5% deposit shared ownership mortgages: what you need to know.

The shared ownership sector has gained some real traction recently, with more and more lenders offering raised LTV criteria on newly built homes. Several big-name lenders now offer 95% LTV shared ownership mortgages on new builds as the market continues to make homes as accessible as possible to prospective first-time buyers.

With industry giants Halifax recently following suit in the shared ownership space – we explore what you need to know when it comes to getting a shared ownership mortgage.

What is shared ownership?

Shared ownership is a scheme utilised if you can’t afford all of a deposit and monthly mortgage payments for a home that meets your needs. It involves you buying a share of a property while paying rent to a landlord for the remaining share. If you can purchase a share between 25% and 75% of a home’s full market value, you could be a prime candidate for such a mortgage. You would pay proportionate amounts of rent and mortgage repayments relating to the split of the ownership. You can then purchase more of the home in the future (known as staircasing) which would see your rent decrease as the landlord owns less of the overall property.

Who buys shared ownership homes?

Shared ownership is classed as affordable housing and so it comes as no surprise that around 80% of shared ownership properties were bought as first homes in both 2020 and 2021. Over half (52%) of shared ownership homes were purchased by households consisting of one adult, as the scheme is one of the few affordable methods for buying a first home on a single income. 29% of homes were bought by households of two adults and 13% by households with children.

 Crunching the numbers

 Recent data from the department of levelling up shows that the average price of a shared ownership home was £275,100 in 2021, with an initial equity stake of £109,800 (41%) and an average deposit of £17,700. In terms of rising prices, the average for shared ownership homes have risen by 67% over the last 12 years – at a similar rate as the wider market.

 The shared ownership space continues to grow in popularity, with the likes of Leeds Building Society and Halifax offering 95% LTV mortgages as more and more buyers look to affordable housing. As house prices remain high and the cost-of-living crisis continues to tighten the purse strings for millions of households up and down the country, it may be worth considering how shared ownership could benefit you or your loved ones.

If you would like to discuss shared ownership mortgages or mortgages in general, please get in contact with Bill Somers Mortgage Services today.

Shared Ownership: what do you need to know?

There are many government schemes designed to make buying a home more accessible for people who would otherwise struggle to generate a deposit.

There are plenty of options to suit your individual situation. Shared Ownership is another one of these schemes which has grown in popularity in recent years, but what do you need to know before making a decision?

The Shared Ownership scheme is an alternative route onto the property ladder by giving borrowers an opportunity to purchase a share in either a new build or a resale home. Otherwise referred to as part buy/part rent, this scheme involves the borrower securing a mortgage for part of a house and renting the remainder. This means that both the deposit and the monthly mortgage payments are considerably lower and allows first-time buyers to make their first steps towards owning a home. Once the initial deposit is paid, the borrower becomes an owneroccupier, meaning they have the long-term stability of owning a home at a more affordable price. Since 2016, the number of completions for shared ownerships has increased by over 416% – but why is this scheme showing such a rapid rise is popularity?

Eligibility

Naturally, there are a few criteria to be met before an application for a shared ownership can be accepted. Firstly, you must be at least 18 years old (as with all mortgages) with a maximum household income of £80,000 per annum – or £90,000 for those living in London. The scheme is also exclusive to those who are unable to purchase a suitable home on the open market, meaning it is only available to those who need to use such a scheme. The scheme only applies to borrowers who do not own a home at the time of application and don’t have any mortgage or rent arrears. Usual expectations must also be met such as the ability to display a good credit score as well as being able to pay a suitable deposit for the share of the home being purchased. The Shared Ownership Scheme also prioritises accepting members of the military.

How does it work?

On the face of it, the idea of paying rent and a mortgage simultaneously sounds astronomically expensive – but fear not. Both amounts are based on proportion. This means that the monthly payments for a shared ownership can be the same as an average mortgage. Rent on a shared ownership is typically set at approximately 3% of the unsold equity per year. Once a deposit (usually 5% - 10%) is paid, the monthly mortgage payments will be calculated, and the combined payments would usually equate to a manageable amount.

Crunching the numbers

The vast majority of shared ownership purchasers are between the ages of 20 and 40, with the most common age being people in their late 20’s. This shows that it’s common for first-time buyers to take advantage of this scheme due to its accessibility. As well as this, half of all shared ownerships are taken out by single adults, likely due to the fact that it’s one of the easiest ways to obtain a mortgage on a single annual income. The average value of shared ownership properties based on the most recent data from 2019 was £265,000 as the scheme is most commonly used on lower value properties by first-time buyers or buyers on a strict budget. Another interesting statistic surrounding shared ownership is that 94% of people who utilise the scheme are in employment. It has become increasingly difficult for younger people to save for a full deposit in recent years, so the shared ownership scheme helps employed younger people to secure a mortgage without having to secure the funds for a full deposit. If you are looking for a cheaper or more manageable alternative to a traditional mortgage, the Shared Ownership Scheme is certainly one to consider.

To discuss the options available to you contact one of our advisers today