Shared Ownership Mortgages

Shared ownership mortgages are becoming more popular than ever these days. With the price of housing a constant worry for many, it's a way for people to get a foot on the property ladder. But, what are shared ownership mortgages and how do they work? We're going to take a closer look in this brief guide. Read on to find out all you need to know.

What is shared ownership?
The shared ownership mortgage scheme was introduced to help people who earn lower incomes the chance to buy a house. Housing associations will offer first-time buyers a chance to own a part of a home - somewhere between 25 and 75 percent. It enables people who cannot afford a mortgage on an entire property or can only raise a small deposit a chance of ownership.

How do they work?
Housing associations build homes, and offer them for general sale, with some on offer as part of the shared ownership scheme. They are now open to any household with a joint income of less than £80,000 - which extends to £90,000 in London. An ordinary mortgage will usually need buyers to save a 10-20 percent deposit on the entire value of the property. So, if a home is worth £200,000, that could be as much as £40,000.

But, with the shared ownership mortgages, things are a little different. In general terms, the buyer will contribute 5 percent of the value of their share of the property as a deposit. Let's take another look at that home for £200,000. You arrange a mortgage to buy 50 percent of the property at £100,000. You will, therefore, only pay £5,000 deposit. As you can see, this opens up the opportunities for many more households on lower incomes to get a lift up onto the property ladder.

Can you buy more of the property?
The way that shared ownerships work is that you can purchase the rest of the property in increments. So, you might start with a 40 percent share, but then increase your ownership over time, to 50 percent, of maybe 75 percent. You can take over the property altogether too.

However, you don't pay your increments at the original value of the property, and your home will need to be revalued. The amount you pay will be based on the current market value - which could be problematic if house prices nearby have had a significant rise.

Selling a shared ownership home
Another thing to consider is that the housing association will have the first refusal when you decide to sell it. They will get a valuation, and have a set period that they try and sell the property. However, should they fail to do so, you will be able to sell the property on the open market.

This also applies when you have increased your ownership to 100 percent. The housing association has the right to find a buyer for 21 years after you have complete ownership of the home.

We hope you've enjoyed this brief guide to shared ownership mortgages. Keep an eye out on our blog for more advice on buying homes!