Purchasing a home remains an aspiration for the majority of people since property prices are still sky-high. Nevertheless, shared ownership mortgages are a viable option for first-time homeowners and others who cannot afford conventional mortgages in the UK. This scheme allows individuals to buy a share of a house and pay rent on the remaining portion to a landlord, housing association, or local council.

As professional finance advisors, we feel it is our responsibility to keep our readers informed about the best ways to buy a home in the United Kingdom. Therefore, we will help you understand shared ownership mortgages and how they actually work.

Understanding Shared Ownership Mortgages

A shared ownership mortgage allows buyers to purchase a share of a property, usually between 25% and 75% of the home’s value. The buyer secures a mortgage for their share and pays rent on the remaining portion, typically to a housing association. This arrangement helps to make home ownership more affordable by reducing both the deposit and the monthly costs compared to buying a home outright.

Benefits of Shared Ownership

1. Affordability: Shared ownership is generally more affordable than buying a house outright. The deposit required is typically around 5% to 10% of the share you are purchasing, and the combined cost of the mortgage and rent is often less than a mortgage alone.
2. Flexibility: This scheme allows buyers to start with a smaller share and gradually increase their ownership through a process known as staircasing. Eventually, you can own 100% of the property, at this point you will no longer pay rent.
3. Accessibility: Shared ownership is accessible to first-time buyers, existing homeowners selling their property, and former homeowners unable to afford a full mortgage. Applicants must be 18 or older, have a good credit history, and have a household income of less than £90,000 in London or £80,000 elsewhere in England.

How to Get Started with Shared Ownership

1. Eligibility Check: Prospective buyers need to ensure they meet the eligibility criteria, including age, income, and credit status. Some housing associations may prioritize applicants who live or work in the local area.
2. Finding a Property: You can search for available shared ownership homes through various online platforms or directly with housing associations. There are options for both new-build and resale properties. New-builds are often purchased off-plan, meaning you buy before construction is completed.
3. Financial Assessment:After finding a property, a financial assessment will determine the maximum share you can afford to purchase. This ensures that the share you buy is within your financial means.
4. Application Process: Once you’ve confirmed eligibility and financial capability, you can proceed with the application through the housing association. This includes providing necessary documents and following the association’s procedures. 

Staircasing: Increasing Your Ownership

Staircasing allows shared owners to buy additional shares in increments of 5% or 10%, based on the market value of the property at the time of purchase. Legal and valuation fees apply. Achieving 100% ownership means you no longer pay rent and have full control of the property.

Selling Your Shared Ownership Home

When selling, if you haven’t staircased to 100% ownership, the housing association will first have the right to buy your share and will market the property for up to 12 weeks. If no buyer is found, you can sell the property on the open market using an estate agent.

Recent Changes and Future Prospects

In 2021, the UK government introduced new measures to make shared ownership more accessible. These changes include reducing the minimum initial share from 25% to 10% and lowering the minimum staircasing increment from 10% to 5%. These reforms aim to reduce costs and increase the uptake of the scheme. Housing providers are also required to contribute towards essential repairs and maintenance for the first 10 years.

Conclusion

Mainstream home ownership mortgages offer real opportunities to OWN a home to many who otherwise would not afford it. This scheme is not only cheaper and flexible but also takes into consideration those who wish to gradually own a home yet cannot afford to rent and buy at the same time. In the current and dynamic housing market, shared ownership can be a valuable option for those facing challenges in today’s property market. 

For financial assistance and guidance throughout the process, professionals like TaxCan Accountants and Cangaf Ltd. can provide expert advice to help you navigate the complexities of shared ownership mortgages, ensuring you make informed decisions.

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