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What is a shared ownership mortgage?
A quick summary
Shared ownership is where you own a percentage of a property, and a landlord owns the rest.
This is normally a housing association, local authority or private provider. They then rent their share of the property to you at a reduced rate.
Learn how a shared ownership mortgage works and things you need to consider before getting one.
How do shared ownership mortgages work?
You take out a mortgage on part of the property value. You'll then pay rent on the part owned by the housing association, local authority or private provider.
When you buy a home under a shared ownership arrangement, you’ll enter into an agreement with the landlord and the mortgage lender. It’s important that you fully understand the agreement and know what restrictions or conditions there are.
These could include:
- the cost of future rent and maintenance payments
- what you can do or can’t do to the property
- what happens if you can't keep up with either your mortgage or rent payments.
Pros and cons of shared ownership
Shared ownership schemes can help people who may otherwise be unable to buy a home. For example, people on a low income.
Pros
- They allow buyers to get on the property ladder with a smaller mortgage.
- Can offer more long-term stability than some rental agreements. You can stay in the property for as long as the lease agreement states.
- You may be able to buy more shares over time and work towards owning 100% of the property. This is called ‘staircasing’.
Cons
- You are still a tenant. You’ll have to pay rent on a portion of the property. And you can be evicted if you fail to make your rental payments.
- Stamp duty. You may have to pay stamp duty as you may not qualify for the first-time buyer exemption.
- Service charge. You may have to pay a service charge to cover the maintenance of communal parts of the building.
Find out more about shared ownership on the government website.
Things to remember with shared ownership
- While shared ownership is common, not every lender will offer a shared ownership mortgage.
- You might have to pay ground rent and service charges.
- Shared ownership properties are mostly available as leasehold purchases. Find out more on our leasehold vs freehold page.
- There may be limits on the type of home improvements you can make.
- You may be restricted from renting out the property.
Let’s look at the details
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You can’t usually rent out a shared ownership property. There are some rare exceptions to this, but it’s best to speak with your landlord if you have any questions.
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You may be able to paint, decorate and refurbish your home, but any larger home improvements will need to be approved by your landlord.
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The cost of owning a shared ownership property will depend on lots of factors, including:
- the value of your property
- the size and value of your share
- your mortgage payments
- monthly rental payments
- the cost of service charges and ground rent.
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Over time, you may be able to do what’s called ‘staircasing’. This is where you buy more shares in your property and could eventually own the whole property. Usually depending on the lease agreement with your landlord.
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Yes. Each time you buy a share of the property, you must pay stamp duty. This can be paid as a one-off lump sum based on the total market value of the property, or in stages. Find out more about Stamp Duty Land Tax (SDLT) on the Government website.
If you decide to make a one-off payment upfront, you won’t pay any more on the property even if you ‘staircase’. If you pay in stages, you’ll pay what’s due on the first sale amount, then nothing more until you own more than 80% of the property.
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Lloyds supports a range of government-sponsored affordable housing initiatives including Right to Buy, Shared Ownership and the Help to Buy: equity loan. So, if you’re a first-time buyer, there could be a scheme that’s right for you.
If you are not a first-time buyer, a 95% mortgage means that you could borrow up to 95% of the value of your home, meaning you only need 5% for a deposit. The government offers this under their Mortgage Guarantee Scheme. But interest rates tend to be higher on 95% mortgages, as there can be a bigger risk as you are borrowing more of the property’s value.
A joint mortgage enables you to buy a property with other people – even if you’re a first-time buyer. Most joint mortgages are shared between two people, but some lenders will allow up to four people to buy together.
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Joint mortgages
Sharing a mortgage with another person can sometimes make it easier to get a larger mortgage.
