All About Shared Ownership Mortgages

28 Jun 2009 Tell a Friend

Shared ownership mortgages were introduced in the early 1980s, and were originally designed to help low-income first-time buyers onto the property ladder when they didn't have a large enough deposit to buy a property with a standard mortgage.  As the property prices rose in comparison to the average wage however, these mortgage products became an increasingly popular way for new home buyers to afford a place of their own.  According to recent figures published by the Council of Mortgage Lenders, there are currently 111,000 shared ownership properties in the UK, making this the largest form of low cost home ownership after the Right to Buy scheme.

Shared ownership mortgages are often referred to as 'part buy, part rent' schemes, and they are run by housing associations, co-operatives and other public organisations. The way they work is that you would buy a percentage of the property, typically 25 or 50 percent of the total, and you would rent the remainder from the housing association, paying a monthly rent amount as you would if you were a tenant.  If you plan to take out this type of home mortgage loan, you would first need to have the property valued to determine the amount you would need to buy, and the interest you would be charged.

The idea of a shared ownership mortgage is that you would eventually be able to buy the property outright, once you were financially secure enough.  You can buy shares in the property to this effect throughout the scheme, and this is known as 'staircasing'.  Even when you do not own the property in full, you would still have all the usual rights of an owner-occupier.  Until you have bought the full allowance of shares, your status is that of a leaseholder with a 99 year lease on the property, although this period may vary from one housing association to another. 

There are a number of variations on the shared ownership mortgage theme.  Shared ownership home mortgage loans for the elderly will often come with the caveat that the maximum share of the property that can be bought is 75 per cent, and for this type of scheme the participant must be over 55 years of age.  Usually though, a shared ownership home loan should enable you to eventually become a full homeowner.  Over the recession, property developers have found that demand for new build properties has fallen, because people are not able to afford standard mortgages.  Therefore, there is currently an upsurge in number and variety of shared ownership mortgages available, as property companies are offering shared ownership options to potential new buyers as a way of encouraging first-time buyers back onto the property ladder.