full purchase price, which is what makes it more accessible for buyers who couldn't afford a mortgage on the whole property. If you're buying a 40% share of a property valued at £300,000, your mortgage is based on £120,000 rather than the full amount, and your deposit is calculated as a percentage of that £120,000.

In addition to the mortgage payment, you'll also pay rent to the housing association on the share you don't own. It's important to factor both payments into your affordability assessment, because lenders will look at the combined cost of the mortgage and the rent when assessing whether the arrangement is affordable for you.

Staircasing

Staircasing is the process of buying additional shares in the property over time, and it's one of the features that makes shared ownership attractive in principle. As your financial position improves, you can buy further shares until you eventually own the property outright, at which point the rent element falls away.

Each time you staircase, the price you pay for the additional share is based on the property's current market value at that time, which means the cost of staircasing goes up if property values have risen. There are also costs involved each time you staircase, including a new valuation, legal fees and potentially a new mortgage product, so it's worth factoring those into your planning.

What to Watch Out For

Shared ownership properties are almost always leasehold, which means there's a lease between you and the housing association, and the terms of that lease matter. The length of the remaining lease is relevant to mortgage lenders and to future saleability, and there may be service charges and ground rent alongside the rent on the unowned share. Understanding the full monthly cost of the property, mortgage payment, rent, service charge and any other charges, is essential before making any decisions.

Not all mortgage lenders offer shared ownership products, and those that do may have specific requirements around the housing association, the property type and the lease terms. Working with a broker who understands the shared ownership market is particularly valuable here, because the lender options aren't always visible through a standard comparison search.

Selling a Shared Ownership Property

If you decide to sell, the process is slightly different from a standard sale. The housing association typically has the right of first refusal for a period, meaning they can find a buyer themselves before you're able to market the property on the open market. Understanding how this works and what the timeline looks like is worth clarifying with the housing association before you buy.

If you're considering shared ownership and want to understand how the mortgage element fits together with the rent and the overall cost of ownership, I'm happy to talk it through with you. Get in touch and we'll work through whether it's the right route for your circumstances.

Barry, The Mortgage Network - Helping you make confident decisions and plan a mortgage that works for you.

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