What is a Shared Ownership Mortgage? Cost, Pros & Cons Explained
As property prices continue to outpace average wages, buying a home on the open market remains incredibly difficult for many first-time buyers. Shared Ownership schemes offer an alternative route onto the property ladder, allowing you to buy a share of a property while renting the remainder.
If a traditional mortgage feels out of reach, here is how Shared Ownership works and whether it is a viable option for your budget.
The Basics of Shared Ownership
Shared Ownership schemes are typically backed by housing associations. Instead of purchasing 100% of the property, you buy a stake—usually between 10% and 75%—using a combination of a deposit and a mortgage. You then pay a subsidized rent to the housing association on the percentage of the property they still own.
Because you are only buying a portion of the home, the required deposit is significantly smaller. For example, if a property is valued at £200,000 and you buy a 25% share (£50,000), a 5% deposit would only require £2,500 upfront.
What are the Core Monthly Costs?
When you enter a Shared Ownership agreement, your monthly outgoings will consist of three separate pillars:
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Mortgage Repayments:
Paid monthly to your lender on the share you own. -
Subsidized Rent:
Paid to the housing association on the share they own. -
Service Charges:
Because almost all Shared Ownership properties are leasehold, you will pay a monthly service charge for building maintenance and ground rent.
What is Staircasing?
Over time, as your financial situation improves, you can choose to buy more shares in your home. This process is known as staircasing.
The cost of buying additional shares depends on the market value of the property at the time you choose to staircase, not the price you originally bought it for. If property prices in your area rise, buying a further 10% share will cost more than it did initially. Conversely, if property values fall, the shares become cheaper.
If you are considering this path, it is vital to balance your rental costs against your potential mortgage costs. You can use our simple mortgage calculator to estimate what your new monthly mortgage payment would look like if you converted more of your rented share into an owned mortgage share.