Shared ownership mortgages are a popular option for many homebuyers in the UK, particularly for those who find it difficult to enter the property market due to high house prices. With shared ownership, buyers can purchase a share of a property while paying rent on the remaining portion. Here’s what you need to know about shared ownership mortgages in the UK.

What is Shared Ownership?

Shared ownership allows you to buy a percentage of a home, typically between 25% and 75%, while paying rent on the remaining share. It’s particularly aimed at first-time buyers or those who have experienced changes in circumstances that make it harder to secure a traditional mortgage. Shared ownership homes are usually provided by housing associations.

Eligibility Criteria

To qualify for a shared ownership mortgage, you must meet certain eligibility criteria, which can include:

• Your household income must generally be less than £80,000 (or £90,000 in London).
• This is typically only available to first-time buyers or those who have previously owned a property but can no longer afford to buy in the current market.
• You must demonstrate that you cannot afford to buy a property outright.

How Does it Work?

Once you qualify, you can choose a property to buy based on the percentage you can afford. The mortgage is taken out only on the share of the property you are buying, which makes the upfront costs lower than buying outright. You will also need to pay rent on the remaining share, which is usually set at around 2.75% or lower of the value of the unsold share.

Costs Involved

In addition to your mortgage payments and rent, there are other costs to consider:

• Service Charges: These cover the costs of maintenance and repair of communal areas.
• Ground Rent: Applicable to leasehold properties.
• Stamp Duty: You will pay stamp duty on the portion you purchase, not the full market value.

What Happens When You Want to Sell?

If you decide to sell your shared ownership property, the housing association usually has the first right of refusal to buy back your share. If they decline, you can sell your share on the open market. It's worth noting that the sale process can sometimes take longer than with a standard property due to the involvement of the housing association.

Staircasing Your Ownership

One of the attractive features of shared ownership is the option to ‘staircase.’ This means that over time, you can buy additional shares in your home up to 100%. This can lead to reduced rent costs and eventually full ownership, making it a flexible option for growing families or individuals.

Advantages of Shared Ownership Mortgages

Shared ownership mortgages offer several benefits, including:

• Lower upfront costs compared to traditional home purchasing.
• The flexibility of staircasing to increase ownership over time.
• Access to properties that might otherwise be unaffordable.

Disadvantages to Consider

While there are many advantages, shared ownership does have its drawbacks:

• Restrictions on the sale and subletting of the property.
• Additional costs such as service charges and ground rent.
• Potentially complex buying, selling, and staircasing processes.

Final Thoughts

Shared ownership mortgages can be a viable path to home ownership for those who might otherwise struggle to buy on the open market. Understanding the ins and outs of this option is essential before diving in, as it comes with its own unique set of pros and cons. Be sure to conduct thorough research and seek professional advice to navigate the shared ownership landscape effectively.