The Shared Ownership Scheme has been around in various forms since the 1980s. It allows people who can’t afford to buy a home to partly own one instead and work towards full ownership over time. Around 150,000 households in England currently use the Shared Ownership Scheme and it will continue to run until 2026 in its present form. In this guide, we’ll explain everything you need to know about the Shared Ownership Scheme, including how it works, who’s eligible, the benefits and drawbacks, and whether it’s the right choice for you or not.
What is Shared Ownership?
Shared ownership is when you purchase a share of a property, usually with a mortgage, and then pay rent on the remaining share. Effectively, it is a hybrid structure where you are both a homeowner and a tenant in your home, hence why it’s also known as ‘part rent, part buy’.
What is the Shared Ownership Scheme?
The Shared Ownership Scheme allows homebuyers to partially own a property that they wouldn’t be able to afford otherwise and offers them the chance to work towards full ownership over time. Let’s have a look at how this scheme works below.
How Does the Shared Ownership Scheme Work?
You’ll initially need to purchase at least 25% of the property, although you may be able to buy a share as little as 10% under certain circumstances. The maximum share you can purchase initially is 75%. No matter what share you buy upfront, you’ll be able to work towards 100% ownership over time by purchasing more shares if you want to.
For the share you do own, you’ll need to put down at least a 5% to 10% deposit and then qualify for a mortgage for the remainder, which you’ll need to pay off monthly. As with any mortgage, the more you can put down as a deposit, the less interest you’ll pay.
The share you don’t own will typically be owned by a housing association, local authority or private developer. You’ll need to pay rent on this portion of the property, but the amount of rent will decrease if you buy more shares in the future. Buying more shares of your property is known as ‘staircasing’, and there are various options for this process that range from buying 1% a year to larger one-off purchases of 5% or more.
To recap, there’ll be two main payments you’ll need to cover each month with the Shared Ownership Scheme, and potentially a third in some cases. These are:
- Mortgage repayments on the share you own (between 10%-75% initially)
- Rent on the share you don’t own (between 25%-90% initially)
- Property service charges (for properties that carry these charges)
You’ll also have to pay stamp duty on the property. You can choose whether to pay this tax on the whole property upfront or only on the share you purchase. Paying it only on your share will be cheaper initially but you’ll have to pay more stamp duty if and when you decide to buy more shares.
It’s also worth noting that, regardless of how much of the property you rent, you’ll usually be responsible for all the maintenance, bills and repairs as if you owned 100% of the property. However, you may be able to claim some repair costs up to £500 a year for the first ten years of owning your home. You’ll need to meet certain criteria in order to be eligible for the scheme, so let’s take a look at these criteria next.
Who’s Eligible for the Shared Ownership Scheme?
The Shared Ownership Scheme described in this article is for residents of England only – but Wales, Scotland and Northern Ireland have similar schemes available.
The scheme is available to the following four categories of buyers: First Time Buyers, previous homeowners who don’t currently own a home, people who currently own a shared ownership home and wish to move to a new one, and people who currently own a home but cannot afford a new home that meets their needs.
There is an income cap for this scheme – whether you’re applying as an individual or a couple, your single or joint income can’t be more than £80,000 a year, or £90,000 in London.
You may need to prove that you can’t afford a property that meets your needs outside of the scheme, and you’ll also need to have good credit and not be in arrears.
After meeting these requirements, you’ll also need to be accepted for a mortgage to cover the share of the property that you’re buying (minus your deposit). We recommend speaking to one of our friendly mortgage advisors as we have over 30 years of experience dealing with shared-ownership homes. We also have access to a wide range of lenders, so we can see what rates are available to you from across the market.
To be eligible for the Shared Ownership Scheme you must:
- be 18 or over
- be purchasing a home in England to live in as your primary residence
- have an income no greater than £80,000 (or £90,000 in London)
- fit into one of the four buyer categories mentioned earlier
- be unable to afford to buy on the open market
- have a deposit of between 5% and 10% of the share you’re buying
- pass the lender’s affordability and credit checks to secure a repayment mortgage for the share you’re buying
What Are the Benefits and Drawbacks of the Shared Ownership Scheme?
Benefits of the Shared Ownership Scheme
- It gives buyers who can’t afford to buy a home that meets their needs the chance to purchase a share of the home instead and work towards owning the remaining share over time.
Drawbacks of the Shared Ownership Scheme
- Mortgages for shared ownership homes can have relatively high interest rates as lenders may see you as a higher risk.
- All properties with this scheme are leasehold, and you may have to pay property service charges.
- With mortgage repayments, rental payments, and potential property service charges to cover, the monthly costs of a shared ownership home can add up.
- If property values increase, you’ll only benefit from the portion that you own, not the portion that you rent.
Is the Shared Ownership Scheme Right For Me?
If you wish to buy a home but can’t afford one that meets your needs, the Shared Ownership Scheme could help you get moving. Using this scheme, you may be able to purchase a share of your home and then gradually buy the remaining share over time until you fully own your home. Purchasing a larger share of your home upfront or as soon as possible may help to reduce the overall cost of this scheme and put you in a better financial position.
How Do I Apply for the Shared Ownership Scheme?
If you feel the Shared Ownership Scheme is right for you, your first step is to find properties in your area that are part of the scheme, which you can do at Gov.uk. Once you’ve found an organisation that sells shared ownership homes in your area, you’ll need to contact the provider and go through an eligibility and affordability check. If you qualify, the provider will then inform you of available homes for sale in your area.
You’ll also need to secure a mortgage to purchase the share of the property you’ll own. Not all lenders offer mortgages for this scheme, but there are plenty of options out there. It’s important to find a deal that’s right for you and one you’re likely to be accepted for to protect your credit score. Our friendly advisors are experienced with shared ownership and we understand the criteria of each lender. We’re also not affiliated with any particular lender, so we’re able to see what rates are available to you from across the market. Once you’re happy, we can apply for your mortgage on your behalf and chase all parties to ensure a smooth journey. We can also arrange a Mortgage in Principle so you can start putting strong offers down whilst your main application is being processed. Book a free chat with an advisor here to see how much you can borrow and at what rates.
What Other Help to Buy Schemes Should I Consider?
There are other schemes available to help you get on the property ladder or purchase a new home that suits your needs. We’ll briefly look at these below, but please click the links to see the full guides for each one.
95% Mortgage Guarantee Scheme
This scheme allows mortgage lenders to offer 95% LTV mortgages so you can purchase a home with only a 5% to 9% deposit. The property must cost no more than £600,000 and it cannot be a new build. To learn more about this scheme, please read our guide, ‘95% Mortgage Guarantee Scheme Explained’.
Deposit Unlock Scheme
This scheme is similar to the 95% Mortgage Guarantee Scheme in that it offers 95% LTV mortgages so you can purchase a home with only a 5% to 9% deposit. The main difference is that it is only for new build properties. To learn more about this scheme, please read our guide, ‘Deposit Unlock Scheme Explained’.
The Bottom Line
The Shared Ownership Scheme provides the opportunity to partly own and partly rent a property, and then work towards full ownership over time. It is available to First Time Buyers, previous homeowners, current shared ownership homeowners, and people want to move but can’t afford a property that meets their needs. You’ll need to secure a mortgage for the share you own, and you’ll need at least a 5% to 10% deposit for this share. To see if you are eligible for a mortgage using this scheme and to find out what rates are available to you, please book a chat with one of our friendly advisors. We’ll only recommend for mortgages you’re likely to be accepted for to protect your credit score.
At Michael Usher Mortgage Services, we’ve been helping our local community for over 30 years! We’re not affiliated with any particular lender, so we can access a comprehensive range of mortgages from across the market to find a deal that suits your needs. We’ll guide you through the process and liaise with your lender, estate agent and solicitor to ensure your application goes as smoothly as possible, and we can also help to protect your mortgage with our FREE Insurance Service.
Talk to one of our friendly mortgage advisors for free to get going quickly. Our head office is on Frimley High Street, but we can also help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
Talk to a mortgage advisor for FREE
Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will depend on your circumstances but will be agreed with you before proceeding.
