Shared Ownership (SO) can be a great way to get onto the housing ladder, enabling you to part own, part rent your home. This is a government-backed scheme, where you buy a share of a leasehold home, on which you can take out a mortgage, then you pay rent on the remaining share to the landlord, usually the local authority.
The minimum share you could purchase used to be 25%, but this was reduced to 10% on some homes, to enable more people to access the scheme. Over time, you can buy more shares, increasing your ownership and reducing the amount of rent you pay – known as ‘staircasing’. This has also been made more accessible, with the minimum staircasing instalment reduced from 10% to 1%.
When you apply for a SO mortgage, a survey will be instructed to confirm the value of the whole property, then the loan will be considered based on the value of the portion you intend to own. So, if the property is worth £235,000 and a 30% share is being offered for sale, you would apply for a mortgage on £70,500.
Of course, as part of their affordability checks, the lender will take into account the rent you are obliged to pay on the remaining 70% of the property. The limit on this is 3% of the value of the share, but most landlords charge 2.75%.
Using the example of a property worth £235,000, as above:
Value of rented share: £164,500
£235,000 x 70%
Monthly rent: £377
(£164,500 x 2.75%) ÷ 12
So, when considering how much you could afford to borrow via a mortgage, the lender will add £377 to your other monthly financial commitments.
Example mortgage and deposit figures
Most housing associations require at least a 5% deposit, but we’ll use 10% for this example to give you an idea of costs for buying a 30% SO stake in a £235,000 property:
Share value £70,500
LTV 90%
10% deposit 7,050
Loan amount £63,450
Interest rate 4.95%
Monthly mortgage £369
Monthly rent £377
Total monthly cost £746
Staircasing
As your income rises and you can afford to borrow more, you can increase the share you own.
If the value of the property has risen, you will have built up some equity in the share you already own, and that might be enough to fund any additional deposit required for you to extend your existing mortgage or remortgage.
However, there are other costs to consider when you buy additional shares, including:
- The valuation report that will be instructed by the lender to establish the current market value.
- Mortgage fees, depending on the lender and product.
- Legal fees for the conveyancing.
- Stamp Duty, depending on the size of the ownership stake and how you have chosen to pay.
As a rough guide, these costs are likely to be between £1,000 and £2,000.
A note on Stamp Duty
It’s worth knowing that there are two options for paying Stamp Duty purchase tax when you buy via Shared Ownership:
- Make a one-time Stamp Duty payment on the full value of the property at the time you buy your first share. You then won’t pay any more if you increase your ownership share over time.
- Pay in stages. You pay Stamp Duty on the value of the portion you own when you first buy, and then no more payments are due as you staircase, until you own at least 80% of the property. As the value of the property rises over time, therefore the relative amount of Stamp Duty will increase.
This can be a little complicated, so it is best to take specialist advice from a broker or conveyancer as to which option would be most suitable for your own situation and plans for ownership. You can read more on the government website.
If you are interested in shared ownership, you can find out more via our sister company, SOWN. And when you’re ready to see how much you could afford to borrow, or if you have any questions about staircasing and increasing your borrowing, our own team of SO specialist mortgage brokers are here to help.
You can get in touch with us by completing our online form, chatting with a support agent or calling us directly on 0800 144 4744.
