What is a shared ownership mortgage?
A shared ownership mortgage lets you buy a share of a home, usually between 10% and 75%, and pay rent on the rest. It’s designed to help people who cannot afford to buy a home outright, whether that’s due to affordability challenges or deposit size. You only need a mortgage for the share you’re buying, which means a smaller loan and a smaller deposit.
Shared ownership is a government-backed scheme in England. It’s run through housing associations. The scheme can be a useful stepping stone onto the property ladder, but it’s not the right choice for everyone. This guide explains how it works, what to watch out for, and how to apply.
How do shared ownership mortgages work?
When you buy through shared ownership, you purchase a share of the property from a housing association. You take out a mortgage to fund your share, and you pay rent on the remaining share to the housing association.
Over time, you can buy more shares in the property. This is called staircasing. If you staircase up to 100%, you own the home outright and no longer pay rent. Some properties allow full staircasing, others don’t, so check the terms before you buy.
Here’s a simple example of how the costs break down:
| Example | Figure |
|---|---|
| Full property value | £250,000 |
| Your share (40%) | £100,000 |
| Deposit (10% of your share) | £10,000 |
| Mortgage needed | £90,000 |
| Monthly rent on remaining 60% | Paid to housing association |
This is an illustrative example only. Actual figures will vary.
Understanding equity mortgages and shared equity
How is an equity mortgage different to shared ownership?
Shared ownership and shared equity are two different things, and it’s easy to confuse them.
| Shared ownership | Shared equity | |
|---|---|---|
| What you own | A share of the property | The whole property |
| Do you pay rent? | Yes, on the share you do not own | No |
| Who holds the equity loan? | Housing association | Government or lender |
| Can you staircase? | Yes | No (you repay the loan) |
With a shared equity scheme, such as those previously offered under Help to Buy, you own the whole property from day one. A government or lender loan covers part of the purchase price. You repay that loan when you sell or remortgage. You don’t pay rent on any part of the property.
Can you buy to let with shared ownership?
In almost all cases, no. Shared ownership properties must be your main home. Subletting the whole property is not allowed under the standard terms of a shared ownership lease. However, there are some limited cases where you may be able to rent out a room, but this requires permission from your housing association.
If you want to find out more about the rules around renting out with a shared ownership mortgage, read our separate guide.
How to get a shared ownership mortgage
Checking your eligibility for the scheme
To apply for shared ownership, you must meet certain conditions set by the government scheme. The main ones are:
- Your household income must be £80,000 a year or less (or £90,000 or less in London).
- You must be a first-time buyer, or you must no longer own a home.
- You must not be able to afford to buy a suitable home on the open market.
- The property must be your main and only home.
Military personnel are given priority for the scheme. Some housing associations also have local connection requirements, which means you may need to live or work in a certain area to qualify.
You can read more about acceptance for shared ownership in our dedicated guide.
Shared ownership for those with bad credit
Having a poor credit history can make it harder to get a shared ownership mortgage, but it doesn’t make it impossible. The housing association will carry out its own checks, and most lenders will also run a credit assessment.
Specialist lenders look at your full financial picture rather than just your credit score. If you have had missed payments, defaults, or other credit issues in the past, it may still be possible to get a mortgage, depending on how long ago the issues occurred and how things have improved since.
Working out the costs of your new home
Shared ownership can make buying more affordable, but the total monthly cost is often higher than people expect. You need to factor in both the mortgage payment and the rent on the share you don’t own.
Calculating your monthly payments
Your monthly costs will include:
- Mortgage repayment: Based on the share you own, the interest rate, and the length of the mortgage.
- Rent: Paid to the housing association on the share you don’t own. This is usually around 3% of the unsold share per year.
- Service charge: A monthly charge covering maintenance of communal areas, especially in flats.
- Buildings insurance: Usually arranged by the housing association and included in the service charge.
It’s worth using a shared ownership mortgage calculator to get an idea of what your monthly payments might look like before you apply.
Is shared ownership a good idea?
This is one of the most common questions people have. The honest answer is it depends on your situation. Here are the main things to weigh up.
| Potential advantages | Potential drawbacks |
|---|---|
| Smaller deposit needed | You pay both a mortgage and rent |
| Lower mortgage than buying outright | Service charges can be higher |
| You can staircase to full ownership | Staircasing can be expensive and slow |
| You benefit from property price growth on your share | Selling can be more complex than a standard sale |
| A route onto the property ladder for those priced out | You can’t sublet the whole property |
Shared ownership tends to work best for people who are priced out of buying outright in their area and who plan to stay in the property for a number of years. If you’re likely to need to move soon, or if the combined mortgage and rent costs are similar to buying outright, it may be worth exploring other options first.
Moving forward with your application
If shared ownership sounds like the right route for you, the first step is to find a property through a housing association or the government’s Share to Buy website. Once you have found a property, you will need to apply through the housing association and then find a mortgage lender.
Not all lenders offer shared ownership mortgages, so it’s important to work with a broker who knows this market. Pepper Money works with a network of specialist brokers who can help you find the right deal, even if your situation is not straightforward.
To find out more, explore shared ownership mortgages from Pepper Money, or find a broker who can talk you through your options today.
Shared ownership frequently asked questions
Is it difficult to get a mortgage with shared ownership?
It can be. Fewer lenders offer shared ownership mortgages than standard ones. However, specialist lenders are often more flexible. Working with a broker who has experience in this area will improve your chances of finding the right deal.
What is the new law for shared ownership?
Since April 2021, new shared ownership homes in England have come with updated terms. The minimum initial share dropped from 25% to 10%. Repairs and maintenance in the first ten years are now the landlord’s responsibility. And you can now staircase in smaller steps of 1% at a time. These changes don’t automatically apply to older shared ownership properties.
Is shared ownership a good idea?
It can be a good route onto the property ladder if you can’t afford to buy outright in your area. But it’s not right for everyone. The combined cost of mortgage and rent can be high, and selling a shared ownership property is more complex than a standard sale. It’s worth taking advice before you commit.