We’ve had a lot of questions from members asking how does shared ownership work?
To help you decide if it’s right for you, the pros and cons of shared ownership are explained in this short article (with pictures!).
What does shared ownership mean?
Shared ownership is where you buy part of a property (usually between 25% and 75%) instead of a whole property, from a housing association.
The bit that you don’t buy is owned by the housing association.
You’ll pay a mortgage on the bit that you own. And you’ll pay rent to the housing association for the bit that they own.
So maybe you own 40% (Owned Bit) and the housing association owns 60% (Rented Bit).
You’ll need to get a mortgage for your 40% Owned Bit and pay rent on the other 60% Rented Bit.
How do I get a shared ownership mortgage?
Getting a mortgage for shared ownership is really no different from if you were buying the whole property.
You’ll still need a deposit for your Owned Bit. Usually at least 5% to 10%. Plus you will need to check if your mortgage lender will give you a shared ownership mortgage. Most of the major high street banks will. Or you can chat to a mortgage broker who can find you a good deal.
That means you’ll still need to save for a deposit. Plus the other costs involved in buying a property (lawyers’ fees, survey costs, mortgage fees etc).
Hopefully it will be much quicker for you to save for your deposit when you are only buying part of the property.
Use our mortgage calculator to work out your shared ownership mortgage
Our Homefinder mortgage calculator will help you work out how much mortgage you can afford to take out. It will flag if you need to pay any stamp duty. Plus it will give you an estimate of the other costs you will need to pay to buy your share of the property.
How much is rent in shared ownership?
How much rent you will pay for your Rented Bit varies, depending on the housing association, but you can expect to pay around 2.5% – 3%. The housing association will tell you the exact rent % when you look at their shared ownership properties.
Shared ownership rent calculator:
Here’s how to calculate how much rent you would pay.
Let’s say that you want to buy shared ownership of a house that costs £300k.
Your 40% Owned Bit would be worth £120k.
The 60% Rented Bit would be worth £180k.
If the housing association charges 3% rent.
You would be paying rent of £5,400 a year (3% of £180k). So £450 a month.
So I will be paying a mortgage plus rent?
Correct. You need to make sure that you can afford both your mortgage repayments and your rent.
When you apply for your mortgage, the mortgage lender will look at your finances carefully. To check that you can afford both elements.
What are the benefits of shared ownership?
If you can’t save enough for a deposit on a whole property, or it’s going to take you years to save up, shared ownership can help you get on the property ladder quicker.
Many shared ownership schemes will only require a 5% deposit, instead of the usual 10%.
What are the downsides of shared ownership?
Not everyone is eligible for shared ownership properties. See: FAQs: Am I eligible?
Although you have the option to buy more of the property at a later date (to increase your Owned Bit), there’s no guarantee that you’ll be able to afford it. See: FAQs: How can I buy more of my property?
What’s the process for shared ownership?
You have to go through an application process for shared ownership properties. To start, get in touch with the Help to Buy agent in the area you’d like to buy. Each agent should have a page on their website with details of how to apply.
The application process:
Expect to be asked questions about:
- Where you want to live and what type of property you want (house or flat, number of bedrooms)
- How much you earn
- How much you have in savings
- What debt and credit history you have
It normally takes up to a week for your application to be assessed.
Where to find shared ownership properties
Your agent should be able to help you find properties in your area.
When you’ve found a home you want to buy
Because you’re buying part and renting part, it’s a slightly longer process once you’ve found the home you want to buy. In addition to sorting out your mortgage, you’ll also have to get a financial assessment on your Rented Bit.
Rented Bit: financial assessment by the housing association
To reserve the property, you’ll need to pay a reservation fee (usually around £200, but can be more).
Next, the housing association will ask an independent financial adviser to check your finances (yes, we know that they did this when you first applied, but this assessment is more detailed).
You’ll usually need to provide:
- Proof of ID
- At least 3 months of payslips
- At least 3 months’ bank statements
- Proof of how much savings you have
- Details of your existing debts, loans and credit cards
- Details about any benefits you receive.
1. You can only do shared ownership if you are:
- A first-time buyer;
- Someone who already owns a shared ownership property and want to move house; or
- Someone who previously owned a home but can’t afford to buy one now
2. There are limits on how much you can earn:
- If you are in London your combined household income must be less than £90,000.
- If you are outside of London, your combined household income must be less than £80,000.
It will depend on what mortgage you can get. When you apply for a shared ownership property, the detailed financial check that the housing association will carry out on you, will tell you what % you can afford to buy and what % you will need to rent.