Becoming a homeowner is something that most people dream of, but unfortunately not all manage to see be a reality. For many people, perhaps especially those who are on a low income, getting the deposit and then be accepted for the mortgage that they need, can prove particularly difficult.
A shared ownership mortgage is a government run scheme which is solely focused on helping people get onto the property ladder who otherwise may not be able to. For example, this could be due to their income and savings in relation to current property prices. With shared ownership mortgages, between 25% and 75% of the property is usually bought from a housing association or house builder; this allows you to pay a lower deposit and take out a smaller mortgage for the property; and then pay rent on the remaining amount.
Another option within the shared ownership scheme is where the `homeowner` part owns and part rents the property. This means that there’s lower mortgage repayments to make each month. However there is still the monthly rent to take into consideration; and over time it can allow you the option to buy the `rented section’ of the property if you wanted to.
By taking advantage of these schemes, such as taking out a shared ownership mortgage, you can build towards owning your home in a manageable fashion. To be able to find a home in the area of your choice, the first step is to get in touch with a local agent to check both your eligibility and the availability of homes in the area. Our brokers can then help you to get the right mortgage deal specifically for you, according to your unique situation.
Keep reading to find information on the home buying process, the different types of shared ownership mortgages and for answers to some of your main FAQ’s.
You can also learn about the different types of mortgages and interest rates in our guide.
In simple terms, staircasing is where those who are on a shared ownership mortgage have the opportunity to purchase a bigger share of their property when they can afford it. It means that if you, for example bought 50% of a property on a shared ownership mortgage, over time you can increase the share that you own in your property, until – if you wish – you have the full 100% ownership.
By purchasing a bigger share of your home you will reduce the amount of rent that you are paying – but of course are likely to increase the amount of mortgage repayments that you are making.
The pros and cons
There are a number of considerations which should be taken into account when you are thinking about applying for a shared ownership mortgage or intending to use the `staircasing` process.
Pros – It can be a great way to get on the housing ladder, staircasing enables to you buy an increasingly large proportion of your property, you can sell your property whenever you want – and will benefit from any house price rises, it can often be less expensive than renting.
Cons – The price of shares in your home will follow the value – so if the value of your home increases, so will the price of your shares when you are looking to purchase, there will usually be other costs to pay such as the valuation fee and potential stamp duty.
How to buy your way up to 100% of your property
The process of buying a larger proportion of your property is a relatively simple one. Firstly you should make contact with your `landlord` – the entity which owns the other proportion of your property – usually a house builder or housing association. You should also get in touch with a mortgage broker to find out what your options are.
You will probably need to raise funds to be able to buy the extra portion of your home and there are generally two way to do this:
- A further advance – your mortgage lender might be willing to offer you a further advance. They will usually value your home to make sure that there is enough equity in it – which you may well have to pay for, as well as showing proof of earnings which will satisfy them that you can afford the repayments.
- Remortgaging – you might want to consider remortgaging to borrow the extra money for staircasing. Here you can apply for a bigger loan which you will use effectively to pay off the old one and buy the new part of your home.
To ascertain the amount that you will be required to pay to purchase any additional share of your home, you will need to have a qualified surveyor carry out a valuation. The up to date value will then be used to calculated the price you will need to pay.
When looking to buy a property, mortgage lenders are looking for at least a deposit of 5% of the value of the property. With the remaining 95% to be funded via a mortgage. Unfortunately in today’s world, getting together even just 5% of the value of a property is out of reach for many first time buyers. Luckily there are some options to help first time buyers to buy their own property, and start to take their first step out of the rental market.
One option which is available for first time buyers is the shared ownership mortgage. Shared ownership for first time buyers gives you the chance to purchase a portion of a property, splitting it between you and a (usually) housing association or house builder. You then make the mortgage repayments as well as paying a rent to the housing association or house builder.
The premise behind a shared ownership mortgage is that the first time buyer must firstly find an eligible property, then take out a shared ownership mortgage. The buyer must decide what proportion of the property that they are to buy and this is the part that the mortgage is taken out on. The deposit is then based just on the percentage being purchased rather than the full property value and therefore is significantly less than it would be otherwise.
As many first time buyers are starting out at the beginnings of their careers, shared ownership can be an option worth looking into when taking into consideration the sized deposit typically required.
Customers with bad credit ratings can sometimes find it difficult to secure a Shared Ownership mortgage. Negative items in your credit history, such as missed credit card or loan repayments, County Court Judgments (CCJs) or a previous bankruptcy can raise red flags for many lenders, and certainly those on the high street. Any mention of a serious issue in the past can mean some lenders might see your involvement in a shared ownership mortgage as more of a risk than they are willing to accept.
However, while having one or more adverse credit events in your financial history might rule out some mortgage options, you are not necessarily facing a brick wall. Over the last few years more new ‘specialist’ lenders have entered the market, often catering to demands or needs that mainstream lenders avoid or overlook. There will be products available to help you obtain a Shared Ownership mortgage and stay on the property ladder.
The upshot is that people who might have been turned down for a mortgage a few years ago could now be in a far better position to secure one. To find out what options could be open to you with the bad credit items on your record, you will need to talk over your situation and your aims with an expert specialist mortgage broker. They’ll be able to show you which lenders will be willing to grant a loan, what their criteria will be, and together you can map out the route to Shared Ownership on a property.
Right to Acquire is a government scheme introduced in 1996 that allows housing association tenants who meet the qualifying criteria to buy the home they currently rent. If eligible, they will benefit from a discount on the market value.
Many lenders now offer Right to Acquire mortgages. You may or may not need to put down a deposit, depending on the lender and/or the discount offered under the scheme. (Some lenders accept the discount in place of a deposit.)
Bear in mind if you approach lenders direct, they will only advise you about their own products and criteria, they will not be able to give you information of the market as a whole. To be confident that you get the best possible deal for you, from the widest range of available mortgages, it is advised to speak to a specialist mortgage broker.
Difference in Right to Buy and Right to Acquire
Whereas the Right to Buy scheme is aimed at council tenants, the Right to Acquire scheme is intended for housing association tenants. If you were a council tenant at the time the property you rent passed to the housing association, then it is the Right to Buy scheme that applies to you.
Do I qualify for the Right to Acquire scheme?
To qualify for the scheme, you must currently be renting a housing association property and have had a public sector landlord for a minimum of 3 years. As well as housing associations, public sector landlords include: councils, the armed services, NHS trusts, and NHS foundation trusts.
You will not be eligible if you are in the process of being made bankrupt or if you have been ordered to leave your home by a court.
The property must be your only or main residence, and also self-contained. It must have been built or bought by a housing association, or transferred from a local council to a housing association, after 31 March 1997.
Your landlord must be registered with the Homes and Community Agency.
The Right to Buy scheme has been in place for many years, until recently this has purely been designed for council tenants to purchase their property in full at a heavily discounted price. Provided a tenant has rented from the council for three to five years, it may be possible to obtain a discount of 35% of the open market value of the property. For tenants looking to purchase their house, after 5 years the discount goes up by 1% every extra year you’ve been a council tenant. For tenants looking to purchase their flat, after 5 years the discount goes up by 2% every extra year you’ve been a council tenant.
The maximum discounts on both houses and flats is 70% of open market value, or £82,800 across England. With exceptions in London boroughs, where it’s £110,500. This figure increases each year in April coinciding with the consumer price index (CPI).
If you look to sell your shared ownership property, the housing association has first refusal to buy the share of the property back. They will then see if they can sell your share to someone else on the waiting list. If this is not possible, you may then be able to market your property on the open market.
Stamp Duty Land Tax (SDLT) is still payable on shared ownership properties, when buying from an approved qualifying body, such as a local authority or housing association. However the amount of Stamp Duty that you have to pay is dependant on the share of the property, but it’s worth noting that you may not have to pay anything.
When buying though a Shared Ownership scheme, you can either opt to make a one-off Stamp Duty payment (this is based on the total market value of the property and is known as making a “market value election”), or you can pay the amount of Stamp Duty applicable in stages. With the option to pay the amount in stages, you will have to pay anything due on the first purchase of a property share; but nothing extra in Stamp Duty until you own more than an 80% share of the property. For any further details, please see the government’s online guidance on Stamp Duty Land Tax.
Yes, you can remortgage a Shared Ownership property. The mortgage is very similar to a conventional mortgage, but you were only being lent money against a percentage of the property rather than the whole property itself. So it’s only the portion of the property’s value that you can claim that you will be remortgaging against. However, this should not prevent you from remortgaging if you want to switch to a more favourable deal on the loan, or take advantage of the increased value of your share of the property and release some of the equity.
The only difference between a shared ownership mortgage and a standard mortgage, is that shared ownership mortgages are only available via selected lenders, so your options will inevitably be more limited from the start. It may be that you will not be able to access all shared ownership remortgage deals by yourself directly. Most specialist lenders only work through trusted intermediaries, so they know for sure that borrowers will be suitable for their products and vice versa.
You may also need to check with the housing association or other authorised body who you share the ownership with, depending on their criteria and rules. These may vary from one area to the next, so it’s worth checking your agreement.
The minimum share that you can purchase of a property within the Shared Ownership scheme is 25%. This is applicable when purchasing via a housing association, local authority or other approved qualifying body.
The maximum share of a property you can purchase under the Shared Ownership scheme is 75%. This is applicable when buying via a housing association, local authority or other approved qualifying body. If you want to own a share that exceeds the 75% amount, you will need to purchase the property outright.
Yes, you can buy extra shares in the property up to a maximum of 75% of the property value – this is known as “staircasing”. If you want to own a share of more than 75%, you must buy the property outright. Most housing association and local authorities require a minimum 25% share purchase when staircasing, although some may allow smaller purchases such as 20% or 10% shares.
Be aware that the cost of purchasing more shares in the property will be based on a new market valuation of the property at that date. That means it may cost more or less than you paid for your first share, depending on whether the property has increased or decreased in value.
There are no time restrictions imposed by the government under the Shared Ownership scheme. However, individual housing associations or local authorities may impose time restrictions or other staircasing restrictions in their lease conditions.