How does mortgage affordability work for a shared ownership property?

Full answer

Shared ownership mortgage affordability works differently from a standard residential mortgage, because you are only borrowing against part of the property's value, while also paying ongoing rent on the remainder. **How the shared ownership structure works** Under shared ownership, you buy an initial share of a property -- commonly between 10% and 75% of its value, depending on the specific scheme and your circumstances -- taking out a mortgage on that share, while paying rent (usually below market rate) to a housing association on the remaining share that you do not yet own. **What the mortgage covers** Because the mortgage is only for your share of the property, not the full value, the loan amount (and therefore the deposit typically required, often as low as 5% or 10% of your share's value) is significantly smaller than buying the same property outright -- this is one of the main reasons shared ownership can make homeownership accessible to buyers who could not afford a full mortgage on the property. **How lenders assess total affordability** Lenders assess your ability to afford not just the mortgage payment on your share, but also the ongoing rent payable on the unowned share and any service charge -- since all three combined represent your true monthly housing cost, lenders will typically want to see that your income comfortably covers the full combined amount, not just the mortgage payment in isolation. **Staircasing and future mortgage increases** Many shared ownership buyers plan to "staircase" -- buying additional shares of the property over time, up to and sometimes including full ownership -- each staircasing purchase typically requires increasing your mortgage (or making an additional payment), so it is worth considering your likely future affordability for staircasing, not just your affordability at the initial purchase. **Comparing total cost with buying outright** Because shared ownership combines a mortgage payment with ongoing rent and service charge, the combined monthly cost should be compared carefully against what a full mortgage on the same property (or a smaller, fully-owned property) would cost -- shared ownership is not always cheaper overall than other routes into homeownership, even though the initial deposit requirement is typically lower. **Worked example** Someone buys a 40% share of a £250,000 property (£100,000), taking out a mortgage for most of that share after a modest deposit, and pays subsidised rent on the remaining 60% (£150,000) to the housing association, plus a service charge -- their lender assesses affordability against the combined total of mortgage, rent, and service charge. **Practical tip** Use the Mortgage Affordability calculator to check your borrowing capacity for the share you plan to buy, then add the ongoing rent and service charge separately to get a true picture of your total monthly housing cost before committing to a shared ownership purchase.

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• How does staircasing work with a Shared Ownership property?