Shared Ownership vs a Mortgage

on 28 March 2023

Are you considering getting a shared ownership home but not quite sure why it’s different to a traditional mortgage or if it’s actually worth it? This guide will go through everything you need to know and weigh the differences between shared ownership vs the traditional mortgage. 

How does a Shared Ownership mortgage differ from a traditional mortgage?

A Shared Ownership mortgage differs from a traditional mortgage in that you are purchasing a share as opposed to the entire property. You would pay a mortgage on your portion and rent on the remainder.

As you will own a share of the property, the Loan to Value (the ratio of what you borrow as a mortgage against how much you pay as a deposit) works differently in that this is determined on the portion of the property that you are purchasing, not the entire value of the property.

For example: If you were buying a 50% share on a home worth £300,000 you would need to sum up £150,000 from a combination of mortgage and deposit. So, if you have a deposit of £7,500 then you’ll need a mortgage for £142,500– making the loan to value 95%

You’ll need a minimum 5% deposit of your share of the property to get a Shared Ownership mortgage. 

Can I afford a Shared Ownership mortgage?

When you apply, our Independent Financial Advisor (IFA) will evaluate your affordability, from there you can choose your own lender who will carry out their own affordability check to determine if you have enough money coming in each month to meet the mortgage payments. This affordability check considers all outgoings to determine whether you can afford a mortgage payment on top of that. The lender will also take into account the rent you will be paying on the remaining share of your home.

How do I qualify for a Shared Ownership mortgage?

You can buy a home through Shared Ownership if you meet the following requirements:

  • You must be at least 18 years old.
  • Outside of London your annual household income must be less than £80,000.
  • In London, your annual household income must be less than £90,000.
  • You cannot own another home. Shared Ownership purchasers are often first time buyers but if you do already own another property (either in the UK or abroad), you must be in the process of selling it.
  • You should not be able to afford to buy a home suitable for your housing needs on the open market.
  • You must show you are not in mortgage or rent arrears.
  • You must be able to demonstrate that you have a good credit history (no bad debts or County Court Judgements) and can afford the regular payments and costs involved in buying a home.

Although not all lenders offer Shared Ownership mortgages, they are now more popular with high street lenders including, Barclays, Halifax, Nationwide and more. Note that each lender will have their own eligibility criteria. 

How do I find the best Shared Ownership mortgage?

Using a broker will help you find the best mortgage products on the market; they know the market well and will be able to tell you which lenders will suit your requirements.  As with any investments, we recommend researching and fully understanding the pros and cons of a shared ownership scheme.

Can I buy the rest of the property?

You can increase your owned share of the property up to 100 per cent in a process called ‘staircasing’. This may become possible for you if your circumstances improve – e.g. you are earning more and can afford a bigger mortgage, or have saved or otherwise acquired a lump sum to enable you to buy more equity. You can usually do this at any time during your tenancy.

Have any questions about shared ownership homes or the process? Message us on Instagram @wearestarthur and we’ll be happy to assist in answering your queries. Or you can find out more about the benefits of shared ownership and see if it’s the right choice for you.