How Does Shared Ownership Work?
When looking to buy a shared ownership home you put down a deposit of at least 5 % and then make up the rest of your share with a mortgage. Most of the time certain lenders will have specialist shared ownership mortgages designed for share ownership purchases and please be aware that these can sometimes be more expensive than regular mortgage products.
With shared ownership you’ll need to put down a deposit. The minimum required will depend on the type of property you’re looking to buy and which area it’s in.
When comparing shared ownership property, the ad should state the minimum deposit required. Typically though, you’ll need a deposit worth at least 5% or 10% of the share you’re buying. So if you’re buying a 50% share of a property worth £300,000, then a 10% minimum deposit would be equivalent to £15,000 (that’s 10% of £150,000).
Do remember that the bigger the deposit you can afford to put down, the smaller the mortgage you’ll need to apply for.
The property is purchased on a freehold basis meaning you’ll have to pay a monthly rent to the housing association which is set out at the beginning of the process, and this is taken into account when calculating affordability in terms of maximum mortgage loan amount in addition to other factors such as income and expenditure etc.
It is possible to increase your stake in the property over time in a process called staircasing and you can do this up to 75 % ownership. Please bear in mind that there are legal costs each time you staircase so you may want to buy as bigger share as possible each time and affordability checks swill need to be carried out to make sure that buying a bigger share is possible.
If the property value has increased when you come to sell the property, the value of your share will also increase.
For example, if you bought a 25 % stake of a £200,000 shared ownership property (£50,000) and then sell the property for £300,000 your 25 % stake is now worth £75,000 meaning an increase of £25,000 which you can put towards your net purchase if you choose to.
To Be Eligible For Shared Ownership You Need To:
- Be a first-time buyer, an existing shared ownership homeowner, or a former homeowner who can’t afford to buy now
- Be over 18 years old
- Have an annual household income of less than £80,000 (£90,000 in London).
Costs You’ll Need To Consider.
- Rent on the share of the property you do not yet own
- Monthly service charges
- Ground rent.
Shared Ownership homes can be new builds, existing properties, houses or flats. All Shared Ownership properties are leasehold, even houses, which is unusual.
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