How do Shared Ownership Mortgages work?
Shared Ownership enables you to purchase a share of a home and pay subsidised rent on the remaining portion. Shared Ownership mortgages can be an ideal solution if you have a smaller deposit or are priced out of the open market. However, without guidance, the rules can seem overwhelming. Stay tuned because that’s where Avalon Mortgages can help.
What is a staircasing mortgage?
Shared Ownership enables you to buy an initial share of between 10% and 75% of a property depending on the scheme, while a housing association retains the remaining share. Over time, you can build up your ownership through ‘staircasing’, often all the way to 100%. Staircasing involves buying more shares in your home after you become the owner.
Affordability, rent and resale restrictions
- Shared ownership applicants are assessed twice on affordability, by the housing association/council and the lender. The housing association/council evaluates your total housing costs: mortgage, rent and service charge combined and these generally need to fit within roughly 45% of your net household income. The assessment also works the other way: it checks that you are buying the maximum share you can sensibly afford, so you can't deliberately buy a small share and bank the subsidy if your income supports more.
- The lender runs its own full affordability check on the mortgage for the share you are buying: income, outgoings, credit commitments and stress-tested rates, as with any mortgage. Significantly, lenders count the rent and service charge as committed expenditure, so they directly decrease what you can borrow on the share.
- Rent reviews are upward only in practice. The rent is reviewed annually so budget for it to grow.
- Resale: When you sell, the housing association typically has a window (normally 4-8 weeks) to find a buyer from its waiting list before you can market the property openly.
Misconceptions and hidden costs
The complexity of Shared Ownership leases often leaves buyers unaware of the full extent of their financial commitments. This complexity, together with the lack of accessible, independent advice, can lead to unexpected costs.
- Service charges count against you. Both affordability checks include them, and they tend to rise over time. A high-charge development can erode the scheme's affordability advantage.
- When you find a home you want to buy, you’ll usually need to pay a reservation fee of up to £500 to the landlord.
- Buying costs. Buying costs can include:
- solicitors’ fees
- monthly mortgage repayments
- rent to the landlord
- you may also need to pay stamp duty
Once you own the home, you may need to pay:
- a management fee
- buildings insurance
- an estate charge
- contributions into a repairs reserve fund
The value of a first-time buyer mortgage broker
If you’re a first-time buyer, there’s no substitute for a first-time buyer mortgage broker. At Avalon Mortgages in Hemel Hempstead, our financial advisers can help you get your application signed off. If you’re thinking ‘I need a mortgage broker near me’, get in touch with us.
