Shared Ownership

If you’ve been hoping to own a home but the deposit requirement and high monthly mortgage payments have put this out of your reach, shared ownership offers an affordable solution. As a compromise between buying and renting, it provides a way of getting onto the property ladder. Whether you’re a first-time buyer or a previous homeowner who has since been unable to afford to buy a property, this scheme allows you to pay a lower deposit and benefit from lower monthly payments.

At Trinity Finance, we can arrange your mortgage once you’ve found a shared ownership home that you want to buy. Having assessed your affordability for the share you wish to buy, we can then search for the best mortgage deal to meet your needs. Your dedicated shared ownership mortgage broker will oversee the process from start to finish to ensure a smooth process until you collect the keys to your new home. In this guide, we’ll explain what shared ownership is, how it works, the eligibility criteria, how to apply and more.

Shared ownership is a government-backed scheme that enables you to buy a share in a property. If you don’t own a home and cannot afford the standard deposit and mortgage requirements, this provides a more affordable way for you to buy one. You buy your preferred share in the property and pay rent at a discounted rate for the remaining share. As the amount of deposit and monthly mortgage payments are based on your share of the property rather than its full value, this makes them much lower than if buying a property the traditional way. When you’re able to afford more in the future, you can increase your share of the property. You can continue doing this until you own it outright.

This guide refers to shared ownership in England. Please be aware that different rules apply to shared ownership in Scotland, Wales and Northern Ireland.

With shared ownership, you buy a share of a property to suit your affordability. This is usually between 25% and 75% of the property’s market value but, since the scheme was updated in 2021, you can buy a 10% share in some homes. You need to pay a minimum deposit of 5% of your share of the property. The deposit requirement may be higher depending on the lender’s terms. As the deposit is based on your share rather than the full value, it’s much more affordable. For example, you buy a 50% share of a property that’s valued at £300,000 so your share costs £150,000. You pay a 5% deposit of £150,000, which is £7,500. This is much lower than paying £15,000 as a 5% deposit of the full £300,000 value. 

Unless you have savings to buy your share, you need to arrange a mortgage. As you only need a mortgage to pay for your share, the lender’s affordability checks are much easier to pass. For the remaining share, you pay rent and this is payable at a discounted rate. This is usually 15–20% lower than the market rate and is paid to the housing association (or other provider) that owns the other share of the property.

As a first-time buyer or someone who used to own a home but cannot afford to buy one now with the standard affordability requirements, the lower deposit and mortgage payments make home ownership a possibility with this scheme. When you’re in a financial position to do so in the future, you can increase your share of the property. Usually, you can continue to do this until you own 100% of the property. Increasing your share is done by a process called ‘staircasing’, which we’ll explain in more detail later on.

Applicants aged 55 or over

If you’re aged 55 or over, you can buy a share of up to 75% via the Older Persons Shared Ownership (OPSO) scheme. Under this scheme, you won’t be liable to pay any rent on the remaining share once you own 75% of your home.

You can buy a new-build home or an existing home that’s available through a shared ownership resale scheme. If you have a long-term disability, you can buy a home to meet your needs, such as a ground-floor flat. Under the shared ownership scheme, your home will be classed as a leasehold property, regardless of whether it’s a house or a flat. You can find shared ownership properties through home builders, housing associations, local councils and other organisations.

As well as your monthly mortgage and rental payments, there are other costs to consider when buying a shared ownership home. For example, you usually need to pay ground rent and service charges as your contribution to the upkeep of the communal areas. You may also have to pay into a reserve fund. This covers major issues, such as having to replace the roof.

To be eligible for buying a property via the shared ownership scheme:

• Your annual household income must be £80,000 or less (outside London). In London, your annual household income must be £90,000 or less.
• You cannot afford the deposit and mortgage requirements to buy a home that meets your needs.

You must also be one of these:

• A first-time buyer
• You used to be a homeowner but now cannot afford to buy one
• You have an existing shared ownership home and want to move
• Your situation means that you need to form a new household, such as if your relationship has broken down
• You’re currently a homeowner and want to move but cannot afford a property that meets your needs

Depending on the home you wish to buy, you may need to provide evidence of your connection to the area. For example, you may need to prove that you already live in the area or work there.

If you already own a home

If you currently own a home, you need to be in the process of selling it to be eligible for shared ownership. You need to have formally accepted an offer and have a memorandum of sale, which is written confirmation of the agreed sale, including your intention to sell and the price. The sale of your property must be completed on or before the date that your shared ownership home purchase completes.

Priority applicants

Offers made by serving members of the armed forces are given priority over other offers received for shared ownership homes. If you previously served in the armed forces, your offer may be prioritised depending on what your role was. Some local councils may prioritise certain applicants due to local housing needs under their own shared ownership programmes.

If you meet the above eligibility criteria, the next step is to find a shared ownership property that you want to buy.

Look for a home

Shared ownership properties are advertised for sale by housing associations, local councils, home builders and national property listing websites. Bear in mind that some local councils have extra eligibility requirements. For example, you may need to have a local connection to the area to qualify.

Reserve your home

To reserve your home, you need to pay a reservation fee. This reserves it for you for a fixed period, which is confirmed by the landlord. This fee is usually non-refundable. Therefore, it’s unlikely that you will get it back if you don’t proceed with the purchase. If you do proceed, the fee will be deducted from the amount you pay on the day your purchase completes.

Arrange your mortgage

The next step is to speak with one of our mortgage brokers to arrange your mortgage. They can check your affordability for the share you wish to buy of your new home. Once this has been done, they can search for the best mortgage deal to suit your circumstances and requirements.

Just give us a call on 01322 907 000 to get started. If you prefer, send your details to us by email at info@trinityfinance.co.uk or via our contact form. One of our shared ownership mortgage brokers will reply to you as quickly as possible to get the ball rolling with your mortgage application.

When you’re in a position to do so, you can increase your share of the property. Known as ‘staircasing’, this process involves buying more shares in increments. Originally, the minimum share increment was 10% of the property’s market value. However, since the new shared ownership model was launched by the government in 2021, this increment has been lowered to 5%. For some properties purchased on or after 1^st April 2021, it’s also possible to buy an extra 1% share each year for the first 15 years. When you increase the share you own, the amount of rent you have to pay decreases.

Property valuation

When buying shares of 5% or more, the cost is calculated on the property’s value at that time. A surveyor needs to be instructed to carry out a valuation to determine this, which is at your expense. You then have 3 months after the valuation date to buy more shares. If this date passes, another valuation must be carried out.

If you’ve made home improvements, the valuation has to include two figures. One is the current market value, which includes any increase due to the home improvements. One is the value without allowing for any home improvements that have been made. If you obtained written permission from your landlord to proceed with the home improvements, the cost of the extra shares you want to buy is based on the unimproved value. However, if you didn’t obtain written permission from your landlord, the extra share cost is based on the current market value. This is more than likely going to be higher.

Buying 1% shares

If you purchased your shared ownership home on or after 1^st April 2021, you may be able to buy 1% shares. If this applies, you can buy a share of 1% every year for the first 15 years of owning the property. The cost of the 1% share is based on your home’s original price, keeping in line with the House Price Index (HPI). This means that the price may have increased or decreased but your landlord will provide you with an HPI valuation. If either you or your landlord prefer to instruct a surveyor to carry out a valuation instead of using an HPI valuation, the cost for this is the responsibility of the person who has requested it. No administration fee is payable to buy a share of 1%.

Check the requirements

Staircasing requirements vary between shared ownership properties so it’s important to check the details before buying your home. Not all housing providers, for example, allow you to own 100% of the property. If your shared ownership home is in a ‘designated protected area’, only a share of up to 80% may be available to buy. If you’re over 55 and buy your home via the OPSO scheme, you can own a maximum share of 75%. In some cases, additional shares can’t be bought until a certain period of time has passed. For most properties, though, you can buy extra shares at any time and continue to do so until you own 100%. Some landlords charge an administration fee every time a share is bought that is 5% or more.

When it comes to stamp duty for a shared ownership property, there are two ways to pay it:

• You can make a one-off payment. This is based on the property’s full market value at the time of your purchase. There are no further stamp duty payments to make, even if you increase your share in the property via staircasing.
• You can pay it in stages. With this option, you pay the stamp duty that’s due for the amount you buy the property for. After that, you don’t make any further stamp duty payments until your share of the property has reached over 80%.

You are responsible for any repairs and maintenance needed for your property. If there are communal areas, these are dealt with by the freeholder and you pay a monthly service charge as a contribution towards these costs. If buying a newly built home, any structural repairs should be covered by a 10-year building warranty. When buying a flat, any structural and external repairs are dealt with by the freeholder.

Since the scheme’s update in 2021, some properties have an ‘initial repair period’ in the lease. This usually lasts for 10 years. It puts the responsibility of paying for some repairs to the landlord during this time. A landlord cannot use the service charge to cover the costs of external or structural repairs. They also cannot use the reserve fund to pay for the costs of any repairs that fall under their responsibility.

You can sell your home at any time but how you go about it depends on the share you own. If you own 100% of your home, you can usually sell it on the open market. If you own less than 100%, the provider has first refusal if you want to sell your share. Once you’ve given them notice that you want to sell, they have a ‘nomination period’. Depending on the lease, this gives them 4, 8 or 12 weeks to find a buyer. If they haven’t found a buyer within this time, you can then sell your share of the property on the open market. In exceptional cases, the landlord may offer to buy your share rather than find a buyer.

Before buying a shared ownership home, weigh up the pros and cons to ensure that this scheme is the best fit for your needs.

Advantages

Buying a home via the shared ownership scheme has many advantages:

• The lower deposit and monthly mortgage payments make it an affordable way to buy a home.
• The amount you pay in rent is at a discount compared with the market rate.
• You have the option to pay the stamp duty in stages, which helps to lower your initial costs.
• You can increase your share of the property as and when you’re in a position to do so.
• If the property increases in value, so too will the value of your share.
• Shared ownership is available for new-build homes or existing properties advertised via shared ownership resale schemes.
• If you have a long-term disability, you can buy a home that’s suitable for your needs, such as a ground-floor flat.

Disadvantages

As with any property you’re thinking of buying, consider the disadvantages too:

• You can only buy a property that is offered under the shared ownership scheme.
• Whilst you own a share of the property, you’re classed as a tenant for the remaining share. As such, you need to adhere to the terms of the rental agreement. For example, making your rental payments on time and refraining from nuisance behaviour.
• All shared ownership properties are leasehold, regardless of whether they are houses or flats.
• You need to pay monthly service charges and may have to pay ground rent.
• When increasing your share in the property, the cost may be higher if the property’s value has increased.
• You cannot usually sublet the property until you own 100% of it.
• When you want to sell the property, you may have to adhere to certain terms under the shared ownership scheme.

Whether or not buying a home through the shared ownership scheme is right for you depends on your circumstances. If you can’t afford to buy a property on the open market, it offers an ideal solution. The low deposit requirement of 5% of the share you’re buying is much more achievable than having to pay 5% of a property’s full value or a higher percentage deposit. The lower monthly mortgage payments based on your share also make it much easier to pass the lender’s affordability checks.

The rent payable for the share of the property that you don’t own is also cheaper than the rent you’d have to pay on the open market, being discounted for the scheme. You can also keep your costs to a minimum where your stamp duty is concerned. By opting to pay it in stages, you can just pay the stamp duty that’s due for the value of the share you’ve bought. You won’t need to pay any more stamp duty until you own over 80% of the property.

However, there are various factors to consider. Make sure that you’re aware of ongoing costs, such as the service charges, and any potential costs, such as future rent increases. Check the length of the lease because if it’s short, you’ll face additional costs having to extend it. You may also face restrictions when you want to sell the property. Consider all of the factors first before deciding whether shared ownership fits in with your current financial situation and future plans.

There are other options to consider if you’re not sure that shared ownership is right for you. These include alternative schemes to help you buy a home as well as different types of mortgages.

Deposit Unlock

Available for first-time buyers and existing homeowners, this scheme allows you to buy a new-build home with a 5% deposit. Deposit Unlock is a collaboration between the home-building industry and lenders. Developers participating in the scheme pay mortgage insurance to lenders upon completion of each sale of their new-build homes. In return, lenders provide 95% mortgages at competitive rates to the buyers.

First Homes

Introduced by the government in 2021, the First Homes scheme helps first-time buyers get onto the property ladder. This is achieved with a discount of at least 30% of the price of a new-build home compared with its market value. As a first-time buyer, you only need to pay a 5% deposit based on the discounted purchase price. You also need to arrange a mortgage for at least 50% of the discounted purchase price. Available in England, the scheme also prioritises key workers, those serving in the armed forces and recent veterans.

The 95% mortgage guarantee scheme

Available for first-time buyers and existing homeowners, this government-backed scheme is set to run until June 2025. Lenders are provided with a guarantee by the government that some of their costs will be covered should buyers default on their mortgages. This reduces the risk for lenders so that, in return, they’re able to offer 95% mortgages. Under the 95% mortgage guarantee scheme, you can buy a property valued up to £600,000 with just a 5% deposit. You also need to arrange a repayment mortgage that has a fixed rate.

Own New

A collaboration between home builders and lenders, Own New has two products to make buying a new-build home more affordable. Available for first-time buyers and existing homeowners, you can benefit from either Deposit Drop or Rate Reducer. With Deposit Drop, you only need to pay a 5% deposit and arrange a standard mortgage with a participating lender. With Rate Reducer, you pay a low interest rate for a fixed term of either 2 or 5 years. The lower rate and subsequent lower monthly payments make the affordability criteria easier to pass for your mortgage.

Guarantor mortgage

Another way to get on the property ladder when you’d otherwise struggle to be approved for a mortgage is to have a guarantor. Usually a parent or relative, they agree to be a guarantor for your mortgage, meaning that they have the legal responsibility to make your mortgage payments if you’re unable to.

With a guarantor mortgage, the person acting as your guarantor has to provide the lender with some form of security, such as their property or savings. They also have to sign an agreement that holds them legally liable to cover your mortgage payments. They won’t be on the property deeds or have any right over the property. As such, the guarantor takes on a lot of risk with this type of mortgage so it’s essential that you both discuss it carefully.

Joint or JBSP mortgage

A joint mortgage enables you to buy a property with someone else, up to a maximum of four people. Each of your incomes is assessed and you can pool your savings to get a bigger deposit. Each person is named on the deeds and has joint responsibility for the mortgage payments.

A joint borrower sole proprietor (JBSP) mortgage is slightly different from a joint mortgage. You can make a joint application, allowing you to combine your incomes and pool your savings. Becoming joint borrowers enables you, therefore, to get on the property ladder and each borrower has joint responsibility for the mortgage payments. However, only you are named on the deeds as the sole proprietor, allowing you to enjoy full ownership of your home.

Shared ownership offers a financial solution when you want to buy a home but are struggling with the affordability of this. Our mortgage brokers – located throughout Kent, London and Edinburgh – are here to discuss shared ownership with you in detail. They can assess your financial situation and discuss your long-term goals to ascertain whether shared ownership is the right route for you to take. They can also advise you on the alternatives available and compare the deals, helping you to make the best decision for your needs.

Just give us a call on 01322 907 000 for impartial advice on the different mortgages and schemes available. If you prefer, send an email to us at info@trinityfinance.co.uk or an enquiry via our contact form. One of our mortgage advisers will reply to you as quickly as possible with more information. We can also help with other aspects of home ownership, such as arranging your home insurance.