Shared Ownership Mortgages

You buy a share of the property, historically between 25% and 75%, though newer schemes allow initial shares from 10%. Your deposit and your mortgage relate only to that share. A 40% share of a 250,000 home is 100,000, and a 10% deposit on that share is 10,000 rather than 25,000.

On the remaining share you pay rent to the provider. That rent is usually set at up to 2.75% a year of the value of the share you do not own, charged monthly, and it rises each year under a formula written into the lease, commonly linked to inflation. On top of the mortgage and the rent there is a service charge, and on a flat this can be substantial and can rise sharply. Ask for the actual figures for the specific property, not the scheme average.

Affordability and eligibility

A lender assesses your ability to pay the mortgage, the rent and the service charge together, so the borrowing available is lower than the size of the share alone would suggest. The provider runs a separate eligibility check before you can reserve, which normally covers a household income cap, whether you could afford to buy on the open market, and in some areas a local connection requirement. Passing one does not guarantee the other, and it is worth doing both early.

Buying additional shares is called staircasing. Each time you staircase, the price of the new share is based on a fresh RICS valuation of the whole property at that moment, not on what you originally paid. If values have risen, the extra share costs more. If they have fallen, it costs less.

Older leases usually require a minimum of 10% per staircasing transaction and limit how often you can do it. Newer leases introduced under the current model allow staircasing in 1% steps for the first few years, with reduced fees. Every staircasing transaction involves a valuation, legal work and usually a further advance or a remortgage, so the incidental costs are real and worth factoring in before you decide between one large step and several small ones.

Reaching 100% is often the point of the exercise, since the rent stops entirely at that stage. On houses this usually means you own the freehold or a long lease outright. On flats you will remain leasehold and continue to pay a service charge.

Not every lender offers shared ownership, and those that do have their own conditions. The lender has to be satisfied with the provider’s lease, which needs to contain a mortgagee protection clause giving the lender defined rights if the mortgage is not paid. Most lenders cap borrowing at 90% or 95% of the share being purchased, some require a minimum unexpired lease term, and some restrict the minimum share they will lend against, which affects the newer 10% schemes.

New build shared ownership brings the usual new build questions as well: the valuation has to support the price, incentives have to be disclosed, and building safety documentation is required on flats in blocks above a certain height. This is a narrower market than standard residential lending and the differences between lenders are less about rate than about whether they will proceed at all.

You can sell a shared ownership property, but not simply by putting it on the open market. The lease gives the provider a nomination period, historically eight weeks and reduced to four weeks under newer leases, during which they have the right to find a buyer from their own waiting list. Only if they do not find one within that window can you market it yourself. The sale price of your share is set by an independent RICS valuation rather than by what a buyer is willing to offer, and you pay for that valuation.

Two further points from the lease. Newer leases include an initial repair period, usually ten years, during which the provider contributes towards the cost of certain essential repairs. And you generally cannot let the property out, even temporarily, without the provider’s consent, which is rarely given. If there is any chance you will need to move and keep the property, raise it before you commit, because shared ownership is not built for it.